01-19-2008, 11:18 PM
THERE'S TOO MUCH SEXUAL FINANCIAL STIMULATION ALREADY !
http://larouchepub.com/pr_lar/2008/lar_p...mulus.html
"We have a bankrupt system," LaRouche said, "which is inherently bankrupt, in which the amount of monetary aggregate being generated to bail out—as you see the bailouts occurring today—to bail out an inflated, explosive mass of financial aggregate, has reached the point that it is now going to accelerate at such a rate, that the question is, whether the U.S. economy, under its present policies, will outlive this current year. People who think they have money, are going to find they don't have any. People who thought they had vast savings, will find out they don't have any. That's the kind of world we're living in.
"And idiots out there, are saying, we're going to induce a palliative to some homeowners, we're going to "stimulate the economy. 'Stimulate?' What's that mean? More monetary aggregate! That's like putting more fuel in the fire, in the forest fire! The worst thing you can do.
"You have to go back to the Roosevelt idea, the Roosevelt conception. Put the system under bankruptcy protection, put it under control, and some things will have to go into negotiation, and some things will be paid; and that decision will be made on the basis of national interest and human interest, and human rights. That's our only chance....
"What we have to do, is forget monetary stimulation. We have to have a governmental control of the creation of credit. We must have a banking system, a regular banking system, which cooperates with government, in processing that credit into places where it's needed: New firms, infrastructure, so forth. Hmm? So, the creation of credit by government, not financial stimulation! You've got too much sexual financial stimulation going on as it stands now!...
"We don't stimulate a sick economy. We don't stimulate the sale of cocaine. We don't stimulate the spread of AIDS. We don't stimulate these things. What we do, is we concentrate on creating and supporting things which are necessary to cause the physical recovery of the economy.... So, it's not stimulation versus anti-stimulation; it's reorganization. And how do you do that? What you do is you go into the key parts of the economy, starting with homeowners, communities, and banks — real banks, not the fake ones. You stabilize them under bankruptcy protection, Federal bankruptcy protection. Don't try to resettle the accounts, don't try to resolve anything; just resolve they're going to be under Federal protection. Then you have to go from there to other measures which stimulate growth."
THE BOND INSURANCE CRISIS;or , MY FIG LEAF IS FALLING
http://larouchepub.com/pr/2008/080124fig...crash.html
First it was the sub-prime crisis, then it was the SIVs, and now it is the bond insurers that are the problem, according to the financial press. The line is that if the bond insurers fail, the ratings on the bonds they insure will be reduced, forcing pension funds and other institutions to sell their holdings, causing a crash in the market for the municipal bonds, CDOs, and other paper insured by these companies. That's a scary scenario, designed to make you feel that if we don't bail out the bond insurers, the whole system will collapse.
There's good news and bad news here. The good news is that the scenario presented above is not really true, but the bad news is that the situation is actually much worse.
Let's start with some basic cause and effect. It is not the collapse of the bond insurers that is jeopardizing the bond markets, but the collapse of the bond markets that is killing the bond insurers. Were the bond market sound, we wouldn't be hearing about bond insurance because it wouldn't be an issue. So the scenario being painted has it backwards. Bond insurance, like its larger credit derivatives sibling, is actually an accounting trick designed to help the financial markets portray all the worthless securities they are buying, selling, and holding as having value. When you think about it, the whole concept of such insurance goes out the door in a systemic crisis, since both the instruments being insured and the institutions providing the insurance are part of the same system, and when the system goes, it all goes down together.
So why have insurance at all? Take the case of the now infamous sub-prime mortgage loans which are pooled into groups, against which mortgage-backed securities are issued. The mortgage-backed securities are theoretically backed by the mortgages in the pool, but they really aren't. Then the mortgage-backed securities are divided into tranches, with a hefty slice being rated AAA by the ratings companies, even though they are nominally based upon junk-rated loans. The middle tranches of the mortgage-backed securities are then often combined with tranches from other mortgage-backed securities and other forms of debt into entities called collateralized debt obligations, or CDOs. These CDOs are divided into tranches, including a hefty slice rated AAA, and sometimes the middle tranches of the CDOs are combined into yet another abomination, called a CDO-Squared. The top tranche of the CDO-Squared is divided into tranches... You get the idea. What you have is a whole string of financial instruments, some of which are given the coveted AAA rating, even though they are all based upon junk-rated mortgages and a process which basically concentrates crap. Everybody on Wall Street knows the credit ratings on this junk are frauds, designed to keep the system going, but some of the potential buyers — say, your pension fund — are nervous, so the bankers came up with the idea to buy insurance on the bonds. The idea is for the bond insurer to have an AAA rating, and in effect rent that rating out to the mortgage-backed securities, CDOs, and similar securities. That means that the top tranche of a junk-backed CDO-Squared can not only have an AAA rating, but can also be insured by an AAA-rated bond insurer. What could possibly go wrong?
