patrick.net

I like my Uni (Ventura Uni) in my belly, with babies, the other other white meat.

SP says: Stretch002 Says:
Sounds to me that I need to watch what Japan & China do with their US$ reserves. If they start to sell off I need to buy something quick!

Seriously, are you a realtor?

Damn, missed the early call on that one. Does the writing style sound suspiciously familiar? Well, you folks just have a fabulous day here in the sunny Bay Area. I'm off to play some cards with my pals. Enjoy the beautiful weather!

For any fence-sitters who might be inclined to heed the disingenous argument from Marina Prime, et al. If there is hyperinflation, there will be massive unemployment. And if you lock up all your equity in a house and lose your job, you are effectively hosed and will lose that entire chunk of your net worth.

@OO: Yes, I saw the zero reserve too and momentarily had a little arrythmia - but then realized that it may not be an issue in the immediate future, because the bigger question is: Will the banks lend? And who will they lend to?

Even if the reserve requirement is zero, my guess (or rather, hope?) is banks will be unwilling to finance a loan on a dud asset to a borrower who may never pay it back.

Later on, once confidence is stronger, if the reserve is still zero, I agree with your theory that this is a time-bomb. But who know what the "rules" will be by next weekend?

http://www.thestar.com/business/article/511760

The Canadian banking sector is conspicuously sound, having for the most part resisted the packages of U.S. subprime loans offered to them at the top of the U.S. housing market, and have resulted in more than $40 billion in writeoffs at Swiss banking giant UBS AG alone. Canada has stricter rules on capital ratios that banks must maintain and a higher level of regulatory scrutiny of banking than the United States.

Last year, as a credit crunch first became apparent in the United States, Canadian banking regulators asked two major Canadian banks to shore up their balance sheets, which they did.

DennisN Says:
Bush has already signed the bill in an oval office ceremony. Is anyone here going to vote for him again?

Depends on what the vote is about.

For instance, if it is "pretzel vs. chinese milk product for the Presi-duh-nt's snack", you may be able to get me to vote one way or another.

Even if the reserve requirement is zero, my guess (or rather, hope?) is banks will be unwilling to finance a loan on a dud asset to a borrower who may never pay it back.

So what you are really saying is “can we unring the bell”? I thought the last 16 years of profound (boomer(tm)) growth was founded on just this "economic miracle". Loaning borrowed money to someone who will never pay it back, pocket the fees, slice the shit sandwich into infinitesimally small pieces and bang some ho's in Sardinia with a statue that pee's vodka.

Dennis, isn't this the way you boomers roll?

SP,

the banks may be hesitant to lend to each other, but the major dealer banks are completely crowding out at the Fed's XXXXF window for more money while trying to repair their balance sheet.

Now, if the reserve requirement is suddenly taken away, these "fresh" capital will find a place to go, most likely to another bubble, because speculation in another bubble with all these free money is the best way to "earn back" the loss from other derivatives.

Right now, banks need quick recycle of their money. They are reluctant to hold on to CP or other kind of financial instruments that may require them to hold to maturity. That type is earning is too SLOW for them. They need the quickest turnaround of return on capital, not yet on capital.

That is why the 0 reserve system is scary. It provides the banks with new capital to play with, and we all know these meth addicts are not going to quit it just overnight. The $700B may have a short-term effect to lubricate the market for a short while, and if all banks can suddenly deploy this new found capital that is freed from reserve requirement, we will soon see another round of speculation. And as we all know, these speculation won't go back to the deflating asset, housing, they will look for new venues of profitability.

Another issue is public trust. Now that banks don't need to keep cash reserve, they won't. Let's you go to BOA asking for your deposit, they happen to not have it, but since they are not under FDIC conservatorship, FDIC won't repay you either, what do you do? Fiat is completely built on trust, and if the trust is gone, the fiat value is gone.

