"It has now become clear that this was no ordinary crash."

Here is an informative piece on the banking crisis in Iceland. The commentary was so well done that we are using it in lieu of our own commentary based on the article in the Daily Telegraph.

What we would like to point out is that in all banking collapses of this sort, fraud and duplicity are always at the heart of it, as larceny is in most great fortunes through history.

The Community Organizer-in-Chief is speaking to New York's Wall Street today, urging them to do the right thing for the country. He still sees himself as precipitating action in others, as a change agent, rather than organizing and leading the action at the forefront. Old habits die hard. He is not an outsider visiting this community. He leads the community. He's the man, now.

Actions speak louder than words. The words are that Wall Street is paying back the taxpayer money with a nice gain. No one seems to be talking about AIG, which is an enormous loss for the taxpayers at the moment well north of 170 billions, and the almost scandalous payments of 100 cents on the dollar that were made on dodgy contracts to the likes of Goldman Sachs that should have been put into default, or at best paid off at pennies on the dollar.

We still hear rumours of ugliness on the 'off balance sheet' portions of some of these big banks, even the ones held up as models of recovery.

So, when Obama chides the Wall Street wiseguys in stern terms to 'do the right thing,' one can forgive us if we hear, in echoes from the back of the room, "do this" and "get bent."

He may as well walk into the aftermath of a vicious bank robbery and say to the perps with cash still in hand, "Now you boys stop doing that this minute. This is the fifth time you have stolen money and endangered the lives of innocent people. You can keep the money, but you had better not do it again.

Sheriff Summers and Deputy Tim, who you know so well from drinking with them after hours at your clubs, will stop you if you do. And remember, Bennie the Bookie has his eye on you. By the way, Rahm says thanks for the gifts and remembrances, as always."

Action, Mr. Obama. Not words. One does not scold even white collar criminals into confessing, much less changing their ways, and warnings do not work when the perps feel that they most surely own you and the advisors around you, given the toothless gestures you are making towards reform.


The Daily Bell
Iceland: what ugly secrets are waiting to be exposed in the meltdown?
September 14, 2009

"Almost a year since the collapse of the Icelandic banks, the rotten nature of these financial corpses is slowly beginning to emerge. Iceland: what ugly secrets are waiting to be exposed in the meltdown? For months rumours of share-ramping, market manipulation, excessive loans to their owners and unusual transfers off-shore have been circling Kaupthing, Glitnir and Landsbanki, whose failure last October left 300,000 British customers unable to access their money. It has now become clear that this was no ordinary crash. Iceland's special investigation into "suspicions of criminal activity" at the three banks is likely to stretch from Reykjavik to London, Luxembourg and the British Virgin Islands. Eva Joly, the French-Norwegian MEP and fraud expert hired by Iceland and now working with the Serious Fraud Office, now believes it will be "the largest investigation in history of an economic and banking bank collapse". - Telegraph

One has to keep in mind that Iceland is a country of about 300,000 people. And yet the "suspicions of criminal activity" stemming from the collapse of one of the world's smallest central banks are likely to spread around the Western world. Here's some more from the article about such "suspicions" ...

When the banks were put into administration last October, experts believed that Iceland's banks had simply fallen prey to the global credit crisis. But Dr. Jon Danielsson, an Icelander who teaches economics at the London School of Economics, believes that while the timing of the crash was dictated by the global banking crisis, the scandal is unique among European financial institutions.

He believes the root of Iceland's problems that have now decimated its economy appear to have started when the government decided to privatize the banks in the early 1990s. "Iceland got its regulations from the EU, which was basically sound," he says. "But the government had no understanding of the dangers of banks or how to supervise them. They got into the hands of people who took risks to the highest possible degree."

