patrick.net

Government doesn’t always have to suck, we just *make* it suck.

I do see your point but I fear it's not really the generic 'sheeple' at fault here as much as it is a kind of perversion in our culture (hopefully transitory). It shouldn't take citizens voting a certain way for the chairman of the Fed to NOT get up in 2004 and say: ARMs are great, you should all have some. There is an ideology behind the kind of thinking which led him to that statement that no amount of voting can fix.

In any case, politicians are pretty clueless about these things. They are therefore compelled to make policy decisions on the advice of "impartial third parties". To the extent these types even exist, they all seem (but no more?) to believe in the same sort of myths/ideology as Greenspan. If that ideology doesn't die an ugly death, I don't see anyone's vote having any influence (look at our options for November!)
.

Government doesn’t always have to suck, we just *make* it suck.

Humans suck.

EBGuy,

actually now I am feeling a lot better about the brains up there controlling the Fed, crooks but not idiots. I just hope that we do still hold the largest gold reserve among all the CBs and it is not lost through leasing or funny accounting. Maybe I am not dreaming that after all the dust settles, USD (well, not in the form as it is today) may again re-emerge as the world's reserve currency in a gold standard world.

OO said:
the US government holds more gold than the next 9 central banks combined.

Are you sure? I thought all the US gold was now owned by the Federal Reserve as collateral against government debt. So, who really "owns" it?

OO and EBguy

how will a couple of hundred billion $ worth of gold going to be of any significant influence? Or is this some kind of inside joke I'm too dense to get?

>>NVR, wow, those Scandanavians don’t mess around!

EBGuy: and the *reason* they don't mess around is that they have, to a much larger extent than here in the US, a real democracy with multiple parties, proportional representation, real competition among the parties, and real accountability through competitive elections.

This is not to say these countries are perfect, but the system of government is considerably less corrupt than around here. They have their problems, but generally it is much more manageable than here.

For example, Terra ASA, the Norwegian company that sold several rural municipalities worthless chunks of securitized subprime mortgages, is now bankrupt, and they authorities are going after the crooks. No bailout.

Peter P,

As usual you dismiss off-hand the call for a better framework for human activity by saying things along the lines that "humans suck", meaning that regulation and framework does not matter.

However, you still espouse that the so-called "free market" will solve all these problems.

What you do not understand is that for a market to be truly free, the framework around it must be very heavily regulated. Enough for now.

HARM,

I think there is even a certain set of true-conservative republicans that completely confuse regulation and handouts.

They think by de-regulation they will get rid of the corporate handouts, and do not realize that instead there will be more socio-capitalism, corporate welfare, handouts and bailouts.

NVR and DennisN,

Maybe Philly is not impairing the Obligation of Contract, but rather impairing the Enforcement of Contract. That may be a fine distinction, but could be significant.

Analogy: Safe-haven and sanctuary laws where local police is instructed not to attempt to enforce federal immigration laws, certain narcotics laws, etc.

BAI,

debt obligations are just a number (people only honor debt obligation when the financial system is still functioning), particularly since they are denominated in USD, in times of crisis, it is JUST a number and no more than that. If you believe that we are heading into a depression, these numbers don't matter. What will matter include:
1) our control of supply of energy resources in the world
2) our control of food supply
3) our control of hard asset such as gold

Everything else is just fluff. At that time nobody cares how much is on whose balance sheet, the key is how much resources are in whose control and if that claim holder has enough military resources to defend them.

So if we get into a situation that Fed has exhausted all its non-gold Treasury reserve and the US financial system is still at the verge of a collapse, then the gold on its account will be worth much much more than $200B at that point.

@SP,

what I care about is, if US gold reserve is still sitting tight in the domestic mints. If so, then it doesn't really matter who "owns" it, the government will find ways to own it anyway just like the FDR era.

OO

thanks for the explanation. I get it if you're referring to a 'doomsday' scenario.

Although, in that case, I trust the US military more than the Fed!

You still need to pay the US military.

