Food Prices Hit Record High......

One can only hope that the very critical price of Rice ( see Chart & Rice Market Monitor ) will stay well below the last "riot" highs from 2008..... UPDATE: Jim Rogers Rotates From Gold To Rice, Sets Foundation For Next Bubble ZH

Man kann nur hoffen das der alles entscheidende Preis für Reis ( siehe Chart & Rice Market Monitor ) weiterhin deutlich unter dem letzten (Unruhe)Hoch aus dem Jahr 2008 bleiben wird....UPDATE: Jim Rogers Rotates From Gold To Rice, Sets Foundation For Next Bubble ZH

WSJ The index doesn't measure domestic retail prices, which can be affected by a wide range of factors, including government subsidies. Instead, the index tracks export prices and can still serve as a barometer of what consumers may pay.

FT

Food prices hit a record high last month, surpassing the levels seen during the 2007-08 crisis, the UN’s Food and Agricultural Organisation said on Wednesday.

The Rome-based organisation said the increase did not constitute a crisis. But Abdolreza Abbassian, senior economist at the FAO, acknowledged that the situation was “alarming”. He added: “It will be foolish to assume this is the peak.”

The jump will increase fears about the repetition of the crisis of 2007-2008. However, poor countries have not so far seen the wave of food riots that rocked countries such as Haiti and Bangladesh two years ago, when prices of agricultural commodities jumped.

The increase in food costs will also hit developed economies, with companies from McDonald's to Kraft raising retail prices.

Higher food prices are also boosting overall inflation, which is above the preferred targets of central banks in Europe.

Compare the food CPI problems of the ECB, BOE & FED with the rest of the world.....

Der Rest der Welt kann über die Nahrungsmittelpreisprobleme der EZB, BOE & Fed wohl nur gequält lächeln.....

Please note that the chart above covers only the first 6 Month in 2010....Looking at the monthy price table it should be clear that the real spike happenend since July.....

Der obige Chart wird noch weniger appetitlich wenn man bedenkt das lediglich der Zeitraum bis einschließlich Juni 2010 berücksichtigt ist....Ein Blick auf den Food Price Index zeigt leider das der Löwenanteil des Anstieges im 2. Halbjahr vollzogen worden ist....


H/T FT Alphaville

Probably not an understatement that at least a "small" part of the increase is related to the wisdom of the central banksters around the world..... I´m very sceptical that without "QE" & with "credible" central bankers ( and politicians ) we would face similar headlines.....UPDATE: Speaking of "credible" people Ben Bernanke and the Price of Oil.....Wouldn´t surprise me if way too many on Wall Street & in the numerous "ivory towers" around the world are calling develompents like this "collataral damage"....

Denke es ist keine Untertreibung zu sagen das zumindest ein "kleiner" Anteil des Preisanstieges der geballten Weisheit der weltweiten Notenbänker geschuldet ist..... Ich kann mir nur sehr schwer vorstellen das wir ohne "QE" und mit "glaubwürdigen und vertrauenserweckenden" handelnden Personen ähnliche Schlagzeilen zu verkraften hätten...UPDATE: Da wir gerade von Glaubwüdigkeit gesprochen haben Ben Bernanke and the Price of Oil...Würde mich ebenfalls stark wundern wenn an Wall Street & in den leider reichlich vorhandenen "Elfenbeintürmen" eine solche Entwicklung nicht als "Kollataralschaden" bezeichnet wird.....

UPDATE:

Just in time comes the follwoing chart via FT Germany showing the correleation from REAL US rates ( rhs inverted ) & the commodity complex...... And the FED is not alone.....

Passender hätte der folgende Chart der FT Deutschland nicht sein können.....Mit Ausnahme des fehlenden "QE" Hinweises hätte ich den dazugehörigen Bericht nicht besser formulieren können .... Zu allem übel muß man leider feststellen das die FED in Ihrer Politik nicht allein auf weiter Flur steht.....

Real rates in the Euro area & UK....

Realzinsen unter Aufsicht der EZB und der BOE.......

H/T FT Deutschland

H/T FT Deutschland

Back with then original Story..... Weiter mit dem Eröffnungslink.....

The FAO said its food price index, a basket tracking the wholesale cost of commodities such as wheat, corn, rice, oilseeds, dairy products, sugar and meats, jumped last month of 214.7 points – up almost 4.2 per cent from November.

The FAO is drawing comfort from relatively stable prices for rice, one of the two most important cereals for global food security, which remains far below its record high. Rice is the staple of 3bn people in Asia and Africa.

The FAO food index is at its highest since the measure was first calculated in 1990. During the 2007-08 food crisis, the index reached a peak of 213.5 in June 2008

However, the cost of the other critical staple, wheat, is now rising fast on the back of poor harvests.

“This is a high prices situation,” said Mr Abbassian, although he pointed to the fact the costs of cereals – and particularly rice – were below the peaks set in 2007-08.

“Rice and wheat are, from a global food security perspective, the critical agricultural commodities, not sugar, oilseeds or meat,” he said.

The increasing costs of sugar, whose price recently hit a 30-year high, oilseeds and meat are the main reason behind the rise in the FAO food index

.

The rise of commodity prices makes it likely that the global food import bill will hit a record high in 2011,after topping $1,000bn last year for only the second time. In November, the FAO raised its 2010 forecast to $1,026bn, up almost 15 per cent from 2009 and within a whisker of a record high of $1,031bn set in 2008 during the food crisis.

At least the "food import bill" will provide incentives to withstand or slow down the "competitive devaluation trend".....UPDATE: Asia Fights Inflation With Stronger Currencies

Wenn man überhaupt etwas positives an der Situation erkennen will dann vielleicht das die bedrohlich steigenden Nahrungsmittelpreise den bisher vorherrschenden "Währungskrieg" mit der klaren Tendenz die eigene Währung künstlich niedrig zu halten, wenn auch nicht aufhalten, so doch zumindest verlangsamen könnte.....UPDATE: Asia Fights Inflation With Stronger Currencies

Agricultural commodities prices have surged following a series of crop failures caused by bad weather. The situation was aggravated when top producers such as Russia and Ukraine imposed export restrictions, prompting importers in the Middle East and North Africa to hoard supplies.

I think it´s a safe bet that around the world subsidies & government involvement ( food stamps, price controls, ban on exports etc ) will not "deflate".....