Now that banks don’t need to keep cash reserve, they won’t. Let’s you go to BOA asking for your deposit, they happen to not have it, but since they are not under FDIC conservatorship, FDIC won’t repay you either

How much (if any) will the zero reserve apply to Credit Unions? For those who concerned about the banks, and do not want to tranfer your scratch abroad, the CU may be a good option. Besides, you may want to consider two items before exchanging money overseas - many on this blog have made good points predicting GBP-USD parity and Euro-USD parity, and the shear volume of credit/money created by the banks during the runup is now being destroyed faster than it can be replaced by bailouts. Some may be thinking that printing press style hyperinflation is in the cards, but as RandyH has said, no country with a credible military has ever faced hyperinflation.

HeadSet Says:
Some may be thinking that printing press style hyperinflation is in the cards, but as RandyH has said, no country with a credible military has ever faced hyperinflation.

Honestly, I have no idea - since the rules are being made up as we go along, it is impossible to make even a rational (let alone expert) prediction of what will happen. So I am reverting to the tribal instinct that I seem to have inherited from my family - merely trying to preserve as much of my stuff as I can, with whatever limited tools/resources that are available to a 'retail' schmuck like myself.

Today morning I heard the following conversation between an old caucasian lady and indian in my apartment in Cupertino:

The old white lady was telling the indian how she cashed out two years ago and now the price has crashed quite a lot all around silicon valley. Many of her acquintances are either underwater or bankrupt. The indian was repeatedly asking when would be a good time to buy again. The old white lady was pretty noncommital -- said maybe three to four years from now.

This made my day -- I had to come back and write this blog post immediately. Now I am overhearing discussion on housing crash ... thank god for sweet justice.

On my irrigation rounds this morning I saw a large sandwitch sign for an open house with only 4 words displayed:

OPEN
HOUSE
FREE
FOOD

:)

At least the realtors around here are blunt.

Loaning borrowed money to someone who will never pay it back, pocket the fees, slice the shit sandwich into infinitesimally small pieces and bang some ho’s in Sardinia with a statue that pee’s vodka.
Dennis, isn’t this the way you boomers roll?

Actually I sold my place fair and square to someone who never paid it back (it's in foreclosure now) and pocketed the sales price. I'm not really into shit sandwitches and vodka, being more along the BBQ tri tip and red wine kind of guy. Both of the latter can be purchased cheaply if you are willing to look and bargain.

The Original Bankster Says:
SP = MOT?

What is MOT? Motorola? If so, no, I had nothing to do with them.

Ohh...Paul's markets' special this week is USDA choice tri-tip roasts for $3.58 a pound. Also 18 count AA large eggs $1.67. Last month Fred Meyer had all wine 25% off. Is deflation cool or what?

MOT = limey Ministry Of Tranport?

The banks may be hesitant to lend to each other, but the major dealer banks are completely crowding out at the Fed’s XXXXF window for more money while trying to repair their balance sheet.

The Fed has always had the ability (12 USC 461) to set the required reserve threshold (as low as zero). What's new in the bill is, according to Reuters, the ability to pay interest on the reserves (the accelerated timeline that OO talked about):
Tucked into the 451-page bill is a provision that lets the Fed pay interest on the reserves banks are required to hold at the central bank. The Fed is expected to provide details of the facility next week.

That ability could help unstick clogged credit markets, where interbank lending has been practically at a standstill.

This American Life currently running a show on the "credit crisis" (88.5FM noon).

I do not buy the "there is no credit or lending" BS that was used to get the house to vote for it. I propose giving the same power as they gave Paulson to FDIC, and have FDIC use the banks it tookover lend directly. Small businesses can get loan from IndyMac for example. F*k the homebuyers who are underwater. They made a bad bet and lost - its as simple as that. Once the prices are normal (another 30% drop in the bay area), the homes will be bought by people who can really afford them and the greedy f*cks will go back to where they belong.

Hi all!
I propose "The Birk Plan" It is worth the read, though I believe it is an $850 B plan--not $85Billion
Enjoy---

Hi Pals,

I'm against the $85,000,000,000.00 bailout of AIG.

Instead, I'm in favor of giving $85,000,000,000 to America in a We
Deserve It Dividend.

To make the math simple, let's assume there are 200,000,000 bonafide
U.S. Citizens 18+.

Our population is about 301,000,000 +/- counting every man, woman and
child So 200,000,000 might be a fair stab at adults 18 and up..

So divide 200 million adults 18+ into $85 billion that equals $425,000.00.

