“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Friday, August 10, 2007

Is The Bubble About to Burst?

Fed Injects $198 Billion Into System

Spectacular Acts Of Central Banking
Paul Maidment, 08.09.07, 9:11 PM ET Forbes

The frenzied plea of money manager turned TV markets maniac Jim Cramer to the Federal Reserve to “open the window” – i.e., pump liquidity into the banking system to forestall a credit crunch – seems to have been heard.

And it was heard as far away as Europe. Not that surprising, as Cramer was shouting loud enough.

On Thursday, the European Central Bank stunned investors by pumping $130 billion into the banking system via a tender offer taken up by 49 banks, making the Fed's action later on look modest by comparison. It injected $24 billion via overnight and 14-day repos during Thursday morning trading.

In truth, the central banks were listening more to the silent evaporation of liquidity from the inter-bank market than to Cramer, whose hysterical performance has been immortalized on YouTube. The ECB's action followed a sharp rise in overnight interest rates to 4.7%. Its target rate is 4%. In the U.S., overnight rates topped 5.75%. The federal funds target rate is 5.25%.

On both continents, the credit crunch has been caused by fears about securities related to U.S subprime mortgages that have become difficult to price in illiquid markets, and as a result, make it near impossible for investors to asses how much exposure funds and institutions have to subprime markets.

In such "who-the-hell-knows" conditions, equity, fixed income and foreign-exchange markets, all linked by a web of derivatives, become as volatile as we have seen in recent weeks. Only commodity markets seem immune.

The ECB's intervention was not far short of what it did in the two days following the 9/11 attacks on New York and Washington, D.C., in 2001. And it was 10 times the size of a typical ECB intervention, compared with the Fed's twice normal.

The relative scale of the two central banks actions prompts two thoughts. One should calm investors' jitters, if not the other.

The first is that the Fed believes that U.S. credit markets are still functioning adequately, if somewhat creakily, and that there is no crisis at hand. That is consistent with its comments just two days earlier when the Fed's interest rate-setting committee met, after which the Fed said nothing to suggest that the increasing number of banks and funds 'fessing up to subprime woes posed any sort of systemic risk to the financial system.

The second, as some commercial bankers have publicly acknowledged, is that the ECB pulled off a spectacular act of central banking by dint of the very scale of its intervention, pushing overnight rates back down to 4.1%.

But there is a second thought to that second thought. In taking such sweeping action, the ECB may have sent a signal to investors that there could be worse still to come, that the BNP Paribas (other-otc: BNPQY - news - people ) scare is only the tip of an iceberg. And that the ECB may know more that it is letting on. So, too, may the 49 banks who took its $130 billion on Thursday.

Unknown unknowns, to borrow former U.S. Defense Secretary Donald Rumsfeld's parlance, scare investors like nothing else.

And from the BBC

Are global market bubbles set to blow?

By Ben Richardson
Business reporter, BBC News

How can you tell the difference between a boom and a bubble?
There is a strange fascination in blowing a bubble, when despite your better judgement, you keep willing it to get bigger regardless of the dangers.
Then, suddenly, the violent pop that leaves you picking bubblegum off your eyebrows, or crying soapy tears.

For many observers, global markets are getting dangerously close to such a bursting point.

Until recently, we have been living in a period of low global interest rates that have let consumers and companies borrow money cheaply.

That has driven demand for mortgages, let companies pay increasingly large sums for takeovers, and allowed consumers to spend freely.

And the results of this credit splurge are hard to ignore:

UK house prices have doubled in the past 10 years.
China's main stock index has quadrupled in value since the start of 2006.
The UK's FTSE 100 and US S&P 500 stock indexes are at levels not seen in almost seven years.
Commodity prices have been buoyed by strong global demand, pushing some such as copper to records.
Merger and acquisition activity has taken off, and private equity firms are now in control of some of the world's biggest brands.
But as the records have continued to tumble, concerns have kept on mounting.
more here


  1. One thing about having no stocks, no bonds, and finally, very little debt, while not being a rich man, I don't have to worry if the market crashes.

    By the way, I saw that news item about that killing in Oakland. My sis used to work just up the street, at a hospital there. Med tech, she was, retired now.

  2. Deuce, I have to say,you do just an absolutely great job with the pics and graphics. Thanks.

  3. None of this could be true:
    Kudlow and Rufus assured me that New Century deal I posted 5 months ago or so would not cause a ripple in the larger markets.
    Don't tell Bear Stearns that one, nor the second biggest Mortgage lender in the USA that went Belly-Up.