One uselful "involvement" would be to start with the derivatives complex... ;-)

Sicherlich wird weltweit das Thema Subventionen & "Regierungseinmischungen" ( Essensmarken, Preiskontrollen, Exportbeschränkungen usw. ) in den nächsten Jahren häufiger die Schlageilen dominieren....

Eine der wenigen produktiven "Einmischungen" wäre, wenn man sich dem Thema "Derivate & Terminbörsen" mal etwas genauer widmen würde... ;-)

UPDATE:

Food production is down, hunger is up and prices are rising / INFOGRAPHIC The Globe And Mail

U.N. Data Notes Sharp Rise in World Food Prices NYT

Needless to say that the NYT & GAM make no reference when it comes to the relation of prices & "sound money" .... ;-)

Überflüssig festzustellen, das es auch die NYT & GAM versäumen zumindest in einem Nebensatz die nicht unwesentliche Korrelation von Preisen und "verantwortungsvoller Geldpolitik" zu erwähnen.... ;-)

Immerhin wunderschön zu sehen das eine Firma wie Monsanto, die bei diesen Nahrungsmittelpreisen eigentlich durch die Decke gehen müßten, noch immer 50% vom Hoch notiert.....Um meine SCHADENFREUDE zu verstehen, muß man sich zwingend Monsanto - mit Gift und Genen ansehen.... Meiner Meinung nach die beste und wichtigste Doku der letzten Jahre über eine Firma die wahrscheinlich über noch bessere Lobbyisten verfügt(te) als alle Banken der Wall Street zusammen ..... ;-)

More UPDATES :

Youths riot in Algeria over high food prices Associated Press

Riots over rising food prices and chronic unemployment spiraled out from Algeria's capital on Thursday, with youths torching government buildings and shouting "Bring us Sugar

Wednesday's violence started after evening Muslim prayers. It came after price hikes for milk, sugar and flour in recent days, and amid simmering frustration that Algeria's abundant gas-and-oil resources have not translated into broader prosperity.

Food Riots Commence As The Fed's Loose Money Policy Leads To First Violence Of 2011 Zero Hedge

Mann bei Protest gegen teures Essen erschossen Die Welt

Big Picture Agriculture / Lester Brown via Reformed Broker

In the United States, which harvested 416 million tons of grain in 2009, 119 million tons went to ethanol distilleries to produce fuel for cars. That's enough to feed 350 million people for a year.... The combined effect of these three growing demands is stunning: a doubling in the annual growth in world grain consumption from an average of 21 million tons per year in 1990-2005 to 41 million tons per year in 2005-2010. Most of this huge jump is attributable to the orgy of investment in ethanol distilleries in the United States in 2006-2008.

Bond Vigilanties

The reasons behind the ugly scenes in Tunisia are down to a combination of political and economic factors, but at least part of the discontent stems from rising food and energy prices

The problem these countries face is that food and energy prices are a much bigger percentage of an emerging consumer's shopping basket than for a developed consumer's basket. Food and energy therefore carry a much higher weight in domestic consumer price indices within emerging markets, which is something I discussed last year when going over some of the risks to the emerging market story

To an extent, higher food and energy prices are a result of expansionary economic policy in the US combined with a reluctance of emerging market countries (particularly China) to allow their currencies to appreciate versus the US dollar. Would it not be ironic if the very policies that US authorities have pursued to return the US economy to growth then proceed to be the cause of global economic weakness?

Food Stamp Usage Hits New High Of 43.2 Million ZH



It´s safe to say that without similar programs in the G7 countries we would see similar "riots" like in Algeria etc.....

Man muß kein Prophet sein, um zu erkennen das in den G7 Ländern ohne ähnliche Programme längst "ziviler Ungehorsam" wie momentan in Algerien, und demnächst wohl noch deutlich mehr Ländern, zu sehen sein würden....

The food price vulnerability index Citi via FT Alphaville / Tilt

The index has been created by Citigroup and its based on the idea that a country’s central banks are more likely to have to respond to a food price shock if:

1) the consumer price index is sensitive to changes in good prices.

2) growth is strong — the chances of contagion from food prices to core CPI are strongest when demand pressures are in any case robust.

3) Relatively loose monetary policy– on the grounds
that a country already behind-the-curve might have some nasty catching-up to do if a food price shock leads to a surge in inflationary pressures overall.

And China ticks all those boxes.

Back with a vengeance Economist

Russia Imposes Inflation-Driven Price Controls: Will Use Price Caps On "Socially Important" Commodities

Russia has just announced it would proceed with price caps on a variety of foodstuffs, from buckwheat, to potatoes, assorted fruits and vegetables and all other commodities it deems "socially important" accoding to Russian newspaper gazeta.ru.

Interactive Map Of Recent Food Riots And Price Hikes ZH

How Not To Restore Confidence "Stress Test Edition"......

The main goal from "stress testing" the banks was to provide at least some confidence....There is now a good chance that this "PR Stunt" could backfire faster than even i predicted .....I´m not surprised that the rules for transparency were not "rigoros".... No wonder Only 35% Of Survey Participants Expect The Stess Test To Be Credible.... ...

Wenn man bedenkt das die einzige Aufgabe des Stress Test gewesen ist zumindest ein Mindestmaß an Vertrauen wiederherzustellen muß man so langsam befürchten das selbst dieses Mindestziel in Rekordzeit verfehlt wird..... Ich persönlich wundere mich nicht das die "Transparenzanforderungen" in Sachen Stress Test nicht "brutalst möglich" angesetzt worden sind......Kein Wunder das bereits bei Durchführung lediglich 35% der Befragten dem Stress Test "Glaubwürdigkeit" zugestanden haben....

Europe's Bank Stress Tests Minimized Debt Risk WSJ

Europe's recent "stress tests" of the strength of major banks understated some lenders' holdings of potentially risky government debt, a Wall Street Journal analysis shows.

As part of the tests, 91 of Europe's largest banks were required to reveal how much government debt from European countries they held on their balance sheets. Regulators said the figures showed banks' total holdings of that debt as of March 31.

An examination of the banks' disclosures indicates that some banks didn't provide as comprehensive a picture of their government-debt holdings as regulators claimed.

Some banks excluded certain bonds, and many reduced the sums to account for "short" positions they held—facts that neither regulators nor most banks disclosed when the test results were published in late July.

Because of the limited nature of most banks' disclosures, it is impossible to gauge the number of banks that excluded portions of their sovereign portfolios from their disclosures, or the overall effect of that practice.

