|
Three Easy Pieces:
The Dollar, Paulson, and Carlyle Capital
By Mike Whitney
The Bedraggled Greenback
16/03/08 "ICH' -- - So far, so bad. On Wednesday, crude-futures
topped $110 for the first time, the dollar slipped to $1.55 per euro, and gold zoomed to a new high of $1,000 per ounce. Yikes.
The dollar has been shoved off a cliff and no one knows where it
will land. Last week, the G-7 nations announced that if
“irrational” prices movements persisted, they would
“collectively take suitable measures to calm the financial
markets.” Their statement was taken to mean that foreign central
banks will secretly intervene in the currency markets to stop
the dollar from crashing. But can they do it? Only the Fed can
raise interest rates and the market is betting that Bernanke
will slash another 75 basis points at its next meeting. That
ought to send the sinking greenback to Davey Jones Locker in a
hurry.
The dollar has plunged from $.87 on the euro in 2002 to $1.55 on
March 12, 2008; losing nearly half its value since Bush took
office. And there's no sign of a turnaround. Henry Paulson's
“strong dollar” policy is a load of malarkey. The Fed has been
pummeling the dollar for the last six years. Why stop now?
They've already said they want a cheap dollar to increase
exports; now they've got it, along with $110 oil and $6 per
gallon milk. Any other bright ideas? Now, living standards will
fall, prices will soar, and the public wil get restless. No
country ever devalued its way to prosperity, but that doesn't
mean we can't be the first. Just look at Zimbabwe; there's a
success story, right?
The plan to debase the currency is as loony as invading Iraq and
the country will pay dearly for it.
Recently, the Wall Street Journal broke down the relationship
between the dollar and oil and revealed the ugly truth; that
consumers are getting gouged at the pump because of Bush's
policies not Saudi greed:
“Since 2001 the dollar price of oil and gold have run almost in
tandem. The price of gold has risen 240% since 2001, while the
price of oil has risen 270%. That means that if the dollar had
remained “as good as gold” since 2001, oil today would be
selling at about $30 a barrel, not $100. Gold has traditionally
been a rough proxy for the price level, so the decline of the
dollar against gold and oil suggests a US monetary that is
supplying too many dollars”.” (“Oil and the Dollar” Wall Street
Journal)
There it is in black and white. Bush's dollar policy has taken
us where Bin Laden never could; the edge of ruin. The consumer
is getting clobbered, the country is slipping into recession,
and the greenback is hanging by a thread. Thanks, George.
According to Bloomberg News the dollar has bounced back slightly
from its historic lows at $1.56 per euro on the news of possible
intervention by foreign banks. But what a humiliation. The
dollar is like Blanche Dubois in "A Streetcar Named desire" who
“Always depended on the generosity of strangers”. Pretty soon,
foreign lenders will get tired of America's reckless behavior
and let the dollar shrink to the size of a peso. Why would they
care? For now, Japan and the European Central Bank still think
the US can be cajoled into acting like a responsible adult and
put the ship of state and its currency back on course. But,
they're dreaming. There's not an adult in the entire Bush
administration. Foreign exporters will have to slow production
as demand decreases. We're headed into a defaltionary slump and
there's no longer any doubt about it. Bernanke is planning to
ride interest rates into the ground just to prove that his nutty
Depression-aversion theories have some merit. But, guess what?
They don't. In less than a year the greenback will be worth less
than a hand-D-wipe.
According to Bloomberg News: Goldman Sachs Group Inc. and Morgan
Stanley said coordinated action by policy makers to stem the
currency's slide is increasingly likely. In intervention,
central banks buy and sell currencies to influence exchange
rates. (But) Sentiment remains overwhelmingly dollar negative,
though preliminary technical factors warn that a broader period
of dollar consolidation may be at hand.
So, the banksters are planning on are rigging the currency
markets. What else is new? But do they ever think "outside the
box", like doing something honest for a change? Not likely. This
is their system and they run it the way they like. Period. But
the fate of the poor greenback is out of the Fed's control no
matter what the banks do. As the housing bust continues, the
credit crisis will worsen and the US will begin a protracted
recession. That means that foreign capital will seek other
markets where the growth potential is stronger. Bye, bye "purple
mountains majesty". When foreign investment packs up and leaves,
the dollar will follow the stock market straight into the
fish-tank.
Glub, glub.
There's another reason to believe the dollar won't rebound, too,
that is, that Fed chairman Bernanke is deliberately undercutting
the dollar to stimulate the economy. Bernanke believes that we
are presently in a deflationary recession, which is more serious
than a normal downturn in the business cycle. If that is the
case then he is probably following a strategy which he mapped
out during his time as an academic.
``It's worth noting that there have been times when
exchange-rate policy has been an effective weapon against
deflation,'' Bernanke said, citing the 40 percent devaluation of
the dollar against gold enacted in 1933 to 1934. ``The
devaluation and the rapid increase in money supply it permitted
ended the U.S. deflation remarkably quickly. Monetary actions
can have powerful effects on the economy.''
This quote suggests that Bernanke will continue to cut rates and
debase the currency in an effort to shorten the looming
recession. Unfortunately, there are roughly $6 trillion in US
dollar-backed assets around the world which could be quickly
dumped on US shores if Bernanke goofs up and foreign holders of
USDs start selling their paper on the open market. That would
trigger a round of Wiemar-like hyperinflation in the homeland
that would terminate the dollar's position as the world's
reserve currency as well as America's role as the global
superpower. Let's hope that Professor Bernanke knows how to
tip-toe his way through the mine-field or the whole economy
could get a unwelcome jolt.
THE DISSEMBLING SECRETARY OF THE TREASURY
“We've taken a clear position on this saying a strong dollar is
in our nation's interest,” Henry Paulson
Yesterday, Treasury Secretary Henry Paulson unveiled a number of
proposals to address to question of regulation. A great deal of
pressure is being put on administration officials to come up
with ideas that will avoid another market meltdown like the
subprime fiasco. The "President's Working Group on Financial
Markets" made a number recommendations all dealing with the
basic issues of transparency, oversight, due diligence, and
disclosure. On every issue, the slippery Paulson managed to
avoid the idea that the Federal government actually has a role
to play in regulating big business. Its funny, really. Here's
Paulson, sitting amid the ruins of the subprime/securitization
meltdown that he and his carpetbagging bankster buddies
engineered; and he still resists every suggestion that the
markets be better policed. It's mind-boggling.
Here's a sample of the gibberish that Paulson used to conceal
the fact that he really plans to do “nothing at all” and that
the crooked sideshow they run on Wall Street will just move to
its next shell-game completely unregulated:
“State and federal authorities should coordinate to enforce the
rules evenly across all types of mortgage originators...” (Ed.
Note: So, where was the Fed and the SEC while all this crappy
paper was changing hands, Hank)
“Overseers of institutional investors (for example, the
Department of Labor for private pension funds; state treasurers
for public pension funds; and the SEC for money market funds)
should require investors (and their asset managers) to obtain
from sponsors and underwriters of securitized credits access to
better information about the risk characteristics of such
credits...” (ed note: More official sounding gobbledygook which
means: “You probably should tell the investors that they are
getting ripped off when they buy worthless subprime garbage from
Wall Street hucksters like Paulson)
“Supervisors of global financial institutions should closely
monitor the firms' efforts to address risk management
weaknesses, taking action if necessary to ensure that weaknesses
are addressed...” (ed note: Oh, Please. The statement presumes
that some of the brightest people in the country didn't know
they were wrapping up goose-poop and selling it as Beluga
Caviar. The subprime scam was an obvious swindle from the
get-go.)
“U.S. banking regulators and the SEC should promptly assess
current guidance...and should adopt policies that provide
incentives for financial institutions to hold capital and
liquidity cushions commensurate with firm-wide exposure...” (Ed
note: Here we go again; incentives, incentives, incentives.
That's not how one regulates a pirate's cove like Wall Street.
What's needed is tasers, truncheons and a 25 ft post and beam
gallows on the street in front of the New York Stock Exchange.
That's the only way to get the attention of the crooks who run
the banking system)
None of these recommendations will fix the system or provide the
oversight needed to save the financial industry from its own
self-destructive impulses. The first step is campaign reform so
we get the money out of the political system so the captains of
industry (the foxes) like G-Sax Paulson are not put in charge of
the industry (the hen-house)
POST MORTEM FOR CARLYLE
The politically-connected Carlyle Capital hedge fund was wheeled
into ICU on Thursday unable to make a measly $400 million margin
call. Carlyle boasted a $21.7 billion portfolio of AAA-rated
residential mortgage-backed securities issued by Freddie Mac and
Fannie Mae. So where's the money?
The fund had leveraged its $670 million in equity to 32 times
its value. Now the stock has lost over 90 per cent of its value
and has defaulted on $16.6 billion of its debt. About $5.7
billion of the defaulted debt has been sold, the Carlyle Group
said Thursday.
What is interesting here is the fact that “$5.7 billion of the
defaulted debt has been sold” but Carlyle still couldn't pay its
paltry $400 million margin call? Why?
Is the $5.7 billion the estimated face-value of the Freddie Mac
bonds? If that is the case---and I suspect it is---then we have
discovered something very important, that even triple A rated
mortgage-backed bonds are worthless. That's a very scary
prospect for the many banks, hedge funds, insurance companies,
and retirement funds that are currently holding trillions of
dollars of these toxic MBS. They could be worth zero, which
means we could see a rash of defaults and bankruptcies unlike
anything in history.
According to Reuters: “Carlyle Capital shook financial markets
last week after it was unable to offer more collateral to
protect its $21.7 billion portfolio of
residential-mortgage-backed bonds. The banks that had loaned
money demanded more collateral, known as a margin call, to cover
the gap between the previous value of the securities and their
current, lower level.”
Again, this is a very small margin call for a fund of this size
that's loaded with Triple A-rated securities. All we want to
know is, what they got paid for their Fannie Mae bonds? How
much? But the media is not reporting that critical bit of news.
Reuters offers this one revealing clue in a statement issued by
Carlyle:
"Overall, it has become apparent to the company that the basis
on which lenders are willing to provide financing against the
company's collateral has changed so substantially that a
successful refinancing is not possible.”
Ah-ha! “Refinancing is not possible”. Not possible at any price
regardless of the quality or the rating. That is exactly what we
wanted to hear.
Guess what; the subprime meltdown just got a whole lot bigger.
As the massive cycle of deleveraging continues for the
over-extended hedge funds; Triple A assets will be sold for
merely pennies on the dollar sending the faltering banking
system into a last, lethal swan dive. Good riddance.
Click on "comments" below to read or post comments
Comment Guidelines
Be succinct, constructive and
relevant to the story.
We encourage engaging, diverse
and meaningful commentary. Do not include
personal information such as names, addresses,
phone numbers and emails. Comments falling
outside our guidelines – those including
personal attacks and profanity – are not
permitted.
See our complete
Comment Policy
and
use this link to notify us if you have concerns
about a comment.
We’ll promptly review and remove any
inappropriate postings.
Send Page To a Friend
In accordance
with Title 17 U.S.C. Section 107, this material
is distributed without profit to those who have
expressed a prior interest in receiving the
included information for research and educational
purposes. Information Clearing House has no
affiliation whatsoever with the originator of
this article nor is Information ClearingHouse
endorsed or sponsored by the originator.)
|