My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend

Of course, it would NOT be tax free.

So let's assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes.

That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in their pocket.

A husband and wife has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?

Pay off your mortgage - housing crisis solved.

Repay college loans - what a great boost to new grads

Put away money for college - it'll be there

Save in a bank - create money to loan to entrepreneurs.

Buy a new car - create jobs

Invest in the market - capital drives growth

Pay for your parent's medical insurance - health care improves

Enable Deadbeat Dads to come clean - or else

Remember this is for every adult U S Citizen 18+ including the folks
who lost their jobs at Lehman Brothers and every other company that is
cutting back. And of course, for those serving in our Armed Forces.

If we're going to re-distribute wealth let's really do it...instead of
trickling out a puny $1000.00 ( 'vote buy' ) economic incentive that
is being proposed
By one of our candidates for President.

If we're going to do an $85 billion bailout, let's bail out every
adult U S Citizen 18+!

As for AIG - liquidate it.

Sell off its parts.

Let American General go back to being American General.

Sell off the real estate.

Let the private sector bargain hunters cut it up and clean it up.

Here's my rationale. We deserve it and AIG doesn't.

Sure it's a crazy idea that can 'never work.'

But can you imagine the Coast-To-Coast Block Party!

How do you spell Economic Boom?

I trust my fellow adult Americans to know how to use the $85 Billion

We Deserve It Dividend more than I do the geniuses at AIG or in Washington
DC

And remember, The Birk plan only really costs $59.5 Billion because
$25.5 Billion is returned instantly in taxes to Uncle Sam.

Ahhh...I feel so much better getting that off my chest.

Kindest personal regards,

Birk

Sorry to be semi spammish here, but please consider my request for a real shakeup this november:

In between the current fleecing operation and the next one is one important little event: The November Elections. I have already seen a few starter plans out there to rally support for opponents of anyone that voted for this bill. This is a good start. Special attention should be paid to the cowardly vote changers that changed their minds when presented with cash handouts. In the next few days I am sure a solid, well organized plan will take shape and I will be donating money towards this goal. I strongly suggest you do as well.

We must do this, and more. What's more is that a message must be sent here. No more bailouts. No more mismanagement of the economy and national finances. No more giving the voters the middle finger with no accountability. NO MORE.

If you are reading this blog and others like it I feel safe in assuming you have a good head on your shoulders. I will further state that I think most, if not all, are solid citizens just trying to do their best. Whatever your political leanings I would think you have strong principals and you do not like to compromise them. I understand this and I respect that immensely.

I am going to ask you to compromise it nonetheless.

What I want you to do is to identify all incumbents that are on your ballot for November. Then I want you to vote against every single one.(You may elect to keep any official that voted NO to the bailout.)

Now I understand that for many the thought of voting for a republican makes you ill. You may think Roe vs. Wade will be overturned the first morning of the new congress or that we will invade Canada or whatever. Get over it. You can always vote the next time for a democrat. This issue is the most important thing and all that other stuff can wait.

I get it that the thought of voting for a Democrat may make you want to take a shower. You may think the gestapo will be at your door the first morning of the new congress to take your guns and your gold. You might think that we will be forced to marry a gay person even if we are not gay or whatever. Get over it. You can always vote for a republican the next time.

I can guarantee that if a boatload of incumbent get sent down the river, the new congress is going to be especially keen on listening to their voters. Very keen. You may even find that with a new attention to the voices of regular people, the differences between the right and the left for ordinary folks may not be so large.

All is not lost. As a side note, can anybody tell me why the &%$#@! This American Life is one of few outlets that has decent coverage of this crisis?

So it was surprising to learn on Friday that, despite intense opposition from the powerful banking lobby, language authorizing the government to use a stock-injection plan did make it into the final version of the bailout bill. The law does not make a stock-injection plan mandatory, but it does leave it as one option that the Treasury secretary can use when bailing out a distressed bank.

That does make some amount of sense, as this was the type of tool used with AIG. How about organizing to get the stock-injection plan implemented?

@OO

Since HSBC and CIBC have Branch offices in the U.S wouldn't FX be just as capital controlled as with Everbank?

What would you do with $297,500.00 to $595,000.00 in your family?

