“This Is Going to Be Worse Than Anybody Thinks”
January 21st, 2008I guess that analyst hasn’t been reading Cryptogon.
Via: The Street:
Recession is no longer the taboo word on Wall Street. It’s being tossed around like confetti.
The new phrase that can’t be uttered is “systemic risk,” and with bond insurer Ambac losing its triple-A credit rating from Fitch Ratings on Friday, the real risk of a financial disaster will be widely whispered into the next week amid the possibility of more downgrades for the industry.
T.J. Marta, fixed income strategist with RBC Capital Markets, estimates that roughly $2.5 trillion in outstanding debt is backed by bond insurers like Ambac and MBIA (MBI – Cramer’s Take – Stockpickr – Rating), and credit downgrades are a mortal threat to their business models.
If the bond insurers fail, that raises the specter of a massive wave of wealth destruction in a global financial system that is flooded with illiquid and opaque derivative securities of which there is little understanding, except that their value is connected to credit ratings on structured finance securities.
“This is going to be worse than anybody thinks,” says Marta. “What I heard from Ambac [on Friday] is that they’re throwing back the lifeline and saying, ‘We’re not going to make it.’ On a fixed income trading floor, that means the world truly is upside down.”
On Friday, Ambac said it was abandoning its plans to raise $1 billion, a day after Moody’s Investor’s Service threatened a credit downgrade. Fitch responded by cutting the premium triple-A rating to double-A for Ambac Assurance Corp., Ambac Assurance UK Ltd. and Connie Lee Insurance Co. and slashing holding company Ambac Financial Group from double-A to single-A. Fitch also warned that more downgrades could be in store.
UK: Panic Selling Shuts £2 Billion Real Estate Fund
January 20th, 2008Via: Guardian:
One of Britain’s biggest property funds was forced to shut its doors to withdrawals yesterday after the slump in commercial prices triggered panic selling by small investors.
The move prompted fears of a Northern Rock-style run on billions of pounds invested in once high-flying funds which many savers have seen as a safe haven for their pensions.
Scottish Equitable said yesterday that 129,000 small investors in its £2bn property fund will not be able to access their money for up to a year, although payments relating to regular income already being paid, retirements and death claims will not be affected.
It said the fund, invested in London office blocks and shopping centres across Britain, no longer had sufficient cash reserves to meet demands from investors wanting to withdraw their money. Its “buffer fund” was down to 1% of its total assets, instead of the usual 10-15%.
Commercial property values, especially in the City of London office market, have dived amid fears of a recession brought on by the global credit crunch.
In late December another insurer, Friends Provident, halted access to its £1.2bn property fund and last night speculation was growing that Scottish Widows may be on the verge of restricting customer withdrawals on some of its funds. The insurer said last night: “We are looking at all the options, but no decisions have been taken.”
Scottish Equitable’s parent group, Aegon UK, is due to announce the closure of its fund today. It said last night: “Aegon UK has decided to take this step to protect investors following a significant level of customer withdrawals from the UK property fund market.” It blamed “worldwide phenomena relating to concerns over the US sub-prime mortgage market fallout, rising interest rates and talk of recession”.
The Financial Services Authority said it was closely monitoring the situation and had been informed by Aegon of the decision to halt withdrawals.
The crisis in Britain’s commercial property market is now worse than at any time since the early 1990s, when Olympia & York, the company that began the Canary Wharf office development in London, went into administration.
CIA Drug Planes Tip of the Iceberg
January 20th, 2008Via: Mad Cow Productions:
Two American-registered drug planes busted in Mexico carrying four and 5.5 tons of cocaine are just the “tip of the iceberg” in a blockbuster aviation deal which sold 50 American-registered aircraft to the Sinaloa Cartel, the MadCowMorningNews has learned.
According to an indictment released over the holidays by Mexico’s Atty. General, Pedro Alfonso Alatorre, already indicted as the cartel’s chief financier, purchased the DC9 (N900SA) airliner, the Gulfstream II business jet (N987SA), and 48 other planes not yet identified for Mexico’s Sinaloa Cartel with laundered drug money, using a company he controls which owns currency exchanges at major airports in Mexico.
Now we know who bought the airplanes. The trickier question is: who sold them? The answer, normally, would be, “Their local counterparts in international organized crime.”
But these aren’t normal circumstances. Why? Because the U.S. doesn’t even have any Drug Lords. Ask anybody at the DEA. Apparently, we don’t even bother to field a team.
Hackers Cut Cities’ Power
January 19th, 2008The spook’s moving lips tell us nothing we don’t already know, so… What is the spook really trying to tell us?
Via: Forbes:
Cyber-security experts have long warned of the vulnerability of critical infrastructure like power, transportation and water systems to malicious hackers. Friday, those warnings quietly became a reality: Tom Donahue, a CIA official, revealed at the SANS security trade conference in New Orleans that hackers have penetrated power systems in several regions outside the U.S., and “in at least one case, caused a power outage affecting multiple cities.”
“We do not know who executed these attacks or why, but all involved intrusions through the Internet,” Donahue said in a statement. “We suspect, but cannot confirm, that some of these attackers had the benefit of inside knowledge.”
Other details were murky: Donahue didn’t say when or where the cyber attacks had occurred, or how many people had been affected. He also glossed over what element of the systems had been exploited.