Haha...yes of course I want them paid! Yellow gold, black gold whatever, but defintely I want them paid.

Yellow gold, black gold whatever, but defintely I want them paid.

Blue gold too.

What you do not understand is that for a market to be truly free, the framework around it must be very heavily regulated.

Yeah, the bigger the government, the freer the people. Right.

If you believe that we are heading into a depression, these numbers don’t matter. What will matter include:
1) our control of supply of energy resources in the world
2) our control of food supply
3) our control of hard asset such as gold

1) US military is already in Iraq
2) No problem
3) Fort Knox

We will be fine. :)

Blue gold too.

you mean water peter?

Yes.

And here I was about to post on the IRS issue when I ran into this sidetrack. Funny, almost. I could write all night about constitutional law, financial stability, self-sustainability, ad infinitum, ad nauseum.

Think I'll stick to the topic (sorry, yawn).

Let's see if I get this.
1) Bernanke floods the country with dollars trying to avoid a financial collapse.
2) Paulson says: Yo, dude, when Ben is done, I'll figure out something.
3) Bush says "We'll get through this. Let's just not be radical."
4) Pelosi runs around the Capitol screaming. Reid follows here, but is not sure why.
5) And the IRS says:
"Gimme my Money. Ah wants my money. Ah wants it now.

Can't wait for those Philly subprimes owners "saved" just to get their IRS bill.

What a plan for financial rescue. Moe, Larry and Curly couldn't have done it better.

I love government. As long as they're governing somewhere else.

Bless us all,
Jack

Merrill Lynch valuing auction rate securities at par, account holders stuck with illiquid positions in any event.

CNN

Merrill Lynch & Co., taking a different tack from UBS AG, told its brokers Monday afternoon that most clients’ holdings of auction-rate securities will not be priced at a discount in their March statements.

In a conference call with Merrill brokers, a Merrill official said the firm would continue to use third-party pricing services to value auction-rate securities and that most of the securities will be priced at par.

# DennisN Says:
Since when is going INTO being a Realtor (R) a reasonable career choice?

Low barrier to entry, any jackaxe can become a realtor. And most do.

How about that Lehman Brothers (LEH) $4B convertible *preferred* stock offering with a conversion price equivalent to $49.87/share?

You know what I think? I think the the *common* stock holders will not be happy when all is said and done.

Wait, I get it. This is the same deal as when BofA bought $4B of preferred stock in CFC, with a conversion price of $18. What is CFC worth on the open market today? That's right: $6.

By applying some some sophisticated math (the details are left as an exercise for the reader), I conclude that LEH will be worth $16-17 sometime in the next few months.

NOT INVESTMENT ADVICE.

NVR,

Merrill's decision to doctor client account statements reflecting "par value" will definitely be the last straw for a number of their best clients. They're basically using the brokers as a buffer between them (and some very angry institutions)

Here's the problem for Merrill: What broker will give a rip about a non-compete agreement or temporary restraining orders when the "investments" are illiquid ANYWAY! "Great, whatever. We'll set up an RIA firm, take the portion of the account that IS liquid and leave YOU to hold and explain "par value" securities!"

Hey guys, don't sweat it. Didn't you check the Patrick front page today? Everything is coming up roses from now on.

DennisN,

Uh, yeah, but today it is a bit hard to figure out which news is April Fools and which is real :-).

DinOr and NVR

I don't understand this Merrill thingy. If they can choose to show values higher than their competitors, why doesn't everybody do it? Why does UBS show declining value according to the article? Does it not put UBS at a competitive disadvantage?

DinOR are you serious that brokers can choose to remove themselves from the equation?

looks like we are going to be done with 2nd quarter rally in one day.

BAI,

Good questions, when Merrill chose this path it certainly makes it more difficult for other firms to come clean about the situation. This also shows an erosion in Merrill's leadership position.

Brokers can and will remove themselves from the equation by simply leaving the firm, starting their own taking the better clients with them and leave their old firm holding the bag. In the industry this is called "dead money". Since it's equally useless to all parties involved. From a compliance standpoint the "defectors" would just as soon see it left behind.

