Part III

Part III

Settlement Day Approaches

For Derivatives

How Bad Is The US Financial Chaos?

Next Up: The Mother Of All Bank Runs?

Prepare For The Amero & The NAU

And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads: And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name. Here is wisdom. Let him that hath understanding count the number of the beast: for it is the number of a man; and his number is
Six hundred threescore and six (Rev. 13:16-18).

Next: The Mother Of All Bank Runs?

"...everyone is hoarding the liquidity that is injected by central banks."

October 05, 2008
Next: The Mother Of All Bank Runs?
by Nouriel Roubini, Forbes Magazine
http://www.forbes.com/opinions/2008/10/01/goldman-morgan-run-oped-cx_nr_1002roubini.html

It's plain that the current financial crisis is worsening in spite of --or perhaps because of-- the Treasury rescue plan. The strains in financial markets are becoming more, rather than less, severe in spite of the nuclear option of a $700 billion package: Interbank spreads are widening and are at a level never seen before; credit spreads are widening to new peaks; short-term Treasury yields are going back to near-zero levels as there is flight to safety; credit default swap (CDS) spreads for financial institutions are rising to extreme levels as the ban on shorting of financial stock (In its announcement, the SEC said it was acting in concert with the U.K. Financial Services Authority) has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package.

Financial institutions in the U.S. and in advanced economies are going bust. In the U.S., the latest victims were Washington Mutual (the largest U.S. savings and loan) and Wachovia (the sixth largest U.S. bank). In the U.K., after Northern Rock and the acquisition of HBOS by Lloyds TSB you now have the bust and rescue of Bradford & Bingley; in Belgium you had Fortis going bust and being rescued over the weekend; in Germany, Hypo Real Estate, a major financial institution near bust, has also needed rescue. So, this is not just a U.S. financial crisis. It is a global crisis hitting institutions in the U.K., the Euro-zone and other advanced economies (Iceland, Australia, New Zealand, Canada etc.). The strains in financial markets--especially short-term interbank markets--are becoming more severe in spite of the Fed and other central banks having injected $300 billion of liquidity in the financial system last week alone, including massive liquidity lending to Morgan Stanley and Goldman Sachs.

In a solvency and credit crisis that goes well beyond illiquidity, no one is lending to counter-parties as no one trusts any counter-party (even the safest ones), and everyone is hoarding the liquidity that is injected by central banks. And since this liquidity goes only to banks and major broker-dealers, the rest of the shadow banking system has no access to this liquidity as the credit transmission mechanisms are blocked. After the bust of Bear and Lehman, and the merger of Merrill with Bank of America, I suggested that Morgan Stanley and Goldman Sachs should also merge with a large financial institution that has a large base of insured deposits so as to avoid a run on their overnight liabilities. Instead, Morgan and Goldman took a cosmetic approach, converting themselves into bank holding companies as a way to get further liquidity support--and regulation as banks--from the Fed and as a way to acquire safe deposits. But neither institution can create, in a short time, a franchise of branches, and neither one has the time and resources to acquire smaller banks. And the injection of $8 billion of Japanese capital into Morgan and $5 billion of capital from Warren Buffett into Goldman is a drop in the ocean, as both institutions need much more capital.

Thus, the gambit of converting into banks while not being banks yet hasn't worked, and the run against them has accelerated in the last week: Morgan's CDS spread went through the roof on Friday to over 1200, and the firm has already lost over a third of its hedge-fund clients together with the highly profitable prime brokering business (this is really a kiss of death for Morgan). And the coming roll-off of the interbank lines to Morgan would seal its collapse. Even Goldman Sachs is under severe stress: Most of its lines of business (including trading) are now losing money. Both institutions should stop playing for time, as delay will be destructive: They should merge now with a large foreign financial institution, as no U.S. institution is sound enough and large enough to be a solid merger partner. The only institution sound enough to swallow Goldman may be HSBC. When investors don't trust even venerable institutions like Morgan Stanley and Goldman Sachs, you know that the financial crisis is as severe as ever. When a nuclear option of a monster $700 billion rescue plan is not even able to rally stock markets, you know this is a global crisis of confidence in the financial system.

The next step of this panic could be the mother of all bank runs, i.e. a run on the trillion dollar-plus of the cross-border short-term interbank liabilities of the U.S. banking and financial system, as foreign banks start to worry about the safety of their liquid exposures to U.S. financial institutions. A silent cross-border bank run has already started, as foreign banks are worried about the solvency of U.S. banks and are starting to reduce their exposure. And if this run accelerates--as it may now--a total meltdown of the U.S. financial system could occur. The U.S. and foreign policy authorities seem to be clueless about what needs to be done next. Maybe they should today start with a coordinated 100 basis points reduction in policy rates in all the major economies in the world to show that they are starting to seriously recognize and address this rapidly worsening financial crisis.

Settlement Day Approaches For Derivatives

October 01, 2008
Settlement day approaches for derivatives
By Aline van Duyn in New York
© Copyright The Financial Times Ltd
http://www.ft.com/cms/s/0/6beabcdc-8f51-11dd-946c-0000779fd18c.html?nclick_check=1

The $54,000bn credit derivatives market faces its biggest test this month as billions of dollars worth of contracts on now-defaulted derivatives on Fannie Mae, Freddie Mac, Lehman Brothers and Washington Mutual are settled. Because of the opacity of this market, it is still not clear how many contracts have to be settled and whether payouts on the defaulted contracts, which could reach billions of dollars, are concentrated with any particular institutions.