Kaupthing fell into the clutches of the Gudmundsson brothers, Ágúst and Lydur, who made their fortunes building up the Bakkavor food manufacturing empire, which supplies hundreds of supermarkets in the UK. Their investment vehicle, Exista, owned 23% of the bank, counting Robert Tchenguiz, the London property entrepreneur as a board member.
Kaupthing's loan book, which was leaked on to the internet last week, shows that around one third, or €6bn (£5.1bn), of its €16bn corporate loan book was going to a small elite group of men connected to the bank's owners and management.

Several investigations into Kaupthing centre on share ramping, where the bank would allegedly give loans with no interest or security in order to buy shares in that same bank - boosting the share price.

Yes, much to be concerned about. But is Danielsson serious about these accusations? He believes that privatization is at the heart of the difficulties? We've heard exactly the opposite of course when it comes to American and British central banks. The Federal Reserve is said to function well (it doesn't) because it is in private hands and immune to political influence (it's not). It's a good sound bite, of course, to say a central bank functions well because it is private, or is well regulated because it is public. But it likely doesn't make any difference.

That's because the institution itself is fatally flawed. If the American or European central bank broke down, and investigations were held into the relationships, all holy hell would likely break loose. How can it be otherwise? These central banks are run by small groups of (mostly) men, who grow up with each other and go to the same clubs and run in the same social circles and have the same interests.

In the case of the Federal Reserve, the best of Goldman Sachs tend to matriculate to government work, and to believe that Goldman Sachs has not benefited from its relationships at the highest levels of Western government is likely naïve in the extreme.

According to Danielsson, the Iceland crisis is "unique among European financial institutions." In fact, we believe it is no such thing. If any one of these other institutions crashed, the "uniqueness" would turn out to be commonplace. The interwoven old boys network does not stop at the doors of central banks. Central banking IS an old boy's network. It is the best and biggest network of all. In this one, you actually get to print money, and if anyone asks you for an accounting, you simply claim that if you release too much information, you will destabilize this or that financial institution.

We think there is a reason that the Federal Reserve, for instance, is resisting the Congressional move for a thorough audit, and it has little to do with a professed concern for the destabilization of banking institutions. We believe, as with Iceland, that central banking is infested with private dealings in millions and even billions of dollars. How could it be otherwise?

Conclusion: Central banking is a franchise of the utmost power and authority, but the men who run it are neither priests nor eunuchs. They are merely human beings, and, after all, while power corrupts, infinite power corrupts infinitely. Only the market itself can guarantee a level playing field. A market-based gold and silver standard would do away with the suspicions that are rife when it comes central banking. The smallest central bank in the world is central to a financial scandal that threatens to engulf much of the West. What secrets must the larger banks hold?

Moral Hazard and Economic Donkeys

"It's almost as if the biggest credit bubble in history never occurred. Investors are increasingly convinced that a sustainable global recovery is emerging out of the wreckage. All praise to the central bankers for saving the world! I'm waiting till someone writes about the return of the Great Moderation and suggests Ben Bernanke is the new Maestro. Then I'll know the lunatics have taken over the madhouse...yet again." Albert Edwards, Société Générale

What Simon Johnson is describing in this essay attached below is moral hazard, the corruption of the capitalist system introduced by a Fed (the Economic Donkeys) that recklessly exercises a function as 'lender of last resort,' in conjunction with a political environment (less sophisticated Economic Donkeys) that can be politely described as being driven by 'regulatory capture' rather than the less euphemistic 'rampant corruption.'

Moral hazard is not a popular topic, on the left or on the right. When moral hazard was mentioned as a consideration in the bank bailouts proposed by then Treasury Secretary Hank Paulson, a popular liberal economist bombastically expounding with a blog (PLEBEWAG) went into a hissy fit of self-righteous indignation, condemning those who even think about things like 'moral hazard' as fundamentalist ethical Luddites.

The problem is that moral hazard is an ethical consideration, a restraint on the tools available for centralized financial engineering. This aversion to restraint is characteristic of neither the moderate right nor the left per se, but it does distinguish the statists from those who favor the individuals and 'market-based capitalism.'

