October 17, 2008

Nouriel Roubini on what's happened, and what's to come

Sometimes, even when you know what's going to happen, it still kinda sucks. Ignorance can in some ways be bliss.

But I think in the end I'd rather know.

Side note - how much longer until Roubini testifies in front of our corrupted Congress and shames them, Bush, the SEC and the Fed for the whole world to see?



Anonymous said...

Peggy Noonan, Too Good,

George Bush, every so often, darts out like the bird in a cuckoo clock to tell us we're in a crisis.

Anonymous said...

Roubini will never be permitted to testify before congress. I predict that once Obama 'the savior' gets selected, that we're in for a commie change and the new 'liberal' elites will be hiding their associations to the blatant fraud and scams.

We're screwed.

Anonymous said...



Lady Di said...

Roubini has been remarkable in his ability to call this meltdown. However, he is a Keynesian, and therefore when things go bad, his solution is to socialize the losses. Screw that.

When Roubini talks about the trillions of printed dollars he wants to throw down a rathole to solve this crisis, I find myself wondering whether I have enough gold to survive this crisis.

Anonymous said...

Will Redemption, Redemption, and more Redemption come next.


Thousands of hedge funds are expected to go bust in the next few months, amid fears that the secretive sector of the financial industry will be the next to buckle under the pressure of global market turmoil.

Two major funds in the US revealed today they were under pressure. It is estimated that 20-50% of the 10,000 hedge funds worldwide are vulnerable to a squeeze on their funds.

The collapse of Lehman Brothers has also hit hedge funds, many of which relied on the investment bank as a counter-party in complex trades with clients.

Several funds are believed to be in financial trouble after being told they must wait to access funds locked up in the US bank.

Anonymous said...

It’s time to question the Goldman ties at the Treasury

Let’s be optimistic, or just flat out pretend, that Treasury Secretary Henry Paulson did not pick Neel Kashkari to run the bailout program just because he worked at Goldman Sachs Group Inc.

We’ll likely be exploring this in an investigative story in HousingWire Magazine, but we’ve been gathering all sorts of evidence that at least should lead any rational financial and mortgage market participant to question Treasury secretary Henry Paulson’s motives.

Let’s hope that the 35-year-old whiz kid was chosen interim assistant secretary for financial stability on Oct. 6 because he is the Rain Man of asset valuation who may or may not be able to tie his shoes but can estimate within a nickel the losses on Alt-A mortgage-backed securities held to maturity.

Which is an eloquent way of saying that there is no way Kashkari should have gotten this job. No way, no how. Not when Bloomberg himself made an offer, and Bill Gross offered to do the job for free. Worse yet, as Weidner notes, all of that “flexibility” Kashkari touted when he took the job is now likely gone, after $250 billion of the funds under the program have already been earmarked.

Is it any wonder there are rumors that both GSEs have been directed to purchase up MBS? $700 billion isn’t nearly enough to help, but it is enough to put the U.S. economy at risk of devaluing the dollar or our nation’s debt rating — take your pick.

Kashkari has yet to be confirmed by the Senate, as Weidner notes:

Our Treasury Secretary also seems to believe that in order to fix this mess, you have to have had a hand in creating it …

The asset-purchase part of the program is voluntary for participants. If someone other than Kashkari gets the job, they will be left with only the thankless task of digging through the garbage and trying to put a value on it …

If Kashkari is on the job, does anyone think Treasury will be driving a hard bargain with Goldman on its mortgage assets? And while we’re on the subject of Goldman, under what criteria did Goldman (and Morgan Stanley) qualify as two of the nation’s nine strongest financial institutions? Just wondering.

Wiedner’s musings aren’t exactly his alone, as I’ve heard directly from more than a few Street participants in recent weeks who are as convinced as ever that somewhere deep in the bowels of the Treasury is a red phone that runs straight into Goldman’s board room. Who knows how many discussions that red phone has seen in recent weeks.


Anonymous said...

Is it all about Redemption, Redemption, and more Redemption


Nervous investors fled hedge funds as the market meltdown got underway, setting records for investor redemptions and asset declines in the third quarter, according to a report from an industry research firm issued Friday.

Total capital in the entire industry shrunk to $1.72 trillion at the end of the third quarter, down from $1.93 trillion at the end of the second quarter.

An index developed by Hedge Fund Research indicates that this year could result in the first annual hedge fund performance decline since 2002.

"With losses continuing through October, it appears that 2008 will be the worst year on record for both hedge fund performance and industry asset flows," said Kenneth Heinz, Hedge Fund Research's president, in a statement.