With the belt of an AAA rating and the suspenders of AAA-rated insurance in place, these abominations were sold all over the world, to mutual funds, pension funds, hedge funds, banks, corporations, to anyone foolish enough to buy them. Now they are blowing up, and the AAA ratings have been shown to be nothing but an illusion.
The problem is not the bond insurers, but the system. The system itself has failed, and that is what all the scenarios are trying to hide.
NEW INFLATIONARY BAILOUTS : THIS TIME OF BOND INSURERS
http://larouchepub.com/pr/2008/080123ins...louts.html
The U.S. Federal Reserve was panicked into its drastic midnight cut in short-term rates by the imminent failure of bond insurance companies, and the beginnings of an implosion of financial derivatives, several sources report. Since the morning of Jan. 22, calls and plans are multiplying for government-backed bail-outs of of the bond insurance companies — starting with Ambac Financial Group — on the model of the ruinous $75 billion in bail-outs for the mortgage lender Countrywide Financial. Hyperinflation is the result of this game — see Lyndon LaRouche's warning statement of Jan. 23, which describes the only path out of it for governments.
A New York financial manager reports the Fed governors were moved to panic by the beginnings of a derivative implosion, in the imminent failure of Ambac and the liquidation of ACA, a smaller bond insurer which already failed. This threatens many banks with huge, unpayable claims on financial derivatives. The Fed funds rate was drastically lowered to pump cheaper money into the banking system and hold off these losses.
A Dresdner Kleinwort bank analyst, Kevin Logan, told the London Times the same thing: The Fed was panicked over the weekend by fears that the U.S. bond insurance market, and its financial derivatives overhang, could implode. "The red light that triggered this cut is the issue of the bond insurers," Logan said. "The Fed realised what the consequences were in the event that a bond insurer fails. They hit the emergency switch and cut rates. They spent last week talking about it, calling their contacts. The picture started to look very messy and people realised it could get a lot worse. Then the White House came out with their fiscal stimulus programme which didn’t address anything. The problem is the credit markets."
An analyst from UniCredit bank in Italy says an immediate government bail-out of MBIA and Ambac Financial Group is "highly likely" to avoid a collapse hitting banks. "A kind of bail-out supported by monetary authorities or governments is the only chance for the [bond insurance] industry to survive."
Ambac is now making public announcements that it is will be recapitalized by a merger. New York State insurance regulations are apparently being reviewed and changed overnight to grease the skids for such a bail-out/takeover of Ambac. ACA Capital Holdings Inc.'s state regulator (Maryland Insurance Dept.) is holding off on liquidation proceedings while trying to unwind $60 billion of credit-default swap (derivatives) contracts on which ACA can't pay.
HYPERBOLIC COLLAPSE:
BOND INSURERS DEMISE THREATENS $2.6 TRILLION BOND MARKET
http://larouchepub.com/pr/2008/080117ambac_demise.html
Alarm is increasing in the bond markets, as Fitch Ratings has downgraded the rating of Ambac, the second-largest insurer of municipal and structured bonds, by two levels—from AAA, to A. This means that Ambac will no longer be able to insure bonds, which is the majority of its business, and will have to sell itself to a bank if it is to avoid bankruptcy.
Fitch has also threatened to downgrade MBIA, the largest bond insurer, because of new losses. Without an AAA rating, neither can insure bonds.
The loss of the AAA rating may lead to downgrades of the $2.6 trillion of municipal and structured bonds they guarantee. This would force banks to increase the amount of capital they hold against bonds, and hedges with bond insurers—at a time when giant investment banks like Citigroup and Merrill Lynch are already begging for capital from foreign investors.
Lyndon LaRouche warned that Jan. 3 and afterward would usher in a different phase of the crisis, when outside auditors would go into firms, and find losses many times higher than their own internal audits showed. Just that happened yesterday, as Standard and Poor's said that losses for bond insurers could be 20% higher than previous estimates. Meanwhile, Merrill Lynch announced the writedown of $3.1 billion in hedges with bond insurers, mostly with ACA Capital, another bond guarantor that has lost its investment-grade rating and must raise $1.7 billion by the end of today to avoid insolvency.