What can one think about these things, when so many economists can get it so wrong, for so long, with such passionate intensity, and remain largely unapologetic and unchanged themselves, swearing allegiance to the power of financial engineering with just a little more power and purview? Hence the proposal to centralize regulation in the Fed, surely one of the most bizarre suggestions after a crisis caused by the Fed that one can imagine.

It is all part of the momentum of the status quo, those who enable a system at least in part because they believe it in as a first principle, benefit from it, even if they are not direct participants, or may only wish to be beneficiaries of the greater power and prestige of the State.

It is an essay worth reading. Here is a relevant excerpt.

Until the Banks are restrained, and the financial system reformed, and balance restored to the economy, there can be no sustained economic recovery.

Or anything resembling a return to the moral high ground or social justice.

"The real problem with our financial system is that our economic and political system work together to encourage excessive risk, and this risk in turn leads to cycles of prosperity and collapse. In 1998, a much smaller Lehman Brothers was placed in financial peril by the aftermath of the Asian financial crisis and failure of Long Term Capital Management, a major hedge fund. The Federal Reserve responded by lowering interest rates and other central banks followed suit. This reduced the cost of obtaining funds, effectively bailing out Lehman and other institutions in trouble.

As markets have grown to recognize how quick the Federal Reserve is to bail out institutions (and executives) in trouble, they naturally respond. In the 1990s, people talked about the “Greenspan Put” a term which derisively suggests that it is always safe to invest in risky assets, because the Federal Reserve is ready to bail out investors (a put is effectively a promise to buy an asset at a fixed price if you are unable to sell it to someone else at a higher price – this is a way to lock-in profits or limit losses on investments). However, in months following the collapse of Lehman, we learned that the “Bernanke Put” is even more valuable since Chairman Bernanke, alongside the Bank of England, the European Central Bank, and central banks in much of the rest of the world, is prepared to take drastic measures to prevent asset prices from falling when there are risks of global collapse.

This policy of responding to the aftermath of bubbles, rather than addressing them before they get going, through tighter regulation, has become the mantra of most central banks. It is usually combined with fiscal policy stimulus and other measures to support the economy. Each time banks fail, by bailing the system out again, we teach our finance sector a lesson: you can safely take too much risk because, when you lose, the taxpayer will pick up the bill. We also send a simple message to creditors: it is safe to lend to Goldman Sachs, or Barclays Bank, because taxpayers and our nations’ savers are standing by to cover your losses. Rational bank executives and creditors respond as any person would: creditors lend to banks at low interest rates, and our banks gamble heavily hoping to make large profits. Such a system is destined to fail, but the party can run for a long time."

Economic Donkeys by Simon Johnson and Peter Boone

H&S Top and "Iron Cross" on Weekly Dollar Chart Targets 66

The weekly chart on the US Dollar Index has rather awful technicals, as it has dropped to a recent low, and set the 'iron cross' in the moving averages that is generally the hallmark of a sustained decline.

There is a massive Head & Shoulders formation that *should* preclude a rally over 81 if it is working, limiting any gains to a further 'right shoulder.'

The ultimate objective of this formation remains 66 for this leg of the large formation.

It is difficult to square this with a technical outlook that includes a major decline in the US equity indices, since the pairs have been running inversely, that is, dollar down, and stocks up.

Anything is possible, especially when the governments are actively and aggressively 'tinkering' with the markets. It is possible that the Fed monetizes sufficiently to reinflate an equity bubble, essentially whoring out the Dollar and the real economy for the sake of the financial or FIRE sector.

Signs of an Approaching Decline in US Equities That Could Be Quite Impressive

There is a strong correlation between this US equity rally and the Fed monetization of debt, which indicates a 'hot money' flow into US stocks but with thin volumes from a significant market bottom. This points to 'technical price trading' by the financial sector, also known was price manipulation, or trading stocks like commodities.

Continued heavy insider selling from those with the best forward view of the real economy is a clear sign of a top. No one can trust what the Fed or the Administration are saying about an economic recovery, as much now as ever. Obama's administration is no reform government.