What would most do? Based on what I've seen, most would use it as a down payment on a $3 million home.

I can guarantee that if a boatload of incumbent get sent down the river, the new congress is going to be especially keen on listening to their voters.

Even better if a few third party candidates win some seats. That would shake up the demo-klepto-publicans.

LILLL Says:
Hi all!
I propose “The Birk Plan” It is worth the read, though I believe it is an $850 B plan

$850 billion / 200 million = 4.25 K per person ( not 425 K).

Basic math is a big problem in this country. No wonder, People never understood what they were getting in to while buying homes 20 times thier annual income.

Now is the time to be doing a victory lap with Headset; we’re going to have some serious deflation for a while.

Thanks EBGuy!

Yes, it does look like the "rules have changed," but more bailouts will be needed to prevent deflation. However, voter action in the Nov elections may make Congress gun shy about any form of bailout. After all, those who changed their minds and voted for the bailout gave two reasons for the change of heart - "the stock market fell," and "loans were harder to get." How will they spin it when the stock market continues to fall and credit is still tight? Some voters will see their 401k fall with stock values. Other voters will be unable to sell the house when loans are still unavailable to buyers without sterling credit history. These voters will start seeing the bailout as a gift to cronies at taxpayer expense.

I never thought that we would be facing the risk of hyperinflation, only based on the assumption that our leaders and government will not reflate at any cost. Nobody from outside of the US force us to hyperinflate.

But, if our leaders' attitude is "get this baby inflated at any cost and I don't care", anything can happen. We may get hyperdeflation, or hyperinflation, god knows. Maybe I should go to church again.

@Danville,

HSBC is a UK bank, CIBC is a Canadian bank. US capital control, if there is one, can only apply to banks operating in the US (branches of foreign bank operation and US-based banks), or (very unlikely) to the foreign branches of US-based banks.

China just committed to buying an incremental $200B of US Treasury as a result of our $700B plan, bringing their total balance of US Treasury to around $700B.

Speaking of prisoner's dilemma. Thanks to China, they are buying us a bit more time now.

China as the biggest USD bagholder in the world, has a total balance of USD assets of over $1.1T. So it makes sense that they will throw as much resources as possible to prevent their $T asset from going poof.

This committed purchase will bring their total USD holding to $1.3T. Good luck. On a separate note, the ex-top-bagholder Japan has been reducing its USD asset to the extent of $100B recently.

Sweet! If they agree to keep bying treasuries we have no worries of hyperinflation. Let's hear from Japan next! Yay!!

Any link for that China story by chance?

**Begins stretching for a happy victory lap**

Not in English yet, only over Chinese media, the English translation probably takes a bit more time.

I don' think China can really keep buying Treasuries infintely.

Now if this news is confirmed on English sources, the motivation of the bailout plan is crystal clear. Our government and the Chinese government are interlocked in a very dangerous game. They will have to pitch in, but they want to see some skin from the Americans before committing their hard-earned USD.

But Chinese' ability to continue pitching in USD is limited. So they are doing what it takes to protect their savings. We can be assured that they can keep doing so as long as they have USD to spare, but the question is, will the American consumers be able to send enough USD that way any more?

Senator wrote me back--form email--all bullshit---

Dear Friend:

Thank you for contacting me regarding the financial rescue legislation (H.R.1424). I appreciate hearing from you on this critical issue.

The fundamentals of our economy have been shaken, and Americans are deeply concerned. When Secretary Paulson and Chairman Bernanke placed an urgent phone call a few weeks ago to Congress to say we needed emergency action to prevent a major financial meltdown, I expected they would come forward with a plan that was targeted and reasonable, with appropriate oversight and taxpayer protections.

Unfortunately, what they brought us was a $700 billion blank check, which they asked us to sign with no questions asked. This plan contained no oversight, no taxpayer equity, and no control over CEO pay. I strongly opposed this proposal - and thanks to your phone calls, e-mails, and letters, Congress stopped it in its tracks.

The Senate made major improvements designed to strengthen our economy and protect our taxpayers. Instead of a blank check, the Senate plan included significant Congressional oversight, equity for taxpayers, curbs on executive compensation, an increase in FDIC insurance protection for bank depositors, middle-class tax relief, and job-creating tax incentives for renewable energy. The bill passed the Senate by an overwhelmingly bipartisan vote of 74-25 and the House by a vote of 263-171.