But the exposure to government debt of at least some banks, such as Barclays PLC and Crédit Agricole SA, was reduced by a significant amount, according to industry officials and financial filings made by the banks. Adding to the haziness, the stress tests' reported sovereign-debt levels differed, sometimes widely, from other international tallies and from some banks' own financial statements.

The stress tests' upbeat results—only seven banks flunked, and were deemed short of just €3.5 billion ($4.51 billion) of capital—initially soothed markets. But fears have flared up again as heavily indebted countries like Ireland and Greece continue to struggle. Among other warning signs, the costs of insuring many bank and government bonds against default in countries such as Portugal, Ireland, Greece and Italy have jumped above their pre-stress-test levels.

The banks based their stress-test disclosures on a template provided by CEBS. The template asked for banks to disclose their "gross" and "net" exposures to sovereign risk in each E.U. country. Most banks' disclosures didn't define "gross" and "net" beyond saying that the latter were "net of collateral held and hedges."

But some banks' figures didn't represent their total holdings. Barclays, for example, excluded some government bonds it was holding for trading purposes. The rationale, according to Barclays officials, was that the bonds were directly related to transactions the big U.K. bank was performing for corporate or government clients, and that the holdings vary widely from day to day. Barclays didn't disclose that it wasn't listing its full holdings.

Excluding the bonds reduced Barclays' portfolio of Italian sovereign debt—which the bank said was £787 million ($1.22 billion)—by about £4.7 billion, Barclays officials said. The bank's holdings of Spanish government bonds, listed at £4.4 billion, shrank by about £1.6 billion.

The Barclays officials said they believe other big European banks also excluded significant slices of their trading portfolios from stress-test disclosures.

In its midyear results last month, Barclays reported its sovereign-bond portfolios based on a broader definition than the stress tests used. As a result, Barclays' reported holdings of debt issued by the Italian, Spanish and Irish governments swelled.

BIS data from March 31 indicates that French banks were holding about €20 billion of Greek sovereign debt and €35 billion of Spanish sovereign debt. In the stress tests, four French banks, which represent nearly 80% of the assets in France's banking system, reported holding a total of €11.6 billion of Greek government debt and €6.6 billion of Spanish debt.

Keep in mind that the even the most adverse scenario of the Stress Test didn´t include any hair cut on sovereign debt....Too bad that only 6 weeks later the market is already pricing in a restructuring of Greek Debt ( Greek Debt Crisis – Apocalypse Later )

Man sollte villeicht nocheinmal gesondert darauf hinweisen das selbst im schlimmsten anzunehmen Fall der "Strees Test" keinerlei Abschlag bei Staatsanleihen vorsieht....Dumm nur, das bereits 6 Woche nach Durchführung der Markt bereits zum Teil massive Abschläge eingepreist hat ( siehe Greek Debt Crisis – Apocalypse Later )

EU Rehn: Other 14 EMU Members To Cover Slovakia Greece Loans

The other 14 Eurozone countries will cover Slovakia's share of the E110 billion loan package to Greece after the country refused to participate, European Commissioner for Economic and Monetary Affairs, Olli Rehn said on Tuesday.

Slovakia originally agreed to participate in the E110 billion aid package for debt-laden Greece, but a new Slovak government decided to withdraw that commitment

Domino #2, Ireland, Set To Topple? ZH

The Irish-Bund spread is going nuts on reports that the ECB is bidding up sovereign debt once again, together with a WSJ report that the Stress Test was, as everyone with half a brain knew all too well, a blatant lie, and sovereign debt was misrepresented. Earlier, a report in the FT Deutschland suggested that the bailout of Anglo Irish alone, (not to mention AIB and Irish Nationwide) would be sufficient to threaten the country's solvency. Things domestically are no better, after a poll in the Sunday Independent found that 74% of respondents believed the country would default, and preceded earlier news that Irish consumer confidence plunged from 66.2 to 61.4.

Mmm, European yield stew FT Alphaville

Those bond markets and Irish debt Superb Video

Greek Deals Hidden From EU Probed as 400% Yield Gap Shows Doubt Bloomberg

Sept. 8 (Bloomberg) -- Four months after the 110 billion- euro ($140 billion) bailout for Greece, the nation still hasn’t disclosed the full details of secret financial transactions it used to conceal debt.

“We have not seen the real documents,” Walter Radermacher, head of the European Union’s statistics agency Eurostat, said in a Sept. 2 interview in his Luxembourg office. Eurostat first requested the contracts in February.

Beware of Greeks Bearing Bonds Michael Lewis / Vanity Fair

As Wall Street hangs on the question “Will Greece default?,” the author heads for riot-stricken Athens, and for the mysterious Vatopaidi monastery, which brought down the last government, laying bare the country’s economic insanity. But beyond a $1.2 trillion debt (roughly a quarter-million dollars for each working adult), there is a more frightening deficit. After systematically looting their own treasury, in a breathtaking binge of tax evasion, bribery, and creative accounting spurred on by Goldman Sachs, Greeks are sure of one thing: they can’t trust their fellow Greeks.

CEBS says the stress tests were JUST FINE FT Alphaville

Surprise, surprise....

Welch Überraschung....

Got GOLD ? ;-)

Only 35% Of Survey Participants Expect The Stess Test To Be Credible....

I´m surprised that the rate is above 20 percent... ;-)

Ich bin ehrlich überrascht das immerhin 35% dem Stresstest eine Aussagekraft zubilligen.... ;-)

Goldman Sachs via FT Alphaville

It’s the results of a Goldman Sachs survey of 376 mostly-European market “participants” ahead of the results

GS Stress Test
H/T Zero Hedge

Get ready for at least a weekend full of spin......

Man kann sich jetzt schon einmal mindestens auf ein Wochenende voller "Spin" einstellen.....

UPDATE:

I assume after the results the percentage of believers hasn´t increased "significantly"....

Kann mir gut vorstellen das nach Bekanntgabe der Ergebnisse die Glaubwürdigkeit des Tests nicht "explosionsartig" hinzugewonnen hat....

Stress Test Results CEBS

5 Cajas ( Spain ), Ate Bank (Greece ), Hypo ( Germany ) failed....

CEBS SAYS 7 BANKS HAD OVERALL SHORTFALL OF EU3.5 BLN OF TIER 1

Stress Test Interactive Graph Spiegel

Apparently Not Too Stressful The Mess That Greenspan Made

Stress test’s sovereign support = senseless

the test parameters being rather cynically calibrated to achieve the desired result.

