Friday, September 12, 2008

Dear Hank:

I read in the WSJ that you and other officials are wondering what is causing all this turmoil even after you've done important supportive actions. "Federal officials and market players are struggling with the same issues: Why haven't the steps taken so far calmed the system? What can policy makers do next?" The answer is simple: huge pools of unregulated money are sloshing around the financial system. These big money pools are commonly known as hedge funds. Unnatural derivative securities give them unprecedented leverage to attack firms and create bubbles in commodities that then must eventually burst. Here are two examples - LEH and the oil markets.

First - LEH

The assault on the credit default swaps of LEH are being used in conjunction with shorting its stock to create fear and panic in its survivability. There is no limit on the amount of credit default swaps that a hedge fund can attempt to buy. No natural sellers exist for such swaps. So my placing orders for huge amounts of swaps in a weak market, while shorting its shares aggressively - even with virtual shares with no uptick rule - thanks to SEC timidity or stupidity or knavery. And the hedge fund can place huge orders for puts on LEH shares, too.

The press picks up the weakness, reports it and then endlessly and breathlessly speculates on why the firm's credit is under stress. And after the near extinguishment of the stock of FNM and FRE, and BSC, stockholders panic and sell. Lenders worry. Counterparties worry.

In the past, there were only so many bonds that existed for a firm like LEH. And most were held by "real buyers". Selling bonds short was very hard or impossible. Now, credit default swaps can be printed with impunity by speculative pools seeking to create weakness for a financial firm. No position limits exist. No short selling rules. The government's silly infatuation with "unregulated markets" and "unregulated capital" has permitted this to be done.

Second - oil markets

The oil price bubble of this spring was entirely due to these huge, unregulated pools of money, strongly supported by pension fund speculation in commodities. Demand data already showed weakness, while price rose to wild levels. And data has been flowing out how mislabeled speculative groups had huge positions hidden under the guise of "commercials" creating an illusion of real demand. Now the CFTC is slowly recognizing part of the problem.

From the FT: "The Commodity Futures Trading Commission, the main regulator of commodity markets, told the US Congress on Thursday it was imposing “enhanced control” on dealing by Wall Street banks and forcing them to publish new data on their positions. The CFTC’s measures will focus on swaps – private contracts between investment banks and clients such as hedge funds ... "

And more: The CFTC said that of the 550 clients of swap dealer it has identified through an unprecedented special survey, at least 18 were above the exchange limits thanks to the use of on-exchange and swap trading.

Again, in the oil market, there are a limited number of natural sellers of oil futures, viz, the oil companies. OPEC and governments who hold most oil in the ground for future delivery do not hedge in large amounts. So the natural sellers, like for credit default swaps, can be easily overwhelmed by the huge pools of unregulated money.

Conclusion:

Permanent elimination of this credit turmoil requires strict regulations of the huge big money pools. And the SEC and CFTC and even Congress, if necessary, must enact strict rules on short selling, position limits and credit derivatives to detect and prevent such wild market manipulations and distortions.

Sincerely,

Bunkerman

Markets

Interesting day, yesterday. The strong did well - WFC, BAC, JPM - and the weak suffered - MER, LEH, WB. Perhaps this is a sign of the end, as distinctions are now being made instead of total panic. Doing nothing, awaiting AAPL to hit around 145 to add.

World

It's remarkable how one can know the intent and action of Putin simply by listening to him and applying the rule that whatever he accuses the US of doing is in fact what he is doing. Read: "Commenting on the Georgian crisis, he [Putin] said Moscow was ready for political and economic co-operation with the west but not if it was going to be “pushed around” by the US. "Even one country with strong forces should not solve all the problems of the world by itself. It should attract allies and partners. It must not behave like some kind of Roman Empire,” Mr Putin said. :

So now we know that Putin is trying to create a new Russian empire. QED.

