Moon of Alabama Brecht quote
July 29, 2008

Liars and String-Pushers

Reuters does a nice Billmon like factbox of Merrill Lynch CEO Thain's quotes on ML's needs for fresh capital.

Thain consistently claimed that ML is well funded while raising billions over billions to make up for even more billions of losses.

Only twelve days ago ML announced its second quarter results. Thain then said:

"... right now we believe that we are in a very comfortable spot in terms of our capital."

Yesterday ML announced further losses of $5.7 billion and the need to raise capital by $8.5 billion by selling new stock.

He did not know that twelve days ago??? Barry Ritholz nearly calls this what it is - outright fraud.

Some people bought ML stock after the July 17th announcement. They should sue Thain out of his last sock.

There will be much more bad news coming from ML and other brokerages and banks. This credit bubble deflation is not over by half.

There is not much anyone can do about it. Last December I commented on calls by Roubini and others to lower Fed rates:

I regard this as pushing on a string with bad side effects.
...
I believe that any lowering of the central bank rates will push money not into the productive economy, but into some unproductive assets class, likely commodities, and induce another bubble there. The summary effect is increasing inflation in a recessive or stagnating economy.

Yesterday Krugman posted a chart at his blog that shows how right my analysis was. While the Fed lowered rates since December from over 4% to 2%, bond and mortgage rates actually went up. The Fed is pushing on a string. In the current situation rate cuts can not have the intended effects. But the bad side effects are also obvious. The average official inflation rate in 2007 was 2.85%. This years average is 4.23% so far and likely to increase further.

I closed the earlier piece remarking:

Only renewed trust between all economic entities, banks, manufacturers and consumers can repair the system. To regain this trust, the bad entities have to be shaken out. A real recession will do this. Any attempt to cushion it, by some half assed rescue schemes for faulty mortgages and bad investments, or by near zero-interest central bank money, will likely prolong the pain while at the same time inducing very unhealthy side effects, i.e. inflation.

With people like the lying Mr. Thain and the string-pushing Bernanke in the lead, trust between all economic entities will not be regained anytime soon. As a result the global economic situation will become more disastrous than it needed to become.

Posted by b on July 29, 2008 at 13:54 UTC | Permalink

Comments

Excellent conservative sentiment!

Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate… Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.

Posted by: vimothy | Jul 29 2008 14:36 utc | 1

The sole effect (and purpose) of the Fed rate cuts was to allow banks to hide their losses a bit longer, at least until after the election.

But they could not cut them enough to cover the schlamassel and the string is starting to unwravel before November.

Posted by: ralphieboy | Jul 29 2008 19:37 utc | 2

Richard Perle linked to Kudish Oil Plan

By Susan Schmidt and Glenn R. Simpson
29 July 2008
The Wall Street Journal

Influential former Pentagon official Richard Perle has been exploring going into the oil business in Iraq and Kazakhstan, according to people with knowledge of the matter and documents outlining possible deals.

Mr. Perle, one of a group of security experts who began pushing the case for toppling Iraqi dictator Saddam Hussein about a decade ago, has been discussing a possible deal with officials of northern Iraq's Kurdistan regional government, including its Washington envoy, according to these people and the documents.

It would involve a tract called K18, near the Kurdish city of Erbil, according to documents describing the plan. A consortium founded by Turkish company AK Group International is seeking rights to drill there, the documents say. Potential backers include two Turkish companies as well as Kazakhstan, according to individuals involved.

AK's chief executive is Aydan Kodaloglu, who, like Mr. Perle, has been involved with the American Turkish Council, an advocacy group in Washington. She didn't didn't respond to requests for comment. Phyllis Kaminsky, who identified herself as the U.S. contact for Ms. Kodaloglu, said she herself was aware of the drilling plan but referred questions about it to Mr. Perle.

"Richard would know the most," Ms. Kaminsky said. "He is involved, I know that."

and then there's this...

The commentary lead in of this article is "spot on". The people charged with manipulation of the price of oil are most likely not major players that are truly capable of affecting the price of oil all by themselves so drastically. Possibly they are even riding the coat tails and surfing the wave created by larger trading forces in the market, that are indeed capable of pushing the price of oil around.

Throwing Red Herrings At Oil Price Manipulation


Dutch Firm Charged in Oil Price Manipulation Case
July 28th, 2008

Mike writes:

Kevin,

I’m surprised that you haven’t done a post about this oil price manipulation case, since you were warning us about this long ago:

U.S. regulators charge Dutch firm with oil-price manipulation

What’s up?

Mike, in a short, this is noise level, insignificant activity. All firms who trade their own accounts do this kind of thing on a daily basis. It’s their “business.” They call it, “proprietary trading technology.” Scalping $1 million… It’s… Nothing. Again, noise level. Note, also, that these guys played both directions, which is to be expected.

This is a case of kill the patsy while letting the real perpetrators walk free. I’m not going to say who the real perpetrators are, but if you’ve been reading Cryptogon for any length of time, I’m sure you can guess. (These are household names. The usual suspects.) Why not name them here?

First, I have no proof. Second, they would sue me. (They read Cryptogon daily.) Look at the Plunge Protection Team (Working Group on Financial Markets). If interfirm collusion is happening on equities, doesn’t it stand to reason that collusion is happening in other markets? Questions, questions. No proof, of course.

For the record, let me state again that I think that high oil prices are related to: tight supplies, the crashing dollar and commodity market manipulation. (In which order, for me, depends on the day of the week. However, you can’t have had a run like oil has had without tight supplies.)

this...


U.S. regulators charge Dutch firm with oil-price manipulation

and finally, this:


Oil trading company files for bankruptcy Access


James Bianco, a respected fixed income analyst at Arbor Research, was so kind as to pass along his observations about the retreat in oil prices from his morning research note. "Is This Why Crude Oil Is Getting Slammed?":

Posted by: Uncle $cam | Jul 29 2008 20:35 utc | 3

Oh no another Cryptogon reader! Worlds are colliding!

8 )

Posted by: Cloud | Jul 29 2008 21:17 utc | 4

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