These were very important changes. But let me be honest: There were still aspects of this package that I didn't like. I preferred the government acquiring more equity instead of toxic assets. I wanted the package to be put forward in smaller installments and to include more checks and balances to make sure it would work.

For me, the deciding factor in my Yes vote was information I received from the State of California. I was told by the Treasurer's office that without access to credit, which is the goal of this legislation, California wouldn't be able to sell voter-approved highway, school, and water bonds that are desperately needed for our economy and the creation of good-paying new jobs. In addition, I was told by the Governor's office, that without action, our state might be forced to withhold funds for law enforcement, schools, and other needed services. This would bring our state to its knees and many middle-class families would be in deep trouble. Small businesses are beginning to tell me they cannot get lines of credit to meet payroll, as well.

Rest assured, I will continue to speak out forcefully about the failures that led us to this place and keep working with my colleagues to strengthen confidence in our markets, protect the American taxpayers, and enact regulatory reform to ensure that we don't end up in this mess again.

Again, thank you for writing to me about this very important matter. Even though you may feel frustrated with the outcome of the legislation that passed, your voice absolutely resulted in the enactment of a better bill. Feel free to contact me again about any issue of importance to you.

Barbara Boxer
United States Senator

Form letter back from Idaho dis-representative. Just like Boxer's, all BS.
I especially liked how he claims he worked to ensure that the taxpayer will be paid back in full.

Ba wa ha ha ha ha ha !!!

The oversight thing was kinda funny as well.

***************************************************

Thank you for contacting me regarding the financial crisis facing our nation. I appreciate hearing from you and having the opportunity to respond.

Like most Idahoans, I was gravely concerned with the proposal put forth by the Department of Treasury in September to address the financial crisis. While I recognize that action needs to be taken to bring our economy back from the brink of disaster, I could not support a proposal that gave the Administration such broad, unprecedented authority and put taxpayers on the line with little hope of recouping any losses.

Because of my concerns and those of my constituents, I worked to ensure that any legislation I voted on included strong oversight, effective protections for taxpayers, and did not reward irresponsible executives at the expense of the taxpayer. You may be interested to know that H.R. 1424, the Emergency Economic Stabilization Act of 2008, included provisions to:

• Ensure that the taxpayer will be paid back in full;
• Include an enormous amount of oversight at four different levels to ensure that taxpayers are being protected at every turn;
• Ensure that irresponsible corporate executives at participating institutions will not be rewarded with golden parachutes or severance pay;
• Cut the upfront cost of the proposal in half and require congressional approval for any additional funding and protect taxpayers against losses;
• Incorporate alternative plans suggested to me by many of the constituents who have called my office, including an insurance guarantee program paid for entirely by participating companies;
• Eliminate payouts to unions, slush funds to political organizations, or giveaways to trial lawyers.

It is clear that our economy faces grave and unprecedented challenges. The threat of complete financial meltdown is very real, and it would have dire consequences on the jobs, savings, pensions, and future opportunities of all Americans. Our financial system—which hinges on the confidence that when you loan money to others, whether to help them grow their business, purchase a home for their family, or invest in their college education, you will get your money back—has been paralyzed as this confidence has rapidly eroded. The blunders of a few have threatened all Americans with economic disaster.

It is a sobering task to weigh the potential cost to taxpayers of addressing this problem with the cost to all Americans, should we face a severe recession or depression because credit dries up completely. In fact, I have already heard from a number of Idaho businesses that are being faced with layoffs or closing their doors because of the credit squeeze. In response to this crisis, my only commitment is to protecting American families. I am always mindful that when we reach into the government coffers, we are really reaching into the pockets of American taxpayers, who earned that money through hard work and sacrifice.

Given the circumstances, voting “yes” on this bill was the only responsible option I had. I share my constituents’ disgust for the excesses of Wall Street, but I will not knowingly vote to inflict on them the kind of harm that would befall Idahoans in a severe recession or depression, just to ensure that Wall Street suffers the consequences of its actions. I did not come to Congress to do the easy thing; I came here to do the right thing, no matter how unpopular it is.