Homeland Security’s National Applications Office (NAO)
January 19th, 2008Via: Global Research:
The Department of Homeland Security (DHS) established a new domestic spying operation in 2007 called the National Applications Office (NOA) and described it as “the executive agent to facilitate the use of intelligence community technological assets for civil, homeland security and law enforcement purposes within the United States.” The office was to begin operating last fall to “build on the long-standing work of the Civil Applications Committee (CAC), which was created in 1974 to facilitate the use of the capabilities of the intelligence community for civil, non-defense uses in the United States.”
With or without congressional authorization or oversight, the executive branch is in charge and will let NAO use state-of-the-art technology, including military satellite imagery, to spy on Americans without their knowledge.
And Now: The AAA Rated Bonds
January 19th, 2008Via: Bloomberg:
Ambac Financial Group Inc. scrapped a plan to raise equity capital after the bond insurer’s shares plunged 70 percent in the past two days, putting its AAA credit rating in jeopardy.
Without new money, New York-based Ambac risks losing the top ranking it depends on to sell bond insurance. Ambac, the second- largest financial guarantor, may have to stop writing insurance or sell itself, said Robert Haines, an analyst at CreditSights Inc., a bond research firm in New York.
“This is a stunning development,” Haines said. Ambac will probably be downgraded by Moody’s Investors Service and Fitch Ratings, Haines said.
Ambac blamed “market conditions” and scrutiny by ratings companies for its decision. The company said two days ago it would sell $1 billion of shares or convertible notes, a plan that provoked a boardroom dispute and led to the departure of Chief Executive Officer Robert Genader. A downgrade of Ambac would throw doubt on the ratings of $556 billion in municipal and structured finance debt guaranteed by the company.
The seven AAA rated bond insurers place their stamp on $2.4 trillion of debt. Losing those rankings may cost borrowers and investors as much as $200 billion, according to data compiled by Bloomberg.
Cryptogon Readers Sign Up for Hosting with BlueHost
January 19th, 2008Thanks to owners of e3clo.net and orgoniseafrica.de for signing up for webhosting with BlueHost. Cryptogon received $130.
Opium Fields Spread Across Iraq
January 18th, 2008Do you get it yet?
Via: Independent:
The cultivation of opium poppies whose product is turned into heroin is spreading rapidly across Iraq as farmers find they can no longer make a living through growing traditional crops.
Afghan with experience in planting poppies have been helping farmers switch to producing opium in fertile parts of Diyala province, once famous for its oranges and pomegranates, north- east of Baghdad.
At a heavily guarded farm near the town of Buhriz, south of the provincial capital Baquba, poppies are grown between the orange trees in order to hide them, according to a local source.
Forget Helicopter Ben: Bush and Congress Set to Drop Thermonuclear Confetti Bombs
January 18th, 2008Let me get this straight: My wife and I are going to owe no federal income tax and the maniac state is going to give us $1,600!?
I don’t remember smoking crack this morning, but that’s what the Bloomberg piece tells us! Wow, now I know what it’s like to be an evil U.S. corporation! Owe no income taxes AND get a hand out!
Man, you have got to love the “unseen hand” of the state in collapse. The free market. Democracy…
Who is going to pay for all of this?
The Chinese?
The Japanese?
The Saudis?
The Kuwaitis?
If this was any other country, I would have prefaced this post with the “EMERGENCY” label and then suggested that readers immediately eliminate exposure to U.S. Dollar denominated assets.
But the U.S. is like a weird and frightening carnival ride. You know the ones I mean. You notice the rust and loose cotter pins first. “Are we going to get off this thing alive?” might be a common thought as people strap themselves in with frayed safety belts. As the cart takes off, maybe you catch a glimpse of the skulls tattooed on the bearded freak carnie who’s at the controls. You tell yourself that you didn’t see a swastika on his neck…
And away you go! Wee!
That’s the U.S. financial system! That’s the financial system to which the rest of the world is joined at the hip.
Is the cart going to go off the rails this time? Or will this dose of government cheese be enough to help the zombies limp through another Presidential (s)Election, or longer?
Via: Bloomberg:
The Bush administration is close to completing an economic-stimulus proposal that will include $800 rebates for individuals and $1,600 for households as well as tax breaks for businesses, people familiar with the plan said.
…
The plan the administration is close to proposing includes a temporary elimination of the bottom tax rate, which is now 10 percent, and a consequent lump-sum rebate to all taxpayers, according to the people.
Businesses would get a tax break under the plan that would allow them to deduct 50 percent of the price of new equipment they purchase this year. Small businesses would be able to deduct as much as $200,000 in new equipment purchases, up from the current $112,000 limit.
Greenspan Joins Hedge Fund that Made Billions Shorting Subprime Derivitives
January 18th, 2008Imagine my shock at the coincidence!
Via: Telegraph:
Alan Greenspan, the 81 year-old former chairman of the Federal Reserve, is set to join the US hedge fund Paulson & C. as an adviser.
Dr Greenspan will advise Paulson on the global financial markets, and under the terms of the agreement he will not advise any other hedge fund while he is working for Paulson.
Paulson manages $28bn of assets and last year earned billions of dollars when it called correctly the collapse in the sub-prime mortgage market, a collapse which was caused by Dr Greenspan who kept interest rates too low for long, according to some economic commentators.
John Paulson, president of the hedge fund, said: “Few people, if any, in the world have the breadth of experience with, and depth of understanding of, global financial markets as Dr. Greenspan.