Word of the Day

"Verily" - adverb [$10]
Verily means really, truly.
Sentence: Verily, the ultimate permanent solution to the credit "crisis" is a combination of strict regulation of huge hedge funds, short selling and derivatives.

"Veriest" - adjective [$10] archaic
Veriest means so called in the fullest sense, complete, absolute (the veriest fool knows that). Superlative of "very".
Sentence: The veriest permanent solution to the credit crisis will require the panoply of strict regulation of huge hedge funds, short selling and derivatives.

73 comments:

Bunkerman said...

Hmmm Liesman on Babblevision used a "locust swarm" analogy as going from field to field eating the crop. I just sent him an email telling him the "locusts" are the hedge funds.

Bud said...

good interview by Palin.......of course she was a bit nervous cuz she knew the angry left and the media wud dissect her every word

poor main stream media.....the more they attack her....it only makes her more popular with the common man

she is a teddy roosevlt



go sarah go !!!!

Bunkerman said...

yes, the left is going crazy.

I heard a rumor Obama was going to kick Biden off the ticket & put Hillary onto it.

Interesting.

Spin-em said...

THE JERSEY BUGLE

Tickets for 5 remaining Rutgers Home games....great seats

Price: Free

call ###-####

ask for Mike

Spin-em said...

PS....price includes face paint supplies and #14 jersey

Spin-em said...

will cut your grass for those 5 saturdays while you attend game....

mfl59 said...

Bud you win sir...mot another word...

Bud said...

'price : free'


come on ....... that's mean


lmaooooooooooooooooo

mfl59 said...

lmaooooooo spin.....well played

Spin-em said...

I feel your pain mike..GO NY SKANKEES!!

Spin-em said...

my new teams....Phils...ABB(anybody but Boston)..lol Go Rays..sweep the skanks

Bud said...

jets......red sox.....mets......cyclones

all winners


life is good

'a perfect storm'



PS.....wait til next year boys

Bud said...

holy smokes

frosty's stupid 'ops expo misdirection' not so stupid afterall


PS......i got a private email from spin?? i hope this counts as a response


'xoxoxoxoxoxxo'

Spin-em said...

now he admits liking the jets again..lol

Spin-em said...

I got one from Bud first


xoxoxoxo

Spin-em said...

"The market has had plenty of time to prepare"......that doesnt some fun for LEH common

mfl59 said...

Bunkerman what is you prediction for this weekend regarding this financial mess? LEH find a buyer? Hank and Ben concoct more genius?

Bunkerman said...

Yes, I'd figure someone buys LEH. No govt support this time, though.

mfl59 said...

okay Bunkerman...Im with you sir....took some AAPL October calls.....beefers begone!

Frosty said...

"Yes, I'd figure someone buys LEH. No govt support this time, though."

I'll take the over.

Frosty said...

F and GM strong like bull...one ton dissel trucks must be flying off the lot...rumors of a bail won't go away...please, this is the USA, land of the free...free govt cheese...Bunkerman, do you and these non posters have no shame...sitting on your big fat wallets while the common man picks up the tab.

mfl59 said...

Paulson: nonononon LEH bailout...is he bluffing?

Bunkerman said...

Hmmm .. based on the credit card bills of Mrs. B that I pay, I think I support the common man and small business.

It's a pleasure to pay them !

;-)

Bunkerman said...

a smart way to buy LEH is scoop up a lot of that debt at a big discount, and then pay the employees a good price for their stock IFF they sign a contract.

If done in the billions, would get LEH for zero or less.

Bunkerman said...

no bluff this time. No gov't money now. BSC got some because it was a shock-surprise.

I wonder if AIG has a huge net open book on credit default swaps ?

I've never liked that firm - black box - liars.

Frosty said...

Bunky...we have the tinder for an ops expo bear sack stomping...if the ppt can't juice the tape and stem these raiders they should be lynched...they best play this hand right or this tape is coming apart next week.

Frosty said...