JPMorgan Shreds The Stress Tests, Says 54 Banks Should Have Failed, And That Investors Will Lose Confidence BI

Gaming the stress tests 101 FT Alphaville

Morgan Stanley On Stress Tests: "Lots Of Missed Opportunities" ZH

Van Steenis European Stress Tests

"Debt Masking" Not Even Mentioned In Finreg......

Oh Boy...... More on "Debt Masking" in "Surprise, Surprise....." Big Banks Mask Risk Levels - Quarter-End Loan Figures Sit 42% Below Peak

Das nennt man dann wohl brutalst mögliche Regulierung.......Mehr zum Thema wie frisiere ich Bilanzen und "Debt Masking" in "Surprise, Surprise....." Big Banks Mask Risk Levels - Quarter-End Loan Figures Sit 42% Below Peak



Interactive Graph : Masking Risk WSJ

Finreg, the FDIC and repo markets: a BarCap primer BarCap via FT Alphaville

One curious absence in this legislation is the lack of any commentary regarding “debt masking” – that is, using repo transactions to reduce balance sheet at quarter-end in order to report lower leverage.

Given all the (bad) press repo has received lately, we thought there would be more explicit language in the bill regarding such activity.

CHUZPAH!

"Surprise, Surprise....." Big Banks Mask Risk Levels - Quarter-End Loan Figures Sit 42% Below Peak

At least one has to conclude / "admire" that they have "CHUZPAH"....... Just one more reason for Cramer´s Bull Case For Banks ... You really need a good dose of "humor" & GOLD to stay calm these days....;-)

Vor soviel "CHUZPAH" muß man ehrlich den Hut ziehen....... Ein Grund mehr für Cramer´s Bull Case For Banks .... Heutzutage muß man schon ein sehr "humorvoller" Zeitgenosse & "GOLD-BUG" sein um den tagtäglichen "Wahnsinn" nicht nur kopfschüttelnd zu erleben..... ;-)

Taken from the excellent Randy Glasbergen collection

Big Banks Mask Risk Levels WSJ

Quarter-End Loan Figures Sit 42% Below Peak, Then Rise as New Period Progresses; SEC Review

Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks,which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.

The data highlight the banks' levels of short-term financing in the repurchase, or "repo," market. Financial firms use cash from the loans to buy securities, then use the purchased securities as collateral for other loans, and buy more securities. The loans boost the firms' trading power, or "leverage," allowing them to make big trades without putting up big money. This amplifies gains—and losses, which were disastrous in 2008.

According to the data, the banks' outstanding net repo borrowings at the end of each of the past five quarters were on average 42% below their peak in net borrowings in the same quarters. Though the repo market represents just a slice of banks' overall activities, it provides a window into the risks that financial institutions take to trade.

The SEC now is seeking detailed information from nearly two dozen large financial firms about repos, signaling that the agency is looking for accounting techniques that could hide a firm's risk-taking. The SEC's inquiry follows recent disclosures that Lehman used repos to mask some $50 billion in debt before it collapsed in 2008.

The practice of reducing quarter-end repo borrowings has occurred periodically for years, according to the data, which go back to 2001, but never as consistently as in 2009.

The repo market played a role in recent accusations leveled by an examiner in Lehman's bankruptcy case. But rather than reducing quarter-end debt, Lehman took steps to hide it.

Interactive Graph : Masking Risk

UPDATE:

Evidence That Primary Dealers Have Collectively Engaged In Repo 105 And Qtr-End Book Cooking Type Schemes For Years ZH

The graphic representation of the Primary Dealer holdings of net assets shown as a Lo-High range during any given quarter, together with the closing net assets (presented by the red dot), is shown on the chart below.

We are confident that armed with this data, the SEC will be able to provide a prompt and logical response ( JMF : SARCASM AT ITS BEST!) why the PDs have such a peculiar pattern in downshifting their assets toward quarter end, and much more relevantly, who the counterparties are that would consistently take the other side of these quarter end window-dressing trades.

Cramer´s Bull Case For Banks..... I Can Smell A Top... ;-)

Oh boy..... After the ( even by his standarts.... ) famous "Housing & Bank Stock Shortage" call from January 2008 ( NO KIDDING > see "Ten Trillion $ Worth Of Good Calls" ) was a little bit "premature" he is predicting a bank stock shortage version 2.0.... Would at least be honest if he mentioned the "ultimate moral hazard trade" & the "Enron-esque characteristics" when it comes to accounting as the two main reasons behind the motives to own banks.. ;-)

Die Euphorie ist zurück........ Nachdem derselbe Typ Januar 2008 leicht "verfrüht" bereits einmal eine "Housing & Bank Stock Shortage" ( siehe "Ten Trillion $ Worth Of Good Calls") proklamiert hat ist es höchtse Zeit für eine Version 2.0.....Wäre zumindest ehrlich gewesen wenn er in seinen 10 Gründen die unbedingt dafür sprechen sofort massiv Bankaktien zu kaufen den "ultimativen Moral Hazard Trade" sowie die kreative Bilanzierung die stark "Enron-esque characteristics" aufweist als die Topgründe aufführen würde.... ;-)



Just for the record here are the two main ETF´s tracking the financial sector.....

Nur um die Daten festzuhalten nachfolgend die beiden relevanten Bank/Finanz EFT´s....

Financial Select Sector ETF) $ 15,47 & KBW Regional Banking (ETF) $ 25,47

Needless to say that both ( along with almost every asset class worldwide ) are trading at 52 week highs & had the longest winning streaks since 1995.....Especially Citigroup seems to be a "real bargain"... ;-)

Überflüssig zu erwähnen das die EFT´s ( wie fast alle anderen Anlageklassen weltweit ) auf Jahreshochs stehen & gerade die längste Gewinnserie seit 1995 hinter sich haben....Besonders Citigroup scheint ein "echtes Schnäppchen" zu sein... ;-)

John Hussman Rips Apart CNBC ZH

In reflecting on why the past 15 years have been so riddled by irresponsible speculation, it is impossible to ignore the rise over that same period of widely-viewed financial programming that is equally riddled with cartoonish content that encourages short-term thinking and speculation (buy-buy-buy! sell-sell-sell! boo-yah!)

"Anti Spin" from Chris Whalen via NC ( MUST READ!!!!)