Given today's pathetic volume and up so much on absolutely no news on mostly financials, it is quite obvious this is a coordinated effort.

Expect Wall Street to fight back hard. This is a crisis of confidence, and they will do anything to restore confidence. But whether they will defy the law of physics or not (in the short term), it will be you and I paying for it.

What does technical analysis say about rallies on low volume ?

Gold went sky diving right after I went to bed. It is useless to have 24/5 access to the market when the actions happen while I sleep. :(

OO, do you think it is time to accumulate gold again?

My hedging is failing because I am too afraid to execute trades. Pathetic me. :(

But whether they will defy the law of physics or not (in the short term), it will be you and I paying for it.

How can we profit from it?

Technical analysis doesn't apply to this type of situation.

There is a global confidence crisis brewing, which may cause HUGE capital flight out of the US, and out of the banking system. With all the big names like UBS, LEH, MER, C etc on the verge of collapse and numerous writedowns, the Wall Street need to uphold investor confidence in whichever way they can.

If there is no capital, if you and I pull our money from stock market, from mutual funds or from bonds (because of scandals like ARS) and stick all of them into Treasury and PM, that will threaten the very raison d'etre for Wall Street.

So there will continue to be some completely mindless and comical rallies on very thin volume staged by the major IBs. This is not just for trading profit, this is fighting for survival.

Dinor

Thanks for some interesting insight into Merrill situation, any idea just how much of this stuff they pawned off on suckers and what percentage of their client base are bagholders?

I see the market continuing to deteriorate forward for these AR securities as there is nothing to bring liquidity back into that market. No realistic scenario to unstick the thing short of government intervention on the buy side. Ugly situation.

There are probably lots of folks that don't understand they no longer have access to this short term "cash". I know I would not be real happy if I were one of them.

I get concerned that it seems the general operating assumption of the powers that be and industry players is that these markets...as well as the credit markets as a whole....will magically resolve themselves and become liquid again. Nobody really wants to talk the actual conditions that might bring liquidity back. Everyone is simply so content to live in this utter fantasy. It's rather shocking.

Nothing happening here folks, nothing to see, everybody move along.

Can't you write some simple macro to set off an alarm when certain financial events happen?

:confused:

How does one do the "confused smiley" on this board?

Peter P

You cannot profit from these staged rallies, because
1) this is against fundamentals
2) you don't know when these comical moments will happen or if they can hold till market closes.

I am putting in order for physical gold tonight and I am interested to see if the order will go through or I will be stuck without a confirmation like last time.

Do you still remember that 3 months ago, Treasury "lowered" the limit of savings bonds from $30K a year per person to $5K? Why?

The reason is, they don't want a bank run. They want you to either put the money in the bank, or buy Treasury (hopefully long-term) so that while you are stashing your money away, you are also bringing down the mortgage rate for the FBs.

What the powers are doing right now, from a big picture point of view, is to limit the attractiveness of other avenues for your money, and convince you to stay within the casino (US stock market) that it controls.

Confidence is very very important for US to soften the impact of the upcoming deep recession/depression. The major Chinese trading companies have started to refuse USD as the trading currency. The made-in-China goods that are currently marked down by retailers (and hence serve as evidence of deflation by Mish) are leftovers inventory from the last batch order. Many Chinese factories simply shuts down without fulfilling its order if the contract requires them to ship a certain volume for the next few months, because they will be operating at a loss.

When the next batch of orders from China come over, expect at least 20% jump in price.

Do you still remember that 3 months ago, Treasury “lowered” the limit of savings bonds from $30K a year per person to $5K? Why?

The reason is, they don’t want a bank run. They want you to either put the money in the bank, or buy Treasury (hopefully long-term) so that while you are stashing your money away, you are also bringing down the mortgage rate for the FBs.

What the powers are doing right now, from a big picture point of view, is to limit the attractiveness of other avenues for your money, and convince you to stay within the casino (US stock market) that it controls.