Anonymous said...

Is the future quarter going to be about redemption.


Morgan CEO: A Third of Hedge Funds May Fail

According to Bloomberg, Highland Capital Management LP plans to close its flagship Highland Crusader Fund and the Highland Credit Strategies Fund after losses on high-yield, high-risk loans, and other types of debt.

"Friends in that community say that by year-end, you'll see the number of firms in the hedge-fund area shrink, I've heard as large as 30 percent," John Mack, Morgan Stanley's chief executive, told CNBC.

Anonymous said...

What will happen to those year end bonus.


Hedge fund pain will only worsen

The golden era of hedge funds is fading fast

Bloomberg reports that the hedge fund industry may slash up to 10,000 jobs soon, on top of the 3,000 to 5,000 jobs that have already been cut. This was hardly expected.

Anonymous said...

Is the root of all evil the Hedge Funds and the Speculators or is it the access to Excess Global Liquidity cause by Yen Carry Trade.

What is the real story here.


What’s Really Wrong With the Price of Oil

George Soros and Michael Masters, a hedge-fund operator, the only thing wrong with the oil market is the market itself.

Speculators, they say, drove the price away from its “fundamental” value; worse, a new breed of institutional investor has been buying oil futures, hoarding the supply.

Masters compares these investors to the Hunt brothers, the Texas billionaires who cornered the silver market in the late ’70s — until silver crashed and the Hunts landed in bankruptcy.

Essentially, he says, the oil price is, or was, seriously “wrong” — a distortion caused by traders that has little to do with the amount of oil being produced and consumed.

According to this view, oil traders are the culprits, as are the futures market and the Commodity Futures Trading Commission, the federal agency that regulates it. (The agency has also begun its own probe of the oil market.)

Masters is not a disinterested party; his hedge fund has bet heavily on companies, like Delta Airlines, that have been punished by soaring oil prices. But his argument struck a populist chord. “Speculators are driving up the price of food and energy for everyone else,” he told me.

Anonymous said...

Is it time to watch the Hedge Funds


Jim Cramer points out that manager Steve Cohen is out of the market and that everyday investors should take notice.

Anonymous said...

If developed countries follow the direction of Germany at the turn of the 19th century and go into Hyper-Inflation then will developing countries follow the direction of America at the turn of the 19th century and go into a Great Depression.

Who is most likely to under produce and who is most likely to over produce.


Beijing's property boom turns to dust as global slowdown hits China
Beijing's new class of home-owners have been gripped by a sudden slump in property prices in China.

One of the Beijing's best-known estate agents, I Love My Home, is predicting that overall house sales in the city will fall by a third this year.

Denis Ma, the head of research at the international firm, Jones Lang LaSalle, said this was now affecting luxury housing too.

Big developers like Sino-Ocean, an offshoot of an industrial conglomerate, have been forced to advertise "special offers", reducing prices by a third during the recent October holiday week.

In the past, developers would hold on to properties rather than drop prices, confident that easy loans would tide them over.

Some of the effects of China's government-directed credit crunch are nationwide. In one city, Hangzhou, residents who had already bought flats at the full rate attacked the company office when it began offering discounts to new buyers.

Anonymous said...

Is the bailout plan well funded.


Paulson 'on road to kill all banks'

Treasury Secretary Henry Paulson's plan to inject capital into U.S. banks won't provide them with the liquidity they need and most will fail, said Kenichi Ohmae, president of Business Breakthrough Inc.

"Paulson is on the road to kill all these banks." said Ohmae, nicknamed "Mr. Strategy" during his 23 years as a McKinsey & Co. partner. "They're talking about a $25 billion injection in each of the top banks. That won't do the liquidity magic."

Banks need 10 to 20 times of their equity to operate, making the injections "peanuts" compared with the potential bad debts, Ohmae said.

Ohmae called for a $5 trillion "international facility" to be made available to financial institutions. The U.S. should call on overseas governments and their trillions in dollar reserves to help finance this, Ohmae said.

Anonymous said...

Since late 2006 293 major U.S. lending operations have "imploded"


Anonymous said...

What impact will this have on treasury.


Bill Gross's Pimco Total Return Fund, the world's largest bond fund, fell 1.4 percent yesterday, the biggest one-day decline in more than three years, according to data compiled by Bloomberg.

The loss, which compared with the 0.38 percent drop by the benchmark Lehman Brothers Aggregate Bond Index, came as the U.S. government moved to seize American International Group Inc., the largest U.S. insurer.