While I sincerely believe this step is necessary to stop the hemorrhaging of our nation’s financial system before it infects the lives of all Americans, it is clear that more work must be done. First, we must reform the way we regulate our financial services industry and bring the bad players to justice to ensure that this situation cannot repeat itself and that taxpayers will never again be asked to foot the bill for the excesses of Wall Street. Second, we must continue working to ensure that those who are struggling to pay their mortgages in full and on time are able to work out these problems through credit counseling and refinancing of loans. Lastly, we must continue to support pro-growth policies, like tax cuts, that will ensure that our economy not only recovers from this crisis but has the tools to grow stronger.

This vote was one of the most difficult that I have cast in my years as a Member of Congress. In determining the best course of action on this matter, it was helpful to me to know your thoughts and concerns about this issue and the impact the proposal would have on you. As we work to strengthen our economy, you can be confident that I will continue to support policies that will put us back on the road to sustainable economic health.

Sincerely,

Mike Simpson
Member of Congress

@OO

Do you think it would make a difference if I purchased foreign currency at a U.S. branch of CIBC or HSBC or flew to Canada and purchased foreign currency outside the U.S. at these banks in terms of getting caught up in capital controls?

I would rather buy foreign currency in the U.S. Branches of these banks due to convenience but I no longer trust our government, so I am looking for the safest way possible to own foreign currency.

Thank you for all your help.

I would not worry about currency confiscation, but I have been preaching the virtues of diversifying overseas since my earliest posts on this blog, something like five years ago. Right now EDD looks really good to me:

http://www.etfconnect.com/select/fundpages/global.asp?MFID=176807

Trading at a 25% discount to value, with an 18% yield and in the sovereign bonds of Brazil, Indonesia, Hungary, Mexico and Turkey, all countries that seem about as credit-worthy as the United States.

As always, don't put all your eggs in one basket, no matter how tempting.

Saturday Night Live just had a skit on "victims of the mortgage crisis". Lets just say, people are catching on....

I would rather buy foreign currency in the U.S. Branches of these banks due to convenience but I no longer trust our government, so I am looking for the safest way possible to own foreign currency.

It does seemed like the safest way is to open an account in person, besides, Vancouver is a mighty fine city.

danville woman Says:
Since HSBC and CIBC have Branch offices in the U.S wouldn’t FX be just as capital controlled as with Everbank?

It all comes down to jurisdiction and treaties.

If you open an account in a US branch, it does not matter which bank it is. Also, as far as I know, they will not hold forex for you in a bank account - it has to be in USD. They will be happy to sell you forex, but you have to take it with you.

If you cross over to Canada and open an account at a branch there, normal Canadian laws apply - however, if you are a US citizen, any banking treaty with the US will be enforced. If the US imposes capital controls, I don't know what impact that will have on foreign accounts held by US nationals, especially in a treaty country. You should talk to a Canadian banker or lawyer specifically.

For Suisse accounts in general - under _current_ treaties - US citizens get a lousy deal. They make you sign an affidavit declaring that you have no IRS liabilities, and have complied with tax laws on foreign accounts, etc. If you lie on this form, it counts as tax-fraud - which pierces the normal Suisse secrecy laws. In addition, US citizens also are subject to some disclosure and withholding rules if any US securities are traded via that account. However, -under existing treaty terms-, I don't think any US capital or forex controls will be enforceable inside a suisse bank, but since the IRS knows you have the account, the US government will probably turn the screws on you somehow anyway.

For various reasons, even though I am eligible, I have not taken up US citizenship, so I don't have first-hand experience with all the shackles US nationals are under w.r.t. suisse accounts. You may want to consult a large Suisse bank (like BCGE (bcge.ch)) - they are very helpful and deal with a lot of US citizens, so they know all the rules.

OO Says:
HSBC is a UK bank, CIBC is a Canadian bank. US capital control, if there is one, can only apply to banks operating in the US (branches of foreign bank operation and US-based banks), or (very unlikely) to the foreign branches of US-based banks.

However, if push comes to shove, it is unlikely that a bank with business interests in the US will resist pressure from the US Gov.