Spin...knihgts...MLF59 gonna need to make a play today...a web gem perhaps...MVP MVP MVP

mfl59 said...

one of my good buddies works at LEH....said its over..."pack your shit" they told him......

Dick Fuld....freaking faggot....

Spin-em said...

lol...mfl MVP..MVP..MVP

Frosty said...

Bunky...tape saying a rate cut coming...time to get Ben's grade book out, where are we C- or D...so your position is the grade goes lower with a rate cut, hence you want no cut and a much lower market to bring in real buyers.

Frosty said...

MLF59 MVP...he had me at FCX...well played sir...fine fishing indeed.

Bunkerman said...

btw mfl, you do realize my AAPL play is a LT position.

Bunkerman said...

Hmmm I'm reading the H. L. Mencken writings about the Scopes "monkey" trial.

I see it was in Dayton ...











Dayton, Tennessee.

;-)

mfl59 said...

its long term for me too Bunkerman...a week or so...lol

Bunkerman said...

lolol

Bunkerman said...

I have to believe this drop in AIG stock price is due to fear of a huge net credit default exposure.

If so, such idiots.

Bud said...

i'm waitin for my daily dose of those stupid frosty jokes


i guess he lost the menu to the Tandoor House

mfl59 said...

Bud your boy Mr. G coming up on bloomberg now....

Frosty said...

How do you stop a Pakistani tank ?
>Shoot the men who are pushing it.

How do you disable Pakistani missiles ?
>Cut the rubber band.

Have you ever seen Pakistani war heroes ?
>Neither has Pakistan.

Did you hear about the other latest Pakistani invention ?
>The new automatic parachutes. They open on impact.

How do you sink a Pakistani battleship?
>Put it in water.

Did you hear about the 747 jet which Crashed into a cemetery in Karachi ?
>The Pakistani officials have so far recovered 3000 bodies.

Did you hear about the Pakistani admiral who had asked to be buried at sea?
>Five Pakistani sailors died digging his grave.

Did you hear about the shutdown of the Karachi National Library ?
>Somebody stole the book.

You're locked in a room with Saddam Hussein, Adolf Hitler, and a Pakistani. You have a gun with ONLY two bullets.What do you do?
>Shoot the Pakistani twice to make sure he's dead.

What's brown and black and looks great on a Pakistani?
>A Doberman.

How can you tell when a Pakistani is lying?
>His lips are moving.

What do you have when a Pakistani is buried up to his neck in sand?
>Not enough sand.

Did you Hear about the terrorist that hijacked a 747 full of Pakistanis?
>He threatened to release one every hour if his demands weren't met.

Frosty said...

big swing and a miss...stupid frost...nice pitch Bud.

Bud said...

oh man

i just got knocked out 'michael spinks' style


LMAOOOOOOOOOOOOOOOOOOOOOOOOO

Spin-em said...

(with packy accent)

He's here all we my friends..Try the Chicken Pakoras!!

Frosty said...

MLF59 searching for GE double load point...anyone.

Bud said...

Dear Sal ,

Saturday’s ISU – Iowa football game promises to be another exciting chapter in this long in-state rivalry. Help cheer on the Cyclones and show your ISU pride through one of these online activities:

Review Iowa State logos dating back to the 1800s

Listen to the ISU Fight Song and other ISU songs

Remember the traditions of Iowa State

Make a gift

Thank you for your support, and Go Cyclones!

From,
Your friends at the ISU Foundation

Frosty said...

where is Mern...shopping for bullets...PPT knows not to wave an unloaded gun while screaming back off N, don't they.

See bunky has me on ignore, perhaps I can get a reach around paper trade from brother Mern.

Spin-em said...

loool

oh maan...good times..good times

Bunkerman said...

hmmm ... Washington Mutual jumps $0.25 in past few minutes; strength attributed to American Banker report that JPM is in advanced talks to buy WM (2.97 +0.13

Bunkerman said...

got back from dentist ... stopped at McD for lunch ... DQPwC mmmmmmm

Bunkerman said...

pretty funny jokes, frosty.