In fact, the banking system is continuing to sink under bad loans and even worse securities losses. Telling the public that the banks are “fixed” is irresponsible. Unfortunately this false perception is widespread, including among major media such as CNBC and also with a number of my clients in the hedge fund world.

But at least Bubblevision is a very good tool to spot sentiment......

Immerhin muß man Bubblevision lassen das es kaum ein besseres Barometer gibt wenn es darum geht die Stimmungen "einzufangen".....

UPDATE: Unrelated....... Ohne Bezug.... ;-)

Citi: Bove Raises to “Buy”; Citicorp Is New Model for U.S. Banks

He figures Citi is worth about $8.50 in that outlook.

"Wall Street Finest & Lehman June 2008 ZH

Hoenig Says Big Banks Must Either Add $210 Billion In New Capital Or Reduce Total Assets By $3 Trillion; Bank Capital Raises Imminent ZH

Thank God There is No Stress Test On Goodwill Assets Propping Up Bank Balance Sheets.........

Almost every M&A activity during the past few years across all sectors ( miners, tech, industrial, chemicals etc ) has lead to substantial and often spectacular write downs ( Rio Tinto / Alcan, Google/Youtube + AOL , FOX/Wall Street Journal etc )..... The following must read report from Disclosure Insights ( Hat tip Zero Hedge ) is asking the obvious..... Why on earth have there been almost no impairments in te US banking industry ( Europe has taken the hit with ABN Ambro, Royal Bank Of Scotland, Fortis, Hypo Real Estate / Depfa etc, probably no coincidence that they are now "nationalized"..... ) even after the biggest bubble in history has popped and every other indirectly effected sector has taken the necessary step...... I think readers of this blog know the answer.....

Nahezu jede getätigte Übernahme binnen der letzten 3 Jahre in allen Sektoren ( Minen, Tech, Industrie, Maschinenbau, Chemie usw ) hat in den vergangenen Quartalsberichten zu massiven und teilweise dramatischen Abschreibungen auf den sogenannten Goodwill geführt ( spontan fällt mir hier das Beispiel Rio Tinto/Alcan, Google/Youtube+AOL, Continental/Siemens VDO, EON/Erwerb von Kraftwerken in Russland+Italien usw ) ... Der nachfolgende Report von Disclosure Insights ( Dank an Zero Hedge ) ist Pflichtlektüre und geht der Frage nach warum gerade für die Bankenbranche der USA ( Europa hat mit den 50 Mrd € Abschreibungen der Royal Bank of Scotland, Fortis für den ABN Kauf , Hypo Real Estat / Depfa den Anfang gemacht, sicher kein Zufall das diese Institute de facto verstaatlicht sind..... ) anscheinend andere Gesetze gelten..... Muß wohl an den "starken" Bilanzen liegen.....

Thanks to Randy Glasbergen. This must see Cartoon from Jesse´s Cafe Americain is (unfortunately ) looking better on a daily basis.....

It appears banks are not adequately impairing their goodwill. While market value isn’t necessarily the sole trigger for a bank to impair its goodwill, it is a powerful one. Fully 72% (36 of 50) of the banks we analyzed trade below book with 58% (29 of 50) trading below tangible book. Based on the rules governing goodwill, we expected to find widespread goodwill impairments by banks. That didn’t happen.

Rather, our analysis shows that 70% (35 of 50) of the banks we analyzed did not impair goodwill in 2008. Despite a pop in the easy credit bubble, a period during which many acquisitions that generated the goodwill were made, only $21.5 billion (less than 10%) in total goodwill was written down by 15 of the banks in our study.

Bank of America – The poster child for goodwill desperately in need of impairment. Our analysis of Bank of America’s acquisitions of FleetBoston, MBNA, and LaSalle illustrate well why banks need to impair their goodwill more – far more – than they’ve done to date.

BAC paid a total of $102.8 billion for these three acquisitions. Using market comparables, one of the methods prescribed under FASB 142, we derived a current value for these acquisitions of $37.4 billion. BAC currently carries $64.7 billion in goodwill on its book for these three acquisitions, or twice our estimated value for what these acquisitions are now worth. As such, it strains credibility that Bank of America did not impair any goodwill.

Nice to hear that Ken Lewis is in the Press on a daily basis with the request to pay back TARP.....If you keep in mind that the goodwill is part of the Tier 1 Capital calculation the bragging from Lewis with a "strong" 10.1 ratio is one reason more to feel confident. No wonder this "measure" of health has come under some scrutiny ( UPDATE via Option Armageddon : Stress Test: Tangible Common Equity Will Be Critical Metric & Tutorial Tangible Common Equity… ).... His balance sheet is looking stronger day by day...... Go read the full report for much more! It will be interesting to see how long the auditors are ordered, i mean allowed to ignore the obvious.....

Besonders witzig in diesem Zusammenhang das der CEO der Bank of America so schnell wie möglich die TARP Mrd zurückzahlen möchte... Wenn man jetzt noch berücksichtigt das der Goodwill in die Berechnung des immer wieder zitierten Tier 1 Capital eingeht erscheinen Aussagen wie die vom CEO der BAC das deren Quote starke 10,1 beträgt noch vertrauenserweckender. Kein Wunder das diese Kennzahl die in nahezu jeder Veröffentlichung herausgestellt wird in letzter Zeit mehrmals ins Gerede gekommen ist.( UPDATE via Option Armageddon Stress Test : Tangible Common Equity Will Be Critical Metric sowie das dazugehörige Tutorial Tangible Common Equity… ) ...Bin gespannt wie lange die Wirtschaftsprüfer noch zugucken ( müssen) bis hier mal die Axt rausgeholt wird.....Zieht Euch den kompletten Report rein und die tagtäglichen Kommentare der Verantwortlichen ( Geithner usw ) wirken noch ein wenig verzweifelter und unglaubwürdiger als ohnehin schon.......

Banks - Disclosure Insight

Publish at Scribd or explore others: School Work Finance investment indonesia

A Few Goldman Highlights........

More risk, more leverage ( & some kind of "creative accounting" - see end of the post ) ....... Brilliant!

Mehr Risiko, höherer Hebel ( & ein klein wenig "kreative" Buchführung - siehe Ende des Postings ) ..... Hat ja in der Vergangenheit erstklassig funktioniert.... Rechnet man mal die Jahre 2007 und 2008 heraus......