    Leverage works wonders on the way up:
    On the way down things get inverted, quick-like.

  4. Kevin James
    Has a dynamite show that concentrates on illegals:
    Said prepare to hear a whole bunch of BS from Bush Amin about
    "taking the initiative on immigration"
    Meaning 61/2 years later, he's going to TALK about enforcing the law.
    ...and speeding up amnesty for Agricultural workers.

  5. Terrorists teaming with drug cartels

    Islamic extremists embedded in the United States — posing as Hispanic nationals — are partnering with violent Mexican drug gangs to finance terror networks in the Middle East, according to a Drug Enforcement Administration report.

    "Since drug traffickers and terrorists operate in a clandestine environment, both groups utilize similar methodologies to function ... all lend themselves to facilitation and are among the essential elements that may contribute to the successful conclusion of a catastrophic event by terrorists," said the confidential report, a copy of which was obtained by The Washington Times.
    This report was made in 2005, but Bush cares so much about our troops and citizens, that he facilitates terrorist funding to kill our troops.

    Lying, traitorous, scumbag.
    ...and a self-righteous Hypocrit to boot, just like Jimmah.

  6. Just a minor blip, doug.
    No need for concern, as buddy larsen used to say, about Pakistan.

    The smart money says Pakistan is secure, building towards the future, a lot like Havana, in December of 1958.

  7. Congressman calls for Hearings on Islamic-Mexican Drug Gang Connections
    ... reported linking of drug cartels on the Texas border with Middle East terrorism ...

    Doug Hanson:
    I showed over a year ago how this problem has been pushed under the rug since the early 90s.

    So, while Representative Ed Royce's efforts are commendable, the problem is much deeper than even he realizes. Not only are we dealing with an alliance of Islamic terrorist and drug dealers, but a professional force of largely Eastern Bloc special operatives hung out to dry because of the demise of the USSR and the Warsaw Pact.

    In this case, "embedded" is the correct term since these operatives have had over a decade to establish a politico-military infrastructure along the border. Calling for hearings at this late date will not hinder these operations one iota.

    Executive action is required and so far, the President or his military chiefs have shown no stomach for protecting our sovereignty agaionst foreign aggressors.

  8. You guys know I'm usually very short with compliments and ceremony, but I want to add my voice to that of Bob's. Deuce, Whit, Bob, Harrison and others, thank you for making the Bar the great watering place that it is.

  9. Come on, doug, how are we going to get back to 1999, if you keep posting links to realities.

    You're off message, get back to hope and prosperity, getting back to basics.
    Get back Loretta! Get Back!

    Open your mind to the opportunities, as Mr Bush said.

    Illuminate US with a few "points of light", Federal funding available.

    It's all good, if you let it be.

    Mother mary comes to me,
    speaking words of wisdom.
    Let it Be.

  10. el al Bob,

    You know there's only one solution for the coming generational fire storm that's about to hit us. :D

  11. 'I don't want to be a burden'--that's what the old folks used to say, Mat;)

  12. Oh, you're no burden at all. We'll clear the books with China soon enough.

  13. LOS ANGELES (Associated Press) -- The Food and Drug Administration said Wednesday it is checking whether shipments of Chinese seafood on an agency watch list were properly cleared for public consumption without being tested for banned drugs or chemicals.

    Agency officials said that while they believe the shipments were screened correctly, they wanted more details. That review comes in response to findings The Associated Press published Tuesday that at least 1 million pounds of frozen shrimp, catfish or eel raised in Chinese ponds were on an agency watch list but were not diverted to a lab.

    The 28 shipments the AP identified arrived under an FDA "import alert," which is supposed to trigger the tough screening requirement.

    The seafood, equal to the amount 66,000 Americans eat in a year, did not pose an immediate public health risk; the FDA has worried that long-term exposure to substances fed to some Chinese seafood could increase the risk of cancer or make antibiotics less potent.

  14. Doug, this deal isn't about New Century. This is all about the big banks loading up their vaults with lead and telling everyone they're full of gold. The Creditors want a peek at the contents, and the crooks (bankers) don't want to open the door.

    This is all about a bunch of thieves that got even more emboldened after none of their cronies went to jail over Enron. I think this deal's over in a week, or two; but, who knows.

