18 August 2011

Another Eurodollar Squeeze? - Lehman Flashbacks - Crazy Eddie Does the World

"We committed our crimes at Crazy Eddie for fun and profit and simply because we could. We had no empathy whatsoever for our victims...

I eventually pleaded guilty to three felonies: conspiracy to commit securities fraud, conspiracy to commit mail and wire fraud, and obstruction of justice. I was sentenced to only six-months of house arrest, 1,200 hours of community service, and paid approximately $10,000 in fines...In my settlement with the victims of my crimes, I avoided all civil liability...

I did not cooperate with the government and victims because of any sense of morality or remorse for my crimes. I simply cooperated with them to avoid a long prison sentence and reduce potential monetary penalties. If my crimes had remained undetected and the government did not seek to prosecute me, I would probably still be the criminal CFO of Crazy Eddie today."

Sam Antar

This report was at least partly responsible for the plunge in stocks and the rise in gold. It gave the markets a Lehman flashback.

This is the kind of moment where Greenie would announce he was ready to put out any and all fires in the markets with his großen Dollar schlauch.

In Bernanke's defense, when Greenspan was boss the US government was still a going concern, without crazy Uncle GOP trying to crash the car into a ditch to show Babbling Barry who is the boss.

And the politicians are only doing what the Banks have been doing for years.

Say what you will about it, the dollar is still the reserve currency, for now. And the financial system, in addition to the equity market carnival show, is based on nothing more fundamental than greed and fear, and short term positioning. The only capital allocation being done is from the real economy into the pockets of the financiers.

And that is the failure of Monetary Theory, Parts 1 and 2, and the Chicago School of Carny-nomics.

The market action here is a bit cynical, even by current standards, and tailor made for an option expiration this week and next. But the backdrop of danger is real. That makes it a tough play.

Bloomberg reports that 75% of the volume is High Frequency Trading. It adds no real liquidity, it only distorts and extracts. When one needs it, it is either gone or reinforcing the short term trends. That it still exists is a tribute to the dodgy nature of the markets, and the failure of US governance.

I took my profits. When in doubt, stay out.

"We have known for some time that the ECB has been holding both the Euro-based interbank liquidity market and the sovereign bond market together with its balance sheet. But as I reported late last week the international liquidity being provided to banks is drying up and this is an Achilles heel for the European banks. They have been borrowing short in US dollars to fund long term Euro-denominated assets. This means they constantly need a rolling supply of $US in order to meet the repayments on their prior short-term funding obligations as their Euro assets mature more slowly. If the holders of $US no longer think they are a safe bet then they are caught in a good old fashioned banking liquidity trap."

ECB Moves Into FX - Macrobusiness

At least some of the friends of Ben have dollar reserves, but they are hardly enough to hold off a panic, a modern variation of the classic bank run. These Ben Bucks are being used to put a little Spine-a-Cola into their balance sheets. Show-cash. A wad of Tens covered with a C-note.

From Phil's StockWorld's review of Sam Antar.  This is a nice description of what I have called 'the CEO defense.'
The Art of Spinning:

■ Sell people hope. My cousin ‘Crazy Eddie’ Antar taught me that “people live on hope” and their hopes and dreams must be fed through our spin and lies. In any situation, if possible, accentuate the positive.

■ Make excuses as long as you can. Try to have your excuses based on at least one truthful fact even if the fact is unrelated to your actions and argument.

■ When you cannot dispute the underlying facts, accept them as true but rationalize your actions. You are allowed to make mistakes as long as you have no wrongful intent. Being stupid is not a crime.

■ Always say in words you “take responsibility” but try to indirectly shift the blame on other people and factors. You need to portray yourself as a “stand up” guy or gal.

■ When you cannot defend your actions or arguments attack the messenger to detract attention from your questionable actions.

■ Build up your stature, integrity, and credibility by publicizing the good deeds you have done in areas unrelated to the subject of scrutiny.

■ If you can, appear to take the “high road” and have your surrogates do the “dirty work” for you. After all, you cannot control the actions of your zealots.

■ When you can no longer spin, shut up. For example, offer no guidance to investors or resign for “personal reasons.” Your surrogates and so-called friends can still speak on your behalf and defend you.

■ If you are under investigation always say you will “cooperate.” However, use all means necessary legal or otherwise to stifle the investigators. Remember that “people live on hope” and their inclination is to believe you.

■ When called to testify under oath (if you do not exercise your 5th amendment privilege against self-incrimination) have selective memory about your questionable actions. It is harder to be charged with perjury if you cannot remember what you have done rather than testify and lie about it.

■ Try not to have your actions at least appear to rise to the level of criminal conduct or a litigable action. Being stupid or being unethical is not always a crime or tortious action.

Based on my own exposure in the distant past as a consultant to national politicians and news commentators, both Republican and Democrat, Sam Antar is a talented amateur who makes up for a lack of finesse, and a seeming lack of willingness or ability to use blackmail and violence, with chutzpah.

There are many, many good people in government and the financial world who only wish to do the right thing, and serve their country faithfully. I admire them, with gratitude. They stand a lonely watch, unnoticed by the world.

But there are times when the tainted few grab the reins of power for whatever reason, and things get a little crazy, and those are difficult times for the honest individual, to say the least.