According to dealers, insurance companies and investors such as sovereign wealth funds, which are widely believed to have written large amounts of credit protection through credit default swaps on financial institutions, could have to pay out huge amounts. "There is a lot at stake," said an executive at one big dealer. "This is a crisis time, and if these auctions do not go well, or if the amounts investors and dealers have to pay is seen as not being fair, it could have further negative repercussions on the CDS market." The "auction season" starts tomorrow, when the International Swaps and Derivatives Association has scheduled an auction for Tembec, a Canadian forest products company. This is followed by Fannie Mae and Freddie Mac auctions on October 6. Then, Lehman is settled on October 10, and Washington Mutual is scheduled for October 23.

Even though it is possible that some participants in the credit derivatives market will have to make large payouts, the flipside is there could also be big winners. For every loss in credit derivatives, there is a gain. The amount of contracts outstanding that reference Fannie Mae and Freddie Mac alone is estimated to be up to $500bn. The default was triggered under the terms of derivatives contracts by the US government's seizure of the mortgage groups, even though the underlying debt is strong after the explicit government guarantee. The CDS contract settlement could result in billions of dollars of losses for insurance companies and banks that offered credit insurance in recent months. The recovery value will be set by auction. Usually, the bond that is eligible for the auction that trades at the lowest price - the so-called cheapest-to-deliver - is the one that sets the overall recovery value for the credit derivatives.

In the Lehman case, numerous banks and investors have already made losses due to exposure to Lehman as a counterparty on numerous derivatives trades. The auctions next week are for credit derivatives which have Lehman as a reference entity. There are likely to be fewer contracts outstanding than for Fannie Mae and Freddie Mac because Lehman was not included in many of the benchmark credit derivatives. However, exposure remains unclear, which is one concern that regulators now have about the credit derivatives market. Lehman's bonds have been trading between 15 and 19 cents on the dollar, meaning investors who wrote protection on a Lehman default will have to pay out between 81 and 85 cents on the dollar, a relatively high pay-out. The previous biggest default in credit derivatives was for Delphi, the US car parts maker that went bankrupt in 2005 and which had about $25bn of CDS.

Crisis At A Global Tipping Point

October 04, 2008
Crisis could be at a global tipping point
New York Times News Service - Idaho Statesman
http://www.idahostatesman.com/business/story/523039.html

The decision two weeks ago to let Lehman Brothers fail rocked confidence around the world, analysts say. As the White House scrambles to retool its rescue plan for the financial system, the global creep of the crisis has far-reaching implications, administration officials and outside experts said. It is likely to move Europeans to mount a more coordinated effort to shore up banks, which the Treasury secretary, Henry M. Paulson Jr., pleaded for last week. "We all agree that the method by which everyone comes up with ad hoc solutions in his corner the moment a crisis starts in a financial company isn't a systematic enough method," said Prime Minister Jean-Claude Juncker of Luxembourg, who chairs a group of European finance officials. On Tuesday, France and Belgium threw a $9 billion lifeline to Dexia, a Belgian-French lender - a day after Belgium, the Netherlands, and Luxembourg cobbled together $16.2 billion to rescue another bank, Fortis.

Europe's woes could place additional burdens on an American plan, as more banks fall into distress. If the Treasury wins congressional approval to buy mortgage-related securities from banks, how it prices those assets will affect the solvency of European institutions. Some of these banks suffer a form of guilt-by-association by being in the home-lending business. Others, like Fortis, lack a strong base of deposits, which act as a buffer against credit-related jitters. Countries that suffered housing bubbles - like Ireland, Britain, and Spain - are especially vulnerable, as are several Eastern European countries and other emerging markets, which are running steep current account deficits and low foreign currency reserves.

Ireland's finance minister, Brian Lenihan, traced his country's predicament back to Lehman Brothers, saying that the American authorities "were mistaken in permitting that bank to go to the wall because it has had very serious consequences for the world financial system." The Irish plan guarantees bank deposits and debt for customers and creditors of six banks. That puts the government on the hook for $400 billion, twice the country's economic output. Experts predict a rash of further bank failures in Europe, though some say the process may prove less politically fraught than in the United States, given the tradition of nationalization there. "The Europeans are more rigid and rule-based than the Americans," said Simon Johnson, a former chief economist at the International Monetary Fund. "But when things get bad enough, they'll find the flexibility."

Conclusion

Why the planned bankruptcy of the United States, Canada, and England? Americans, Brits, and Canadians will not stand for a common, regional currency. The forced bankruptcy of those nations will bring the citizens pleading for a common currency to maintain their lifestyles. England still has not accepted the Euro and they will be bankrupted into pleading to switch over to the Euro.

The Bible prophecies of 10 kingdoms that will arise during the end-times (see Playing Monopoly With The Devil). These kingdoms will be taken over by the anti-Christ and a one world government will be born, the new world order. The ten kingdoms will be 10 federated unions which are currently being formed. Each of these unions will form their own currency until the one world government will demand all currencies be joined to one central bank with one global currency. The "Phoenix" was a name for that currency being talked about during the early 1980's.

Once the global currency is established, a truly global and cashless society will be forged. All exchanges will be done electronically. No one may buy or sell unless they have an electronic number to bank with, which will eventually be implanted in the right hand or forehead. The new number will be tied to worship of the anti-Christ. Anyone who refuses to worship the anti-Christ and take his number will not be able to buy, sell, bank, or pay bills.

And the ten horns which thou sawest are ten kings, which have received no kingdom as yet; buy receive power as kings one hour with the beast. These have one mind, and shall give their power and strength unto the beast. (Rev.17:12-13)