  15. I know, I'm kinda skipping over the New Century deal, but everyone knew that deal was there. Right now, it's the snake "In the Woodpile," they're afraid of. Everyone's afraid to pick up the next log. It's not that the fed loaning them some firewood that's going to work the deal out; that just delays the reckoning. All the fed is doing is giving them a day, or two, to screw up their courage, and come up with a plan.

  16. But, having said all that: I guess you were more right than I wuz. Mea Culpa, m'lord.

  17. In maintaining their rosy economic outlook, most Wall Street analysts choose to ignore Fed Chairman Ben Bernanke's recent reminder that a protracted decline in home prices could have a material impact on consumer spending. According to Mr. Bernanke's congressional testimony last week, the Federal Reserve estimates that household consumption could be negatively impacted by as much as 9 cents for every dollar that home prices decline on a sustained basis. And considering that housing wealth, which is the main source of household wealth, presently amounts to 150 percent of GDP, and that household consumption still accounts for around 70 percent of GDP, the prospect of a protracted period of declining home prices is not something one wants to cavalierly brush aside.

    Contrary to what many on Wall Street would have us believe, the prospect of a protracted period of declining home prices now seems to be anything but a remote possibility. Indeed, with home prices already falling and with increased inventories of unsold homes rapidly mounting, it is difficult to see how home prices do not start falling at an accelerating rate over the next few months in order to clear a saturated market.
    Perhaps an even greater overlooked risk to the US economy than slowing consumer expenditure is the prospect of a full blown "credit crunch" in the financial sector that would seriously curtail bank lending to the economy as a whole. Sadly, this prospect too now seems to becoming an ever increasing likelihood. In his congressional testimony last week, Chairman Ben Bernanke owned up to the very real possibility that the financial sector's losses from sub-prime mortgage lending could very well reach as much as US$100 billion. Judging by the roughly US$2.3 trillion presently outstanding in sub-prime and Alt-A mortgage lending, Mr. Benrnake's present mortgage loss estimate is all too likely to turn out to be on the low side.

    The US Housing Bust is a Big Deal By Desmond Lachman

  18. I bow humbly in thanks!
    ...there was the follow-on of a couple more big ones, and then the Second Biggest Mortgage Company went under.
    ...and Bear Stearns took it in the shorts.
    (or their investors did)

    The way that lead deal works is like the loaves of Bread parable:
    Divide it up enough, repackage and resell it to enough people, and you can still cover each lead pile with enough gold bricks on the outside that it looks all shiny, ready for the "investors."

    Teach a man to invest in Gold, he'll have a store of value.
    Teach a man to sell lead as Gold, and he can become a Billionaire!

  19. As Iran's Atomic Energy Organization moves toward its announced goal of operating 50,000 uranium enrichment centrifuges in Natanz, the World Bank is funding nine government projects in Iran totaling $1.35 billion -- one of which operates in Isfahan, where Iran's nuclear program is headquartered.

    While the World Bank is part of the U.N. family, the bank's board is disconnected from the policies of key U.N. agencies -- especially the Security Council and the IAEA.
    The United States remains the top investor in the World Bank, contributing $950 million in 2006 and $940 million this year.
    In June the House of Representatives approved another $950 million. Meanwhile, the bank will disburse $220 million to Iran this year, with more than $870 million in the pipeline for 2008, 2009 and 2010.
    One has to wonder why a country that exports 2.6 million barrels of oil a day needs World Bank development assistance. Iran's oil export revenue nearly doubled between 2003 and 2005, from $23.7 billion to $46.6 billion. That number grew to $50 billion last year. Iran's real gross domestic product grew 4.8 percent in 2004 and 5.6 percent in 2005.
    Why does Iran need World Bank aid?

    Does makes me wonder, why does the US subsidize Iranian projects through the World Bank?
    Because the Federals are corrupt to the core, Administration actions not matching their rhetoric.
    While Iranian munitions kill US troops, we finance their deployment, because monies are fungible, hermanos.

    That's the truth, the rest is the spin of provocateurs, keeping the "liitle people" in the US agitated and afraid.

    But the US is subsidizing the Iranians to the tune of $220 million USD this year, no doubt about it. We should withdraw all funding from the World Bank, until those deals are scrapped or complete.
    Or the war drum rhetoric should stop at the White House.

  20. Teach a man to invest in Gold, he'll have a store of value.
    Teach a man to sell lead as Gold, and he can become a Billionaire!


  21. A quick one two: