Things to remember when drawing up the indictments.

Excerpt from;

http://www.businessspectator.com.au/bs.nsf/Article/A-tsunami-of-hope-or-terror-LHRJP

………About a decade later, a team working within JP Morgan Chase invented credit default swaps, which are contractual bets between two parties about whether a third party will default on its debt. In 2000 these were made legal, and at the same time were prevented from being regulated, by the Commodity Futures Modernization Act, which specifies that products offered by banking institutions could not be regulated as futures contracts.

This bill, by the way, was 11,000 pages long, was never debated by Congress and was signed into law by President Clinton a week after it was passed. It lies at the root of America’s failure to regulate the debt derivatives that are now threatening the global economy.

Anyway, moving right along – some time after that an unknown bright spark within one of the investment banks came up with the idea of putting CDOs and CDSs together to create the synthetic CDO.

Here’s how it works: a bank will set up a shelf company in Cayman Islands or somewhere with $2 of capital and shareholders other than the bank itself. They are usually charities that could use a little cash, and when some nice banker in a suit shows up and offers them money to sign some documents, they do.

That allows the so-called special purpose vehicle (SPV) to have “deniability”, as in “it’s nothing to do with us” – an idea the banks would have picked up from the Godfather movies.

The bank then creates a CDS between itself and the SPV. Usually credit default swaps reference a single third party, but for the purpose of the synthetic CDOs, they reference at least 100 companies.

The CDS contracts between the SPV can be $US500 million to $US1 billion, or sometimes more. They have a variety of twists and turns, but it usually goes something like this: if seven of the 100 reference entities default, the SPV has to pay the bank a third of the money; if eight default, it’s two-thirds; and if nine default, the whole amount is repayable.

For this, the bank agrees to pay the SPV 1 or 2 per cent per annum of the contracted sum.

Finally the SPV is taken along to Moody’s, Standard and Poor’s and Fitch’s and the ratings agencies sprinkle AAA magic dust upon it, and transform it from a pumpkin into a splendid coach.

The bank’s sales people then hit the road to sell this SPV to investors. It’s presented as the bank’s product, and the sales staff pretend that the bank is fully behind it, but of course it’s actually a $2 Cayman Islands company with one or two unknowing charities as shareholders.

It offers a highly-rated, investment-grade, fixed-interest product paying a 1 or 2 per cent premium. Those investors who bother to read the fine print will see that they will lose some or all of their money if seven, eight or nine of a long list of apparently strong global corporations go broke. In 2004-2006 it seemed money for jam. The companies listed would never go broke – it was unthinkable.

Here are some of the companies that are on all of the synthetic CDO reference lists: the three Icelandic banks, Lehman Brothers, Bear Stearns, Freddie Mac, Fannie Mae, American Insurance Group, Ambac, MBIA, Countrywide Financial, Countrywide Home Loans, PMI, General Motors, Ford and a pretty full retinue of US home builders.

In other words, the bankers who created the synthetic CDOs knew exactly what they were doing. These were not simply investment products created out of thin air and designed to give their sales people something from which to earn fees – although they were that too.

They were specifically designed to protect the banks against default by the most leveraged companies in the world. And of course the banks knew better than anyone else who they were.


As one part of the bank was furiously selling loans to these companies, another part was furiously selling insurance contracts against them defaulting, to unsuspecting investors who were actually a bit like “Lloyds Names” – the 1500 or so individuals who back the London reinsurance giant. !!!!!!!!!!

Except in this case very few of the “names” knew what they were buying. And nobody has any idea how many were sold, or with what total face value.

It is known that some $2 billion was sold to charities and municipal councils in Australia, but that is just the tip of the iceberg in this country. And Australia, of course, is the tiniest tip of the global iceberg of synthetic CDOs. The total undoubtedly runs into trillions of dollars.

All the banks did it, not just Lehman Brothers which had the largest market share, and many of them seem to have invested in the things as well (a bit like a dog eating its own vomit).

It is now getting very interesting. The three Icelandic banks have defaulted, as has Countrywide, Lehman and Bear Stearns. AIG has been taken over by the US Government, which is counted as a part-default, and Freddie Mac and Fannie Mae are in “conservatorship”, which is also a part default – a 'part default' does not count as a 'full default' in calculating the nine that would trigger the CDS liabilities.

Ambac, MBIA, PMI, General Motors, Ford and a lot of US home builders are teetering.

If the list of defaults – full and partial – gets to nine, then a mass transfer of money will take place from unsuspecting investors around the world into the banking system. How much? Nobody knows, but it’s many trillions.

It will be the most colossal rights issue in the history of the world, all at once and non-renounceable. Actually, make that mandatory.

The distress among those who lose their money will be immense. It will be a real loss, not a theoretical paper loss. Cash will be transferred from their own bank accounts into the issuing bank, via these Cayman Islands special purpose vehicles.

Leads to this;

From James Turk at; http://www.kitco.com/ind/Turk/turk_dec122008.html

The 3-day backwardation in November indicates that a shortage of LBMA bars seems to be developing. The implication is that the gold cartel is about to lose its grip on the gold market, and can no longer cap the gold price at current levels.

The second possible answer is more ominous. If gold does trade in backwardation against US dollar for a protracted period (again, barring a very short-term and ephemeral event like the first two instances noted above in which a temporary demand for physical gold disrupts normal market activity), it will mean that a collapse of the dollar has begun. Think about it. How could gold go into backwardation for any prolonged period? If it does, it would mean that no one is willing to take the risk of selling their hoard and instead hold US dollars. It would mean that no one is willing to accept the risks that come with holding dollars while waiting until they can be used at a future date to exchange back into gold.

I can think of earthquakes different than the ones pushing rocks that George Ure thinks about.

http://www.kitco.com/ind/schoon/dec082008.html

Thanksgiving Cheer From Obama
He's assembled a first-rate economic team
Bits By Karl Rove

“Mr. Obama … picked as Treasury Secretary Tim Geithner…Mr. Geithner has been a key player with Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke in confronting the financial crisis. Every major decision in the rescue effort came only after the three agreed.

The National Economic Council director-designee, Larry Summers, is another solid pick. Mr. Summers has been an advocate for trade liberalization, he was the Clinton administration's negotiator for the financial deregulation known as Gramm-Leach-Bliley”…

Obama appointee Lawrence Summers’ 1999 support of the Gramm-Leach-Bliley bill is indeed noteworthy as Gramm-Leach-Bliley repealed the Glass-Steagall Act, specifically passed in 1933 to prevent another depression.

Clinton’s signing of the Gramm-Leach-Bliley bill in 1999 directly led to the financial deregulation responsible for the decimation of financial markets in 2008. Former Bush advisor Karl Rove is right. Acknowledgment is due both Summers and Clinton for their collective contribution to today’s “free” falling markets.

In 1988, Summers co-authored a paper, Gibson's Paradox and the Gold Standard, wherein he postulated that by fixing the price of gold, interest rates could be stabilized; an assertion as absurd as believing fixing the temperature of thermometers can prevent global warming.


Clever boys
Far too clever
For their own good
And others

Hmmm… What else should we take note of to remember?