Under pressure from Fitch, Ambac announced on Jan. 16 that it would raise $1 billion in new equity. However, this morning, Ambac abandoned that effort, after its shares fell 70% in 48 hours.
http://larouchepub.com/pr_lar/2008/lar_p...mulus.html
"We have a bankrupt system," LaRouche said, "which is inherently bankrupt, in which the amount of monetary aggregate being generated to bail out—as you see the bailouts occurring today—to bail out an inflated, explosive mass of financial aggregate, has reached the point that it is now going to accelerate at such a rate, that the question is, whether the U.S. economy, under its present policies, will outlive this current year. People who think they have money, are going to find they don't have any. People who thought they had vast savings, will find out they don't have any. That's the kind of world we're living in.
"And idiots out there, are saying, we're going to induce a palliative to some homeowners, we're going to "stimulate the economy. 'Stimulate?' What's that mean? More monetary aggregate! That's like putting more fuel in the fire, in the forest fire! The worst thing you can do.
"You have to go back to the Roosevelt idea, the Roosevelt conception. Put the system under bankruptcy protection, put it under control, and some things will have to go into negotiation, and some things will be paid; and that decision will be made on the basis of national interest and human interest, and human rights. That's our only chance....
"What we have to do, is forget monetary stimulation. We have to have a governmental control of the creation of credit. We must have a banking system, a regular banking system, which cooperates with government, in processing that credit into places where it's needed: New firms, infrastructure, so forth. Hmm? So, the creation of credit by government, not financial stimulation! You've got too much sexual financial stimulation going on as it stands now!...
"We don't stimulate a sick economy. We don't stimulate the sale of cocaine. We don't stimulate the spread of AIDS. We don't stimulate these things. What we do, is we concentrate on creating and supporting things which are necessary to cause the physical recovery of the economy.... So, it's not stimulation versus anti-stimulation; it's reorganization. And how do you do that? What you do is you go into the key parts of the economy, starting with homeowners, communities, and banks — real banks, not the fake ones. You stabilize them under bankruptcy protection, Federal bankruptcy protection. Don't try to resettle the accounts, don't try to resolve anything; just resolve they're going to be under Federal protection. Then you have to go from there to other measures which stimulate growth."
THE BOND INSURANCE CRISIS;or , MY FIG LEAF IS FALLING
http://larouchepub.com/pr/2008/080124fig...crash.html
First it was the sub-prime crisis, then it was the SIVs, and now it is the bond insurers that are the problem, according to the financial press. The line is that if the bond insurers fail, the ratings on the bonds they insure will be reduced, forcing pension funds and other institutions to sell their holdings, causing a crash in the market for the municipal bonds, CDOs, and other paper insured by these companies. That's a scary scenario, designed to make you feel that if we don't bail out the bond insurers, the whole system will collapse.
There's good news and bad news here. The good news is that the scenario presented above is not really true, but the bad news is that the situation is actually much worse.
Let's start with some basic cause and effect. It is not the collapse of the bond insurers that is jeopardizing the bond markets, but the collapse of the bond markets that is killing the bond insurers. Were the bond market sound, we wouldn't be hearing about bond insurance because it wouldn't be an issue. So the scenario being painted has it backwards. Bond insurance, like its larger credit derivatives sibling, is actually an accounting trick designed to help the financial markets portray all the worthless securities they are buying, selling, and holding as having value. When you think about it, the whole concept of such insurance goes out the door in a systemic crisis, since both the instruments being insured and the institutions providing the insurance are part of the same system, and when the system goes, it all goes down together.
So why have insurance at all? Take the case of the now infamous sub-prime mortgage loans which are pooled into groups, against which mortgage-backed securities are issued. The mortgage-backed securities are theoretically backed by the mortgages in the pool, but they really aren't. Then the mortgage-backed securities are divided into tranches, with a hefty slice being rated AAA by the ratings companies, even though they are nominally based upon junk-rated loans. The middle tranches of the mortgage-backed securities are then often combined with tranches from other mortgage-backed securities and other forms of debt into entities called collateralized debt obligations, or CDOs. These CDOs are divided into tranches, including a hefty slice rated AAA, and sometimes the middle tranches of the CDOs are combined into yet another abomination, called a CDO-Squared. The top tranche of the CDO-Squared is divided into tranches... You get the idea. What you have is a whole string of financial instruments, some of which are given the coveted AAA rating, even though they are all based upon junk-rated mortgages and a process which basically concentrates crap. Everybody on Wall Street knows the credit ratings on this junk are frauds, designed to keep the system going, but some of the potential buyers — say, your pension fund — are nervous, so the bankers came up with the idea to buy insurance on the bonds. The idea is for the bond insurer to have an AAA rating, and in effect rent that rating out to the mortgage-backed securities, CDOs, and similar securities. That means that the top tranche of a junk-backed CDO-Squared can not only have an AAA rating, but can also be insured by an AAA-rated bond insurer. What could possibly go wrong?
