"“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” "

Chinese premier Wen Jiabao 12th March 2009

""We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."

Timothy Geithner US Secretary of the Treasury, previously President of the Federal Reserve Bank of New York.1/3/2009

Monday, September 22, 2008

Waiting for the next shoe to drop....

The US Treasury International Capital (TIC) data for July 2008 released last week has gone fairly unremarked today .

Data published yesterday showed total net purchases of U.S. long-term equities dropped to US$6.1Bn. vs. US$53.4Bn the previous month.
The figures for April - July show a deckining interest in overseas buyers in US dollar denominated assets - Net Long-Term Securities Transactions
April US$ 116.1 Bn May US$ 83.2 Mn.Bn. June US$53.4Bn. July US$ 6.1 Bn.The major problem is of course that buyers of uquties are uncertyain about values - The domino effect is in play. EVERY insurance company, brokerage, financial institution, REIT, pension fund, money market fund, bond fund, annuity fund, hedge fund, etc is holding derivatives.

This is the problem.

Know one knows the the market value of the derivatives they hold and second, those that have foreclosures, bankruptcies, etc, are producing less income. The net effect is that assets are less than face value and income is less than planned fior. Together they are a double edged sword affecting both capital and income stream.

It is this bottleneck that Paulson's proposed legislation will allegedly unblock

Paulson's Bill initial text is here.

Treasury officials now propose buying what they term troubled assets, the Bill is rather vague (see below) . In its latest guidance on the bad-debt fund, the Treasury said firms that are headquartered outside the U.S. will now be eligible for assistance.

The troubled assets are described ...

(1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

Which can be read to mean anything (and probably will) from a strauight domestic mortgage through to a handwritten IOU.

The most remarkable thing about the roposed Bill (which appears to have received no mention so far) are the powers Paulson seeks for himself ...

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency

We need to see the Final Bill , but with these unquestionable powers - limited only by a fund value of US$900Bn. to draw on, it is tantamount to a financial dictatorship. Funny way to describe the workings of the Market.

Will this affect the financial prestidigitators ? The money jugglers, the fund managers, the back room boffins who built , named, re-defined debt as an asset and then sold it ? Many. Many times over ?

No, they will move on to pastures new, they have been through junk loans, S & P, dot,com boom and bust, there are fresher fields and newer pastures , fresher mugs to screw, -nanotech, infotech, biotech and cleantech to name but a few.

The thermodynamic laws of financial affairs have kicked in and the market entropy has kicked in, big style but there are plenty of opportunities waiting. Those out of work bond /CDO /SUV /SIV /SUV salesmen have a smile on the their face, like Bill Loman they have a shine on their shoes.

Just wait for the next wave, the next shoe to drop when GM and Ford come to Washington with the begging bowl .. when Boeing who have a monster strike brewing and can't get the Dreamliner aloft , who have half lost the Air Force tanker deal start knocking on the Treasury door....

Incidentally Boeing's biggest customer , who has US$19 Bn of orders with Boeing is International Lease Finance Corp (ILFC) a wholly owned subsidiary of troubled AIG. Chairman Steven Udvar-Hazy, is looking to buy it out of AIG... but needs the money ..say US$8Bn.

ILFC has orders with Boeing for 102 commercial jets, 74 of which are 787 Dreamliners.

Now how would you like to fund a buy out of a company from an ailing insurance giant who have already run out of money, whose biggest supplier has problems and whose customers are the world's airlines .. who are decreasing in number daily....


Wealth creation. Without it, you are fucked as a nation.

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(C) Very Seriously Disorganised Criminals 2002/3/4/5/6/7/8/9 - copy anything you wish