[toeslist] RE: Kafka-esque undertones to the subprime mess
 
Date: Sun, 12 Aug 2007 13:06:31 -0500 (CDT)


Two recent TOES posts:

http://news.yahoo.com/s/ap/20070810/ap_on_bi_ge/fannie_freddie;_ylt=Ahng...

  "WASHINGTON -- Mortgage finance giants Fannie Mae and Freddie
    Mac will not be allowed to take on more debt, the government
    said Friday, denying requests to relax the companies'
    investment caps as a way to pump cash into the struggling
    mortgage market."

   "Earlier, the Federal Reserve announced that it will pump as
    much money as needed into the country's financial system,
    including $38 billion in temporary reserves injected Friday
    morning."

http://ftalphaville.ft.com/blog/2007/08/09/6366/kafka-esque-undertones-to-t
he-subprime-mess/

   "Fasten your seatbelts, comments Marketbeat. There are so many
    moving parts to this financial machine that were in need of a
    diagram, but the short version is that the ECB has seen something
    that spurred it into action."

   "That emergency issue of 95bn in loans to European banks was meant
    to be a calming measure, but thus far seems to have had just the
    opposite effect."

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

95 billion euros = $US 132 billion compared to "only" $US 38 billion
indicates that Europe is far more concerned by 10 August than the US
government about a collapse of world finance!

The last time international finance was so threatened was the collapse
of Long Term Capital Management hedge fund which had "bet" the farm on
Russian debt and lost it when Russia defaulted. The Fed rushed in to
support the banks which had loaned LTCM billions and billions of $US.
Bank "liquidity" was preserved and the international financial fabric,
though torn, was repaired.

Selling repackaged subprime mortgages is history being repeated. This
outright scam carries the possibility of international financial
meltdown because foreign speculators are involved. There are two
types of money, what the government prints - legal tender - and what
banks are allowed to print - credit.   Credit is money created by banks
making interest paying loans.   Legal tender, however, does not require
interest to exist. Banks are permitted by "ever vigilant" governments
to create loan money based on their small holdings of legal tender.
(Fractional Reserve Banking)

A scam proceeds by fliping a real or imaginary asset creating a new
loan on each flip and increasing the price of the asset with each flip.
As long as the "players" are "confident" that they can sell the asset
for a higher price the game proceeds and the banks loan them "money."
Eventually the asset can no longer be sold for a higher price. Game over!

The tower of interest paying bank loans supporting the game become
"non-performing." Players who quit in time now have bank deposits but
the banks hold failing loans. There is a "liquidity" crisis - not
enough legal tender, banks fail!

If the US government will not save banks this time as the report quoted
above indicates, there is a black Monday ahead!
        ".....experienced, vigilant market watchers" my foot!

                ....RwZ....