Reuters

A measure of the bank's trading risk, average daily value-at-risk, surged to $ 240 million in the first quarter of 2009, compared with $157 million for the three months ended February 28, 2008, implying that the bank took more trading risk

Goldman also disclosed that it has set aside $168,901 per employee on average for compensation in the quarter, almost 35 percent more than in the first quarter of the previous fiscal year

Bloomberg

Total assets on the balance sheet rose 5 percent from the end of November to $925 billion as of March 27. Of that, about $59 billion qualified as “Level 3” assets, which are the hardest to value, down from $66 billion at the end of November

For more details see Goldman Sachs Press Release

Für weitere Details bitte einen Blick in die Goldman Sachs Press Release werfen.

This from Zero Hedge fits perfectly.....

Diese Beobachtung von Zero Hedge paßt wie die Faust aufs Auge.......

A very interesting data point, also provided by the NYSE, implicates none other than administration darling Goldman Sachs in yet another potentially troubling development. The chart below demonstrates the program trading broken down by the top 15 most active NYSE member firms. I bring your attention to the total, principal, customer facilitation and agency columns.larger/größer

Key to note here is that Goldman's program trading principal to agency+customer facilitation ratio is a staggering 5x, which is multiples higher than both the second most active program trader and the average ratio of the NYSE, both at or below 1x.

The implication is that Goldman Sachs, due to its preeminent position not only as one of the world's largest broker/dealers (pardon, Bank Holding Companies), but also as being on the top of the high-frequency trading/liquidity provision "food chain", trades much more often for its own (principal) benefit

Also on the same topic via EconompicData

Zum gleichen Thema von EconompicData

If Goldman's Selling... Beware of Buying

Goldman's principal trading amounted to 20%+ of all program trading reported on the NYSE, up from between 3-5% one and two years back. In other words, leading up to a period when Goldman may be issuing several billion dollars in an equity offering, their own principal trading has amounted to 4-5x more volume than what had been typical, in an illiquid market, potentially driving up the value of financial equities in the process... interesting.

larger/größer

I think this comment from Jesse´s Cafe Americain nails it....

Ich denke der nachfolgen Kommentar von Jesse´s Cafe Americain faßt es ziemlich gut zusammen......

The bulk of their profit purportedly came from speculative trading for their own accounts, using 'cheap FDIC guaranteed funds.

There will be no recovery in the real economy until the financial system is reformed and banks are restrained into productive functions within our society.

Make also sure you visit this piece from Floyd Norris and his commensts from the conference call ( seeThe Case of the Missing Month ) or this little rant via Barry Ritholtz How to Puff Up Earnings, Goldman Sachs Style.......

Denke das ein Blick in den Kommentar von Floyd Norris zum Conference Call auch nicht schaden kann ( siehe The Case of the Missing Month). Um das "positive" Bild von Goldman abzurunden noch ein kleiner Rundumschlag von Barry Ritholtz ( siehe How to Puff Up Earnings, Goldman Sachs Style )......

Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s news release, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ending in February.

The orphan month featured — surprise — lots of writeoffs. The pre-tax loss was $1.3 billion, and the after-tax loss was $780 million.

No surprise to hear this update on via Norris......

Diese Erläuterung hinsichtlich der Aufsicht im Update von Norris dürfte keine wirkliche Überraschung sein.....

What About That Other $28 Billion?

Goldman Sachs, as you know by now, wants to return that $10 billion in TARP money it got. And what about the $28 billion it borrowed in the credit markets with a guarantee from the federal government?

A spokesman tells me that Goldman has no plans to pay that back early. Nor will it say if it would have been profitable had it reported on the quarter ended in February, as it traditionally has.The spokesman did tell me something I would have included in my earlier Goldman blog had I known it, that the change in fiscal year was required when it converted to a bank holding company.

The bank regulators did not, however, force Goldman to avoid any mention of the December orphan month in the text of its earnings release, instead relegating it to a table deep in the announcement.

> What esle do you expect from a regulator that is labeling a giant hedge fund like Goldman as a bank.... ;-)

> Was soll man auch anderes von einem Regulierer erwarten der einen gigantischen Hedge Fonds wie Goldman Sachs den Bankenstatus zuspricht.. ;-)

Congratulation ( NO SARCASM ) to Goldman for placing the shares at $ 123 Goldman Sachs Raises $5 Billion to Repay TARP Funds The same kind of "creative" accounting in 2008 and the stock would have tanked 50 percent withing a day...... But at least this time it is the so called smart money ( lets hope not too many pension funds are involved.... ) and not the taxpayer on the hook.....Clearly a sign that the euphoria level is close to a peak ( Here is more evidence of some kind of exuberance ) .....

Man muß Goldman zu der Dreistigkeit gratulieren ( Diesesmal ohne Augenzwinkern ). Die haben es tatsächlich geschafft Ihre Aktien zu 123 $ zu platzieren ( siehe Goldman Sachs Raises $5 Billion to Repay TARP Funds ). Hätten die es noch vor einem Monat gewagt eigenmächtig Bilanzierungszeitrahmen abzuändern und so den äußerst verlustreichen Dezember praktisch aus dem Blickwinkel der Öffentlichkeit zu "verbannen" hätte sich die Aktie wohl binnen 24 Stunden halbiert...... Hoffe inständig das es noch weitere Unternehmen schaffen private Gelder mit welchen Methoden auch immer an Land zu ziehen..... Dann ist zumindest der Steuerzahler ( vorausgesetzt die Pensionskassen haben sich zurückgehalten ) nicht allein der Dumme....... Denke das zeigt einmal mehr das die aktuelle Marktstimmung etwas zu euphorisch ist Hier ein weiterer Beleg für eine zumindest "ausgelassene" Stimmung.......

Revisiting The Bear Stearns / Maiden Laine Portfolio......A Foretaste Of What To Expect From The "Bad Bank".......

