So you don’t think that the Plunge Protection Team exists?
Perhaps you think that this is the half-baked notion of some crazy conspiracy theorists?
Then you need to read this.
A report by Sprott Asset Management quotes George Stephanopoulos (top advisor to President Clinton) as saying the following on ABC’s “Good Morning America” on September 17, 2001:
The “last pillar” of the US real estate market:
With the recent evaporation of demand for private-label mortgage-backed securities (that provided funding for the more “exotic” mortgages), the real estate market is now heavily dependent on Fannie/Freddie MBS to provide funding.
Fannie’s estimated market share of new single-family mortgage-related securities issuances increased to approximately 41.2% for the third quarter of 2007, from approximately 24.3% for the third quarter of 2006. (Page 4 of 10-Q)
Something that has been greatly overlooked in the reporting on Wall Street’s balance sheet problems is the issue of credit exposure on derivatives contracts.
It so happens that the quarterly 10-q filing of each investment bank provides a breakdown of the amount of derivatives credit exposure based on the credit rating of the counter-parties.
I have pulled the data provided on this from each 10-q filing of the investment banks and compiled it in one chart so that we can obtain a better idea of how they measure up in this regard.
I keep hearing this spin about how Goldman Sachs avoided the CDO/MBS meltdown because they were smart enough to hedge in advance.
These assertions keep being made in the media without any hard numbers to back it up. Sure, they may have hedged, but how much of their portfolio did they really hedge?
In order to get a better idea of the likelihood that these two leading mortgage lenders will “go under”, I thought it would be a good idea to dig into their last 10-K annual report filing to obtain information on what is their total exposure in higher risk loan categories.
The Bush “rate freeze” initiative in reality is about attempting to speed up the loan servicer process of evaluating whether borrowers would qualify for loan modification. The term for this is “fast track” loan modification. (Continued)
The Bush Sub-Prime Rate Freeze Plan is mostly public relations and very little substance.
Before even debating the details of Henry Paulson’s new plan to prevent foreclosures, I think it would be logical to first ask the question:
What causes foreclosures?
Your gut instinct may tell you it is not being able to make the mortgage payments. Even though we have been inundated with media coverage about this (i.e. impact of rate resets on ARMs), the truth is:
This is not the primary reason for foreclosures at all.
The main driver of foreclosures is the change in real estate prices.
This article was originally written in April 2007. It remains relevant today.
As US real estate prices fall and depress US economic growth, private foreign investors begin to withdraw their capital from the US financial markets. This capital flow would by itself act to elevate the currency value of the country that it is returning to. However, the governments of developing foreign countries have policies in place to fix the exchange rate of their currencies. In order to maintain this fixed exchange rate, foreign central banks will print their own currency and exchange it for US dollars (which are then invested into US government debt). The amount of money printed and exchanged into US dollars by the foreign central bank will necessarily equate to the amount of private capital returning to the country. These central bank policies will act to artificially keep the value of the US dollar elevated and artificially keep US interest rates low.
I translate their sell recommendation as a screaming recommendation to buy gold. They and their investment bank cohorts may possibly have a large short position in gold.
Sell gold due to alleviation of concern over bank balance sheets (resulting in US dollar appreciation)? Is that some kind of a joke? Who are they trying to fool?
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