Thursday, March 13, 2008

Major Systemic Collapse Eminent

Major Systemic Collapse Eminent

“Several hedge funds with assets of more than $4 billion (£2 billion) were on the brink of collapse last night or had halted withdrawals, despite moves by the US Federal Reserve this week to ease America’s deteriorating credit crisis with a $200 billion collateral lending facility. The potential closure of six funds came as a leading private equity executive, who declined to be named, said that such funds were “snapping like twigs,” with one failing every day. Yesterday Patti Cook, Freddie Mac’s chief business officer, predicted that the Federal Reserve’s $200 billion bond lending facility this week would fail to solve the long-term problem of Wall Street’s deepening credit crisis.” Hedge funds on the brink as US Federal Reserve cash fails to ease crisis Suzy Jagger Times Online

Things are getting worse daily. I don’t want to seem like an alarmist but every day we get more and more evidence the US economy, especially the financial and banking systems are facing their greatest challenges’ since the Great Depression. Not only are the largest Wall Street investment banks, commercial banks, national mortgage companies, the bond rating and insuring agencies in deep fiscal trouble, the so called shadow banking system is now on the brink of collapse. What is the Shadow Banking System, you ask? It is a complex mix of private equity funds, investment groups, future’s speculators, and risk funds that have literally amassed trillions, that’s trillions with a T, of dollars they have used as leverage for buy outs to acquire major companies the Chrysler Corporation, banks, bonds and other assets. The shadow banking system also includes big stakes Ponzi schemes that are now unraveling like a cheap sweater.
Most Black people have no idea what a Hedge Fund is, what derivatives or Credit Default Swaps are. I don’t understand them either. But I do know they are innovative variations on the theme of banking. Only they are not regulated by any oversight agencies. It’s like having the foxes guard the hen house. During an era where “greed is good” was the mantra of Wall Street, naturally these entities overdid it, taking it to the max. They succumbed to the same Enron type fraud, bookkeeping and accounting practices that resulted in Enron’s collapse. As a result they are creating havoc in the traditional banking and financial systems. “What has happened over the last decade is that a variety of new institutions have evolved that play a similar role to that of traditional banks, but that are outside the existing regulatory structure. Rather than acquire funds from depositors, these new financial intermediaries may get their funds by issuing commercial paper. And instead of lending directly, these institutions may be buying assets such as mortgage-backed securities, which pay the holder a certain subset of the receipts on a larger collection of mortgages that are held by the issuer. Although the names and the players have changed, it is still the same old business of financial intermediation, namely, borrowing short and lending long. There are a variety of new players involved. The principals could be hedge funds or foreign or domestic investment banks. Others could be conduits or structured investment vehicles, artificial entities created by banks, perhaps on behalf of clients. The conduit issues commercial paper and uses the proceeds to purchase other securities. The conduit generates some profits for the bank but is technically not owned by the bank itself and therefore is off of the bank's regular balance sheet. This system has seen an explosion in recent years, with the Wall Street Journal reporting that conduits have issued nearly $1.5 trillion in commercial paper. Their thirst for investment assets may have been a big factor driving the recklessness in mortgage lending standards, as a result of which much of the assets backing that commercial paper have experienced significant losses.” - James D. Hamilton Professor of Economics University of California San Diego
Imagine huge investment funds where just to get in you have to put up at least a million dollars in cash? Imagine investment groups and speculators that have trillions of dollars tied up in shaky loans, risky commercial deals, fraudulent worthiness claims and all of a sudden the bottom falls out. This is what is happening now. Even with insider trading, and the good ol’ boys network, the whole system is imploding. Even the big boys, the ones they said were too big or too well connected to fail are failing. Think in terms of giants like Citigroup, Bank of America and Bear Sterns going belly up. Think in international terms with banks in England, Spain, Germany, France and Asia having to be bailed out to prevent a wide scale panic. Things are so bad Ben Bernanke the Fed Chairman testified before Congress recently predicting smaller US banks would soon start to fail! Wonder how well that news went over with the Senate Banking Committee?
The Fed is creating/printing money like crazy, opening loan opportunities for commercial banks so they don’t become insolvent. The Fed is literally eating these banks' losses. It is using the bad loans on the commercial banks’ books as collateral for loans just to keep the banks afloat. Sounds like a recipe for disaster to me. Despite Bernanke’s efforts, the impending catastrophic economic tsunami is still gaining intensity and momentum During his Senate testimony, Bernanke admitted the economy is slowing and unemployment is escalating. Tell us something we don’t already know Benny boy.
Inflation is on the rise, which is devaluing the US dollar which results in higher living costs and lower living standards. There is little or nothing the big boys can do to avoid or minimize the coming train wreck. If the insiders are taking devastating hits (Drake Management, a New York money manager, wrote yesterday to investors in its $3 billion Global Opportunities Fund, warning them that it was considering closing the fund. The fund, which lost 25 per cent last year, has already blocked investors from withdrawing their cash. In its letter Drake, which manages $13 billion of assets, said that it may have to wind down the fund ‘in an attempt to maintain and maximise value for investors during this period of severe market downturn and contraction of liquidity’. Drake is also understood to be considering whether to close two other hedge funds, the Drake Low Volatility fund and the Drake Absolute Return, both of which lost almost a sixth of their value last year. ) what do you think our chances of getting out unscathed are?
But, if we trust our HIGHER SELVES we can prosper, even in this situation. We can begin working together collectively, pulling and pooling our resources as family and friends. We can form buying clubs and food co-ops, to purchase in bulk and keep costs down. We can form community gardens to grow our own organic vegetables and fruits. We can learn to barter individual or collective services and share our skills. Don’t despair, become despondent or discouraged. The world is not coming to an end. This too shall pass, in due season Do not allow conditions or alarming news to sap your resiliency, resolve or short circuit your resourcefulness. We can transcend the coming malaise. We can thrive, grow and prosper but only if we do it collectively. We’ve done it before, many times in AmeriKKKa despite horrific conditions. We can remain strong and healthy in the midst of the coming meltdown. We can thrive if we have a consciousness that sees possibilities and potential beyond this system, one that recognizes the real SOURCE of prosperity and fulfillment. Our greatest and most potent “resource” is not our money, houses or things, it is the SOURCE within.



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