With the belt of an AAA rating and the suspenders of AAA-rated insurance in place, these abominations were sold all over the world, to mutual funds, pension funds, hedge funds, banks, corporations, to anyone foolish enough to buy them. Now they are blowing up, and the AAA ratings have been shown to be nothing but an illusion.
The problem is not the bond insurers, but the system. The system itself has failed, and that is what all the scenarios are trying to hide.
NEW INFLATIONARY BAILOUTS : THIS TIME OF BOND INSURERS
http://larouchepub.com/pr/2008/080123ins...louts.html
The U.S. Federal Reserve was panicked into its drastic midnight cut in short-term rates by the imminent failure of bond insurance companies, and the beginnings of an implosion of financial derivatives, several sources report. Since the morning of Jan. 22, calls and plans are multiplying for government-backed bail-outs of of the bond insurance companies — starting with Ambac Financial Group — on the model of the ruinous $75 billion in bail-outs for the mortgage lender Countrywide Financial. Hyperinflation is the result of this game — see Lyndon LaRouche's warning statement of Jan. 23, which describes the only path out of it for governments.
A New York financial manager reports the Fed governors were moved to panic by the beginnings of a derivative implosion, in the imminent failure of Ambac and the liquidation of ACA, a smaller bond insurer which already failed. This threatens many banks with huge, unpayable claims on financial derivatives. The Fed funds rate was drastically lowered to pump cheaper money into the banking system and hold off these losses.
A Dresdner Kleinwort bank analyst, Kevin Logan, told the London Times the same thing: The Fed was panicked over the weekend by fears that the U.S. bond insurance market, and its financial derivatives overhang, could implode. "The red light that triggered this cut is the issue of the bond insurers," Logan said. "The Fed realised what the consequences were in the event that a bond insurer fails. They hit the emergency switch and cut rates. They spent last week talking about it, calling their contacts. The picture started to look very messy and people realised it could get a lot worse. Then the White House came out with their fiscal stimulus programme which didn’t address anything. The problem is the credit markets."
An analyst from UniCredit bank in Italy says an immediate government bail-out of MBIA and Ambac Financial Group is "highly likely" to avoid a collapse hitting banks. "A kind of bail-out supported by monetary authorities or governments is the only chance for the [bond insurance] industry to survive."
Ambac is now making public announcements that it is will be recapitalized by a merger. New York State insurance regulations are apparently being reviewed and changed overnight to grease the skids for such a bail-out/takeover of Ambac. ACA Capital Holdings Inc.'s state regulator (Maryland Insurance Dept.) is holding off on liquidation proceedings while trying to unwind $60 billion of credit-default swap (derivatives) contracts on which ACA can't pay.
HYPERBOLIC COLLAPSE:
BOND INSURERS DEMISE THREATENS $2.6 TRILLION BOND MARKET
http://larouchepub.com/pr/2008/080117ambac_demise.html
Alarm is increasing in the bond markets, as Fitch Ratings has downgraded the rating of Ambac, the second-largest insurer of municipal and structured bonds, by two levels—from AAA, to A. This means that Ambac will no longer be able to insure bonds, which is the majority of its business, and will have to sell itself to a bank if it is to avoid bankruptcy.
Fitch has also threatened to downgrade MBIA, the largest bond insurer, because of new losses. Without an AAA rating, neither can insure bonds.
The loss of the AAA rating may lead to downgrades of the $2.6 trillion of municipal and structured bonds they guarantee. This would force banks to increase the amount of capital they hold against bonds, and hedges with bond insurers—at a time when giant investment banks like Citigroup and Merrill Lynch are already begging for capital from foreign investors.
Lyndon LaRouche warned that Jan. 3 and afterward would usher in a different phase of the crisis, when outside auditors would go into firms, and find losses many times higher than their own internal audits showed. Just that happened yesterday, as Standard and Poor's said that losses for bond insurers could be 20% higher than previous estimates. Meanwhile, Merrill Lynch announced the writedown of $3.1 billion in hedges with bond insurers, mostly with ACA Capital, another bond guarantor that has lost its investment-grade rating and must raise $1.7 billion by the end of today to avoid insolvency.
Under pressure from Fitch, Ambac announced on Jan. 16 that it would raise $1 billion in new equity. However, this morning, Ambac abandoned that effort, after its shares fell 70% in 48 hours.