This surprisingly robust rally in US Treasuries is remarkable given the decline in the US dollar, based in part on a strong yen and carry trades. The short end is obviously quantitative easing, with strong buying from Asian central banks dumping Agency debt but continuing to manipulate their currencies. 'Free trade' is an illusion.

The long end rally in Treasury suspect is likely interest rate manipulation by the US Fed and its central bank cronies. It has been a huge mistake to allow the Fed to perform the non-traditional printing that young Ben touted so proudly in his famous essay. Clever in the short term is too often tragic overall.

Gold and silver are surging as investors largely outside the US seek safety in harder assets.

There is also a community of small speculators outside the US which has been buying stocks on dollar weakness, to play an arbitrage with their own currencies. There is a hot money crowd in eastern Europe for example, and in Asia. And so far this year it has been working. At some point that door will close, quite hard, and many will be caught offsides and out of luck.

A dollar devaluation? Technically one cannot officially devalue the dollar per se because it has no official peg. The more appropriate term is debasement perhaps, and de facto default, but the effect is the same; a decline in purchasing power by the dollar vis a vis other monetary instruments. But for now we are in a monetary matrix, and the central banks and their minions can continue to play their game.

Besides being the hallmark of markets made sick by central bank and other official manipulation, these are signs that indicate that the 'smart money' is battening down the hatches for a very rough September and October in US equities as the pros hand off their latest Ponzi scheme to the public.

We will not be surprised if there is a significant decline, first to a pullback of about 7 to 10 percent. Then we will see if the market can rally on renewed dollar devaluation and if not, then another major slide to test lower levels.

If there is an 'event' the pros will dump the market bids quite hard, perhaps precipitously. It is always easier to complete a market wash and rinse when a scapegoat is available.

Obviously no one can predict the future with certainty, and even within clearer trends the actual timeframes are always most difficult if barely possible when the markets are dominated by computer manipulation. But the auspices are ominous indeed, and we are proceeding with caution.

Until the banks are restrained, and the financial system is reformed, and the economy is brought back into balance, there can be no sustained US recovery.

CNN Money
Insiders sell like there's no tomorrow
By Colin Barr, senior writer
September 11, 2009: 7:27 AM ET

Corporate officers and directors were buying stock when the market hit bottom. What does it say that they're selling now?

NEW YORK (Fortune) -- Can hundreds of stock-selling insiders be wrong?

The stock market has mounted an historic rally since it hit a low in March. The S&P 500 is up 55%, as U.S. job losses have slowed and credit markets have stabilized.

But against that improving backdrop, one indicator has turned distinctly bearish: Corporate officers and directors have been selling shares at a pace last seen just before the onset of the subprime malaise two years ago.

While a wave of insider selling doesn't necessarily foretell a stock market downturn, it suggests that those with the first read on business trends don't believe current stock prices are justified by economic fundamentals.

"It's not a very complicated story," said Charles Biderman, who runs market research firm Trim Tabs. "Insiders know better than you and me. If prices are too high, they sell."

Biderman, who says there were $31 worth of insider stock sales in August for every $1 of insider buys, isn't the only one who has taken note. Ben Silverman, director of research at the InsiderScore.com web site that tracks trading action, said insiders are selling at their most aggressive clip since the summer of 2007.

Silverman said the "orgy of selling" is noteworthy because corporate insiders were aggressive buyers of the market's spring dip. The S&P 500 dropped as low as 666 in early March before the recent rally took it back above 1,000.

"That was a great call," Silverman said. "They were buying when prices were low, so it makes sense to look at what they're doing now that prices are higher..."

Obama to Make A "Major Address on the Financial Crisis" On Monday

This news has appeared on the Agence France-Presse (hat tip Michel Proulx) and I have translated this into English for now.

One has to wonder if the great Speech Organizer will actually say anything that is worthy of the adjective, "major."

Someone has possibly told him that if he makes speeches often, it will reassure the people of his country, in the manner of Franklin Roosevelt's "fireside chats" from the 1930's.