The fund guaranteed $760 million of AIG debt as of June 30, part of a larger bet by Gross that some beaten-down corporate bonds will recover because they are too important for the government to let fail.

Yesterday's decline was the most since Pimco Total Return's net asset value dropped by 3 percent on Dec. 13, 2004, when investors received short- and long-term capital gains dividends of about 33 cents a share.

Mark Porterfield, a Pimco spokesman, wasn't immediately available for comment.

Anonymous said...

Looks like the Japanese carry-trade poster now has a hard-on for Hedge Finds.

More copy & paste posts please!

Anonymous said...

Why does rich want the poor come in when the rich is trying to out.

If enough of the poor come in will those income gained from the poor offset the income lost of the rich

Can the equity market be at net zero from this effect.


Billionaire investor Warren Buffett wants his fellow Americans to buy stocks, but the Greenwich, Conn., set couldn't take his advice if they wanted to. As investors scream for their money back, hedge fund managers are as paralyzed as the rest of Wall Street.

The carnage is the worst in the industry's history, surpassing the jolts in 1998, 2002 and 2005, according to Chicago's Hedge Fund Research, which has tracked fund assets and performance since 1990. Funds are scrambling to meet the withdrawal requests, helping to push the major stock averages down in the last few days, and many won't be able to continue in business.

So far this year, 350 funds have closed shop, but that doesn't count the third quarter, when most of the bloodletting has taken place. Ken Heinz, the president of Hedge Fund Research, says he wouldn't be surprised to see 1100 funds liquidate this year.

That would be three times greater than in 1998, when $4 billion Long-Term Capital Management had to be rescued. "We've never seen it happen in this magnitude," Heinz said.

Anonymous said...

TED SPREAD went down the same time Japanese overnight call loan rate went down.

Why the co-relationship if this Credit Crisis has nothing to do with YEN CARRY TRADE.

TED SPREAD is currently at 3.63 basis points.


Japan's overnight call loan rate traded at 0.46 percent, from 0.53 percent before the cash injection, according to brokerage Tokyo Tanshi Co.

The BOJ operations are ``necessary but not sufficient,'' said Guthrie Williamson, portfolio manager in Sydney at Principal Global Investors, which manages $244.9 billion in assets globally. ``It helps to keep the day-to-day money markets moving, but it doesn't change the fundamentals of slowing economic growth and balance sheet de-leveraging.''


BOJ to Hold Unscheduled Meeting Today on Money Market

The bank said yesterday it's considering offering an unlimited amount of dollars to financial institutions, following a move by European counterparts to provide lenders with as much of the currency as they want to reduce short-term borrowing costs.

The board is unlikely to cut its key overnight lending rate from 0.5 percent, already the lowest among major economies.

Anonymous said...

Lahde Quits Hedge Funds, Thanks `Idiots' for Success


Andrew Lahde, the hedge-fund manager who quit after posting an 870 percent gain last year, said farewell to clients in a letter that thanks stupid traders for making him rich and ends with a plea to legalize marijuana.

Lahde, head of Santa Monica, California-based Lahde Capital Management LLC, told investors last month he was returning their cash because the risk of using credit derivatives -- his means of betting on the falling value of bonds and loans, including subprime mortgages -- was too risky given the weakness of the banks he was trading with.

``I was in this game for money,'' Lahde, 37, wrote in a two-page letter today in which he said he had come to hate the hedge-fund business. ``The low-hanging fruit, i.e. idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.

``All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other sides of my trades. God Bless America.''

Anonymous said...

What options will BOJ have once it is no longer able to drain money market funds to get the overnight call loan rate down.

Will the TED SPREAD go back up once HEDGE FUNDS and SPECULATORS suck up BOJ money market funds, and realize that the BOJ will not lower rate.

Will Uncle Benny do something stupid and lower rate again on Oct 28 to counter act everything that BOJ has done so far.

Remember this CREDIT CRISIS was caused by Excess Global Liquidity from YEN CARRY TRADE; therefore, it will take the right type of liquidity to fix it.


Bank of Japan drains funds from money market

The Bank of Japan even drained excess funds of 2.8 trillion yen (27.6 billion dollars) in three stages.

Anonymous said...

The communist state has begun and Obama/Pelosi aren't even at the helm yet:

Peer-to-peer lenders frozen by the SEC

Prosper is in a state of loan lockdown as the Securities and Exchange Commission scrutinizes the site to determine if it is illegally selling unregistered securities.

Regular listeners of the show will know that Prosper is one of a dozen or so "peer-to-peer" lenders. P2P lenders allow people to leverage the power of the Internet to make loans and borrow money from each other directly without the interference of banks.