:-))

Bunkerman said...

hmmm Faber says no active JPM for WM.

oh well.

C'mon Jamie, get in there & bid 9. Your point is 9.

mfl59 said...

9 dollars? or 9 yen?

Frosty said...

anyone need to see more.

MVP MVP MVP

mfl59 said...

lmaoooo nononononono MVP...simply a joke to ease the strain....

mern gets my vote

mfl59 said...

There's high short interest in your stock? Blame the
hedge funds. It costs $4.50 to fill up your S.U.V.? Blame the hedge funds. And
now, this: You're the chief executive of Apple Inc. (AAPL) and rumors of your
death are flying around the Internet, even though you're still alive? Blame the
hedge funds.
At a time when the tu culpa is always cooler than the mea culpa, people in
business and politics - from Joe Biden to Steve Jobs - have picked hedge funds
as the ones to blame.
Of course, scapegoats have always been popular throughout history. Often the
scapegoats get into trouble. Other famous targets of blame include Marie
Antoinette for the French Revolution, and that Richard Jewell guy they blamed
for the Atlanta Olympics bombing. Look how they turned out.
It's inevitable that hedge funds, with their lack of transparency, reputation
for catering to the rich, and with the Hollywood lifestyles of some of their
managers, are going to continue to get blamed when things go wrong in financial
markets. After all, it's fun, it's easy and just like there's no way to prove
whether the blame is warranted, there's no way to prove that the blamer is
wrong for doing the blaming.

Spin-em said...

MVP..MVP..MVP

Bunkerman said...

any reason for GE to be getting hit so hard ?

Bunkerman said...

Who wrote that silly piece on "blaming headge funds" ?

There are plenty of facts to cause one to blame hedge funds. Odd that piece mentioned none.

That sounds like something that fool "jim" might write.

Bunkerman said...

I guess the CFTC didn't find "real" proof of hedge fund manipualtion to impose those new rules.

And the Fed is dreaming when it wants hedge fund involvement in clearing derivative trades.

And those hedge fund blow ups & liquidations are not really happening.

And those failures to deliver virtual shares sold short never really happen.

Sophistry only fools the common man.

Frosty said...

couple second tier firms out negative GE finance, doubt that is accounts for the volume...sure looks like real sellers...25.60 the july low tick.

Bunkerman said...

I wonder if there are rumors GE has a big short book in credit default swaps ?

Bunkerman said...

must be real - need real sellers to move that stock so much.

mfl59 said...

the article came from the Dow Jones Newswire....

i thought that might rile you up a bit bunkerman....

Bunkerman said...

lol ... you read me well.

just like some sophomoric, smarmy reporter bs.

Frosty said...

3:21 PM Until now, it's been assumed Fannie and Freddie credit-default swaps, which were triggered by the government bailout, will settle near par. An upcoming decision may change all that.

Bunkerman said...

wow look at that MER waterfall - dropping into the black hole.

Just saw an artcile asking why doesn't BAC wait & buy MER ...

Bunkerman said...

getting close to martini time

:-))

Bunkerman said...

amazing collapse in AIG ... gotta have something to do with credit defualt swaps.

Frosty said...

MER...one hell of a trade Bud.

Bunkerman said...

This is a sheep herding weekend for Sky - I take him to his lessons.

Have a good one.

Have a drink on me.

;-)

Bud said...

i love this one



ruth......gehrig.....dimaggio........mantle.....

arod?? huh??


LET"S GO YNAKEES !!!!!!!!!!!!!!

Bud said...

GO CYCLONES !!!!!!


oh yeah.......i almost forgot

go get'em Brett !!!!!!!

Bud said...

sea-pigeons v 49ers


the pussies v the fags


tough choice for frosty.......he's a pussy and a fag

Bud said...

GO SARAH GO !!!!!!!!!!