I expect similar outcomes when Geithner is coming up with "cash for trash" overpaying for highly inflated assets & probably leaving the bondholders without any or a significant haircut..... .... See also Bad Bank, Bad Pricing.... & the Update from Naked Capitalism......On top of this add the populism ( see Confirmed: Executive Pay Caps Are A Joke ) from Obama and it is clear that this is change we can´t believe in..... UPDATE: Excellent rant David Sirota: "Obama's Team of Zombies" (Updated: Frank Rich on Geithner) via Naked Capitalism

Denke das dieses Beispiel schon einmal vorwegnimmt was uns ( STEUERZAHLER ) die Bad Bank bringen wird...... Siehe auch Bad Bank, Bad Pricing.... sowie das Update von Naked Capitalism. Das ganze wird noch unerträglicher wenn selbst der Heilsbringer Obama sich immer mehr als ganz gewöhnlicher Populist herausstellt ( siehe Confirmed: Executive Pay Caps Are A Joke ). Bisher muß man bei Ihm leider das Fazit ziehen das eher der Spruch "We Can´t" angebracht ist...... Wenn man sich Leute wie Geithner ins Boot holt muß einen das allerdings auch nicht weiter wundern....... UPDATE: Traurige Bestandsaufnahme von Anspruch und Wirklichkeit David Sirota: "Obama's Team of Zombies" (Updated: Frank Rich on Geithner) mal wieder via Naked Capitalism

Structured finance paramnesia, Bear Stearns edition FT Alphaville

The transaction was not structured with adequate over- collateralization…

Ever was it so.

Point in case: the Maiden Lane/Bear Stearns portfolio, which, since June, has declined by $4.22bn in value. See Bloomberg’s Chart Of The Day.

> Make sure you see the chart ( Go to the GRAPHIC icon ). And it is safe to say that things will get worse.......

> Der Chart ist einen Blick wert ( Auf das Icon Graphic klicken ) . Und es so ncht mutig zu behaupten das die Verluste weiter dramatisch ansteigen werden....

The “equity” tranche of the Maiden Lane deal, by which JP Morgan takes the first hit on any losses, was, at $1.15bn, a pretty flimsy sliver of subordination, even by 05′ vintage CDO standards. And of course, it has been far overrun by the current losses, which are now eating into the Fed/taxpayer-owned tranch.

Amid swap lines and liquidity facilities of many tens, if not hundreds of billions, it’s easy to dismiss $4.22bn as a drop in the ocean. But forget not that we’re talking pure credit risk for the Fed here. These are unchartered territories.

Keep smiling:

The central bank’s Board of Governors wrote in a Dec. 29 report to Congress that it didn’t expect “any net loss to the Federal Reserve or taxpayers” from the Bear Stearns holdings.

UPDATE:

Yves Smith over at Naked Capitalism has a scathing criticism of the Obama Administration’s plan to fix the nation’s banks.

“The Obama Administration is as obviously and fully hostage to the interests of the financial services industry as the Bush crowd was. We have no new thinking, no willingness to take measures that are completely defensible (in fact not doing them takes some creative positioning) like wiping out shareholders at obviously dud banks (Citi is top of the list), forcing bondholder haircuts and/or equity swaps, replacing management, writing off and/or restructuring bad loans, and deciding whether and how to reorganize and restructure the company. Instead, the banks are now getting the AIG treatment: every demand is being met, no tough questions asked, no probing of the accounts (or more important, the accounting).”

AMEN!

How Not To Restore Confidence....."United Arab Emirates & Spain Edition"

So much for the transparancy...... Looks like the prospects for the gulf region reagion are somewhat "clouded"...... This is especially true for the Dubai where the drop height is particularly high..... :-) ( see also No Kidding.... Dubai May Need Help To Repay Debt....)

Einmal mehr zeigt sich das der Ruf nach mehr Transparenz rund um den Globus zu hören ist nicht mehr als Lippenbekenntnisse sind. Schade das man nicht mehr nur explizit auf Fed & Co aus den Staaten schimpfen kann........ Die Aussichten für die noch vor einem Jahr "unverwundbare" Golfregion haben sich nicht nur wegen des fallenden Ölpreises merklich eingetrübt. Zum Glück sind immerhin Teile der Region dank Ihrer Sovereign Wealth Funds nicht von der Gnade ausländischer Kreditgeber abhängig. Dummerweise gilt das nicht für Dubai wo die Fallhöhe besonders hoch ist...... :-) ( siehe auch No Kidding.... Dubai May Need Help To Repay Debt.... )

Hat tip to Tim and his blog The Mess That Greenspan Made

‘Banks are hereby required not to be in a hurry to publish their audited annual accounts’ FT Alphaville

Yes, that’s right.

If you happen to be a bank in the United Arab Emirates you have most likely received the above request from the central bank, according to reports from the Zawya Dow Jones newswire. Could the regional lender of last resort be trying to buy some time? As the agency reports (our emphasis):

DUBAI (Zawya Dow Jones)–The United Arab Emirates’ central bank has sent letters to local lenders asking them not to rush the announcement of their fourth-quarter earnings and to be fair in evaluating their investments, a senior banker said Tuesday. “The central bank sent letters to banks on Saturday to ensure prudent application of disclosure principles.

The central bank asked banks not to rush to announce their results,” the banker, who spoke on condition of anonymity, told Zawya Dow Jones. Under U.A.E. regulations, local banks have a 45-day period from Dec. 31 to report their results. “Banks are hereby required not to be in a hurry to publish their audited annual accounts,” Central Bank Governor Sultan bin Nasser Al Suwaidi said in the letter, seen by Zawya Dow Jones. “It’s a very prudent step to ensure the central bank is able to provide guidance for consistency across all banks in the U.A.E., in particular regarding determination of fair value and on general provisioning such as portfolio level rovisions,” said Sanjay Uppal, chief financial officer at Emirates NBD.

In the letter, the central bank tells bankers that both it and the federal government are aware of the impact the global credit crisis is having on world markets and are addressing the issue of liquidity in the U.A.E., but that banks also have a role to play. “Under these circumstances, banks should exercise vigilance and utmost caution before they publish their audited annual accounts for the year 2008,” Suwaidi said, adding that world markets remain highly volatile as investors have been prone to overreact and as a result securities may be hard to assess. Suwaidi said the central bank has started to examine the “true value” of asset quality in banks. But gauging this may take more time than under normal circumstances, as the central bank needs to identify carefully the nature and value of the assets, Suwaidi said. The central bank also asked financial institutions to build adequate provisions and reserves.

From Creditflux via Alea / FT Alphaville

Spanish website Cotizalia reports that Spain’s banks and cajas are negotiating on a one-to-one basis with the Bank of Spain to “fine-tune” their 2008 accounts in order to avoid taking catastrophic write-downs on lans.According to the article, the central bank has agreed to allow the banks to increase the “calendar of amortisation” of these troubled assets, which are said to be mostly loans to property developers.

This Ponzi Scheme Won´t Get A Bailout.......