Clark finds it unbelievable that federal regulators found time in their busy schedules -- in the midst of everything going on in our country right now -- to monitor Prosper. After all, the site isn't doing anything differently this year than it has been in the past.

So for the moment, Prosper is forbidden from making any new loans. If you have an existing loan administered by them, you still must repay on it. Incidentally, The New York Times reports Prosper's rate of default is around 30%, according to one lender cited by the paper.

Clark believes the P2P lending business model can't be crushed by some corrupt regulators. He vows to follow this story because he thinks it's just atrocious. Maybe Clark's paranoid, but this development seems way too weird with everything else going on in our economy right now.

Next to get screwed, talk show hosts.

Anonymous said...

Yes, the FED has takeover the role of buying commercial paper and that is fine for the large firms, but what about the million of small firms.

Comes October 28, when it come time for small firms to fund their bank account to pay their employees payroll and their suppliers - will the small firms be able to borrow the money they need.

Many business people have been taught the ideal that it is best to use other people money, so many small firms borrow short term money in advance while they try to collect money from their customers.

In other words rob Peter to pay Paul.

But small firms not like large firms will need to have collateral to get their short temp loans, and what happens in a CREDIT CRISIS when the TED SPREAD is still high and these small firms collateral were marginal to begin with.


Credit markets still on life support

Central bank expected to unveil new measures to spur lending as small firms fret over cash flow


Fed to begin buying commercial paper Oct. 27

The U.S. Federal Reserve said on Tuesday its facility to buy commercial paper would start Oct. 27 and pledged continued actions as necessary to stabilize financial markets and ensure smooth market functioning in the future.

'Our strategy will continue to evolve and be refined as we adapt to new developments and the inevitable shocks,' Federal Reserve Chairman Ben Bernanke said in a statement.


Commercial Paper is a money-market security issued (sold) by large banks and corporations to get money to meet short term debt obligations (for example, payroll), and is only backed by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note.

Since it is not backed by collateral, only firms with excellent credit ratings from a recognized rating agency will be able to sell their commercial paper at a reasonable price.

Commercial paper is usually sold at a discount from face value, and carries shorter repayment dates than bonds. The longer the maturity on a note, the higher the interest rate the issuing institution must pay. Interest rates fluctuate with market conditions, but are typically lower than banks' rates.

Glenna said...

I am so sick of hearing that Bernanke and others closer to the government didn't see this economic disaster coming. They did see it coming but they chose to err on the side of the Bush administration and his Wall Street buddies and try to cover it up which allowed it to become worse than it had to. So why are we letting them play dumb when they were complicit in letting this getting as bad as it is. Bernanke will go down as an enabler of this catastrophe, not what he wanted I am sure. Too bad for the as# h*l#.

Anonymous said...

Infrastructure investments to stimulate the economy. Sounds great.

What about New York (and I'm sure many other localities) with the mafia having undue contracts and influence with top public officials???

Will this crisis be enough for our representatives to get medieval on their asses?

Peter T said...

It's good that some of the "bubbleheads" are given a voice to testify. It's like with administration and its opposition - the current administration is worn out, and the opposition gets a chance to supply fresh people and fresh ideas. Similarly, may economists like Bernanke didn't see the size of the coming crisis. Roubini, on the other hand, has predicted many of today's events, so his analysis is more credible and congress can DO something that is not grounded in the ideology of yesterday.

Anonymous said...

A short history of modern finance
Link by link

The crash has been blamed on cheap money, Asian savings and greedy bankers.

For many people, deregulation is the prime suspect


Anonymous said...

OK...I posted the comment at October 17, 2008 5:54 PM stating that he would never testify.

I stand corrected. Good deal.

OK...so, what will Schumer and his cronies do? What are they trying to accomplish? We have Barney Frank and Thomas Dodd to pin the blame on (in part)...will they receive any serious punishment from the House Ethics Committee...? I doubt it.

No matter what Roubini says, the dems are prepping the show to cast all the blame on the republicans. They are rolling out the red carpet (no pun intended...) for 'our savior' Obama.

We are going to be slammed by socialism and I still cannot believe that you support Obama, Keith. Just baffling.

Worse times ahead. And remember, the monkeys in congress don't care what YOU or I think. They will do what the hell they please and once they have the 'super majority' as some news rags are claiming, Obama will be all powerful. And remember...he will also have all those nice little 'executive powers and privileges' that Bush and his cronies worked so hard for during these past 8 years...

And if you criticize Obama...you are a RACIST!

Careful what you wish for...