Vindicated by Citi

It suits me to finish these posts in the latter evening simply because it gives me an aerial view of the battlefield. So the Financial Times substantiated further what I have been saying with the Citi report losses. It seems that Citi is content with playing executive level musical chairs to placate the shareholders. Bank of America and Morgan-Chase dutifully followed with their own write downs. I would like to point out that while an asset write down accepts some culpability for the recent turmoil it is little more than financial slight of hand in terms of truly expressing the nature of the positions lost, not to mention the 17,000 Citi employees who are set to lose their jobs. It is worthy to mention the it was Prince Alaweed Bin Al-Saud who demanded the cuts in Citi's payroll to stabilize the banks profitability. This is the same Saudi prince who was convinced to invest billions in Citi during the 1990's to keep the bank from insolvency.

"Citi also warned that it had suffered $1bn of net writedowns on mortgage-backed securities, $250m of writedowns on collateralised debt obligations and $600m of other credit trading losses. It also said that credit costs would rise by $2.6bn in the consumer arm, largely due to a gloomy view of the outlook for US mortgages.

Deutsche Bank on Wednesday became the latest big investment bank to announce losses worth billions of dollars as a result of the recent credit turmoil.

Deutsche’s announcement came as Osman Semerci, head of fixed income trading at Merrill Lynch, became the latest high-level casualty of the credit squeeze."

This first round of losses simply represents the first level of the first tranche that stands to shock the financial markets. There are AT MINIMUM 9 more tranche levels which will soon be impossible to value and thus impossible to liquidate on the open market. The only answer here is to open the Fed discount window which, amazingly enough, the banks lobbied for in 1999. This marks roughly 20 billion dollars in real lost assets to the I-banks, with 9 more on the way. Extrapolate at the same level and you realize almost 200 billion in possible losses. The only entity capable of absorbing such a shock is a Central Bank. The ECB and the Fed. This means pumping more and more liquidity in M3. While, in exchange, more and more 1B through 1D assets are taken in exchange for such securities. I will attempt to keep track as the 9 tranches unfold towards either a destruction of the dollar as a reserve currency or a deep recession. There seems to be no political will to face the consequences of the Glass-Steagall repeal.

This is the effect on the trend effect on the dollar:

Bloch

Now, to continue on IPS's and my conversation with Dave Bloch. I actively wondered why there is no index or measuring instrument for the purchases of the large international pensions systems. We have tools to measure 3rd and 4th degree derivatives, but not something as large and as simple as the equity purchases of trillion dollar institutions. We have no index, but we can track this through the Dutch Banks and international capital flows, watch how year over year the equity purchases 1C assets are exchanged for fiat money 1A:


The pattern here again is as obvious as it is insidious. Real, fungible, crucial, and physical assets are being traded en masse to the central banks in exchange for fiat guarantees. It would seem that upon a cursory glance, international pensions such as Dutch Pension, are the clearing house for the massive asset buy-off. The red team gains gold, silver, platinum, oil, real estate etc. and the blue team is given fiat cash which is losing value daily! You may add onto this the extremely disturbing news out of OPEC that they may stop accepting "Federal Reserve Dollars" as payment for international oil purchases. This is the world of $100 dollar oil that the Qatari oil minister predicted a month ago. Except that here, the cause is not enhanced oil speculation due to war or weather, it is the continuous devaluation of dollars by the central banks.

I'll follow this trend and discuss why Equity Indexing, which came into vogue three years ago (at least in the life insurance markets), will cause a massive debt-laden forfeiture of 1B assets within the decade.