Unlike others...... I still hope that at least the $ 50 billion number won´t be confirmed but it really looks like this story has the potential to rival the failed auto bailout. Even if the real number is only a fraction this will send shockwaves trough the hedge fund industry and could lead to much more forced selling..... At least the players now burned with billions call themselves "smart money" so we really shoulnd´t feel any mercy ( especially after you have read the "Cassandra Does Tokyo" or "Ft Alphaville" link. Naked Shorts back in 2001 questioned this how "Bernie" Madoff "created" his performance Madoff tops charts;skeptics ask how ).... On the auto topic it wouldn´t surprise me if we will see a TARP solution for the automakers during the next few days..... Wouldn´t be the first u turn from Paulson... :-)

Das wird ein Schneelballsystem sein das im Gegensatz zu anderen an Wall Street nicht rausgehauen wird..... Ich hoffe insgeheim immer noch das die Summe von 50 Mrd $ nicht bestätigt wird aber nichtsdestotrotz hat diese Geschichte das Zeug selbst den gescheiterten Rettungsversuch der US Autoindustrie zu toppen. Selbst wenn die Summe um einiges geringer ausfällt wird dieser Vorfall zu einem weiteren massiven Vertrauensverlust und einem Run auf die Hedge Fonds und damit zu weiteren massivsten Zwangsverkäufen führen...... Dab zu den Geschädigten wohl in erster Linie andere Hedge Fonds gehören hält sich mein Mitgefühl aber sehr in Grenzen ( besonders nachdem man den Insiderbericht von "Cassandra Does Tokyo" & "FT Alphaville" Link gelesen hat die klar belegen das die ausgewiesenen Gewinne seit Jahren nicht stimmig sein können. Siehe auch diese Schlagzeile aus dem Jahr 2001 von Naked Shorts Madoff tops charts;skeptics ask how)........In Sachen Autoindustrie würde es mich nicht wundern wenn plötzlich ( binnen der nächsten Tage ) doch noch eine Lösung im Rahmen der TARP Gelder gefunden wird..... Wäre ja nicht die erste 180 Grad Wendung von Paulson & Co......

Bernie Madoff: The Indictment Original Filing / Original Anklagegeschrift via Henry Blodget / Clusterstock A MUST READ!

He Madoff with how much??? FT Alphaville

“This guy has managed to produce 1-1.2% PER MONTH, year after year after year…” Quote from a ( now money losing ...) client on May 2 2008 ...... via FT Alphaville

Madoff ‘Big Lie’ Hits Fairfield Sentry, Kingate Funds Bloomberg

A $50 Billion Fraud? So Where is the Money? Naked Capitalism

Ex-Nasdaq-Chef wegen Milliarden-Betrugsverdacht festgenommen Der Spiegel

The Madoff Complaint Calculated Risk

Bernie Comes Out of the Closet Cassandra Does Tokyo

> Hard to believe that this "likable" person has probably committed the "mother Of All Ponzi Schemes"....

> Fällt einem schwer zu glauben das dieser "sympatische" ältere Herr die "Mutter aller Schneeballsysteme durchgezogen hat.....

> Too bad that Madoff couldn´t hide his losses under some kind of level 3 accounting......

> Zu dumm das im Gegensatz zu den Banken Madoff seine Verluste nicht hinter der Level 3 Bilanzkosmetik verschleiern konnte......

Long-Term Capital: It’s a Short-Term Memory

Market amnesia..... The following article comes from ROGER LOWENSTEIN the author of When Genius Failed: The Rise and Fall of Long-Term Capital Management. I recommend to read the entire peace.

Manchmal könnte man wirklich meinen das der Markt an unheilbarer Amnesie leidet..... Der nachfolge Bericht kommt von ROGER LOWENSTEIN der den Bestseller When Genius Failed: The Rise and Fall of Long-Term Capital Management verfasst hat. Ich empfehle den kompletten Report zu lesen. Bleibt zu hoffen das der auch den Weg zu den Aufsichtsbehörden, Zentralbanken usw findet........


Long-Term Capital: It’s a Short-Term Memory NYT

A FINANCIAL firm borrows billions of dollars to make big bets on esoteric securities. Markets turn and the bets go sour. Overnight, the firm loses most of its money, and Wall Street suddenly shuns it. Fearing that its collapse could set off a full-scale market meltdown, the government intervenes and encourages private interests to bail it out.

The firm isn’t Bear Stearns — it was Long-Term Capital Management, the hedge fund based in Greenwich, Conn., and the rescue occurred 10 years ago this month.

AS striking as the parallel is to Bear, Long-Term Capital’s echo is far more profound. Its strategy was grounded in the notion that markets could be modeled. Thus, in August 1998, the hedge fund calculated that its daily “value at risk” — meaning the total it could lose — was only $35 million. Later that month, it dropped $550 million in a day .....

Rather than evaluate financial assets case by case, financial models rely on the notion of randomness, which has huge implications for diversification. It means two investments are safer than one, three safer than two. .....

The fund’s partners likened their disaster to a “100-year flood”— a freak event like Katrina or the Chicago Cubs winning the World Series. (The Cubs last won in 1908; right on schedule, they are in contention to repeat.) But their strategies would have lost big money this year, too.

John W. Meriwether, the fund’s founder, later organized a new fund, which suffered big losses early this year, according to press reports.

If 100-year floods visit markets every decade or so, it is because our knowledge of the cards in history’s deck keeps expanding. When perceptions change, liquidity evaporates quickly. Indeed, the belief that one can safely get out of a “liquid” market is one of the great fallacies of investing.

This lesson went unlearned. Banks like Citigroup and Merrill Lynch felt comfortable owning mortgage securities not because they knew anything about the underlying properties, but because the market for mortgages was supposedly “liquid.” Each firm would write down the value of its mortgage investments by more than $40 billion. .....

....the notion that a private hedge fund with but 16 partners and fewer than 200 employees could cause lasting harm was never truly examined. It was simply accepted.

The concept of too-big-to-fail, exceptional in 1998, is now a staple in the regulators’ playbook. Bear Stearns and, by implication, other troubled investment banks have been taken under Washington’s protective skirts; Fannie Mae and Freddie Mac, too. The Federal Deposit Insurance Corporation is pushing for easier terms for millions of homeowners; auto companies are demanding loan guarantees.

....Incredibly, six months after the Long-Term Capital affair, Mr. Greenspan called for less burdensome derivatives regulation, arguing that banks could police themselves. In the last year, he has been disproved to a fault.