This sort of remedy wears thin quickly if one has nothing of substance or new to say. Roosevelt had a great flair for oratory, but first and foremost he was a man of substance and of action, like him or not. He was an experienced governor, and knew how to lead by action and example, as well as by words.

It also appears that he wishes to 'send a message' to the G20 about their upcoming meeting at the end of September. He is setting the tone, as he most recently did before the Congress with regard to his health care reforms.

President Obama may seem to many to be a man only of words, of rhetoric, treading lightly on the status quo especially when dealing with the corporate funders of his political party, the banks and the health corporations. This is a great obstacle to his Presidency.

He has perhaps another six months to change this perception, or deliver his Party to a serious setback in the 2010 mid-term elections.

In the meanwhile, gold and silver appear to be an attractive hedge against incompetence.


Agence France-Presse
Discours "majeur" d'Obama sur la crise financière lundi
Publié le 10 septembre 2009 à 20h44

(translation into English)

U.S. President Barack Obama will deliver a speech on this coming Monday, described as "major" by the White House, on the financial crisis, one year after the collapse of Lehman Brothers and ten days before the G20 summit, his administration announced Thursday.

It will address the strong measures that his administration has taken to move the economy from the abyss, its commitment to reducing the role of government after their recent interventions in the financial sector, and the need for the United States and the international community to prevent the repetition of such a crisis...

The developed countries and major emerging economies are striving to overcome their differences and agree on measures to prevent a repetition of financial crises, and also to appease those who are outraged by the excesses of the financial sector.

The G20 leaders will be in Pittsburgh on 24-25 September. Mr. Obama intends to advance the proposal for new "rules of conduct" in finance.

With the prospect of the end of the recession, Mr. Obama will also put the fight against unemployment at the center of their discussions.

Japan: The Triumph of Crony Corporatism Over the Individual

Japanese officials sometimes have the endearing quality of coming out and openly saying what they are doing, or intend to do, in support of dodgy political and financial arrangements that would make a Wall Street banker blush, if they are still capable of such an act of modesty.

The former Japanese Central Banker Toshiro Muto said in March that '"in principle equity values should be set by the market and authorities should avoid manipulating prices because doing so would hurt the stock market’s reputation."

Apparently in this case 'in principle' means 'theoretically, as is convenient," because Mr. Muto goes on to recommend that the Japanese Central Bank and government throw principles aside and buy stocks to support the Japanese banking cartel, which has crippled that country for the past fifteen to twenty years.

Notice how in his talk, Muto says that this arrangement will be temporary, until Japan can export its way out of its financial difficulties.

The challenge might be that most of the countries intend to 'export' their way out of their central bank created economic difficulties. China and India have already passed on the notion of becoming mass importers in the foreseeable future.

Perhaps the fate of the world rests on the ability of the nations of Africa and Polynesia to obtain the suitable credit ratings and FICO scores to become mass consumers with debts that can not possibly ever be repaid, à la mode Amerique? Is South America willing to once again mortgage its future for the sake of the financiers? I am sure that any appropriate arrangements can be made by the Central Banks with the target nations' ruling elites.

Japan is one of the worst examples of crony capitalism in the world. Its ruling LDP party has been a disgraceful example of serving private corporate interests, and acting without honor, honesty, and integrity.

Why doesn't the Bank of Japan just give the money to the banks, and let them buy stocks higher using leverage in the futures index markets like the Anglo-American crony capitalists? This is considered much more respectful of the market driven economy in the West.

"As the boom developed, the big men became more and more omnipotent in the popular or at least the speculative view... the big men decided to put the market up, and even some serious scholars have been inclined to think that a concerted move catalyzed this upsurge." J. K. Galbraith, The Great Crash of 1929

After all, as the industrialist, financier, and Democratic National Chairman John Jacob Raskob observed in August 1929, "Everybody ought to be rich." And so for a time they were, seemingly all powerful, invincible, as gods.

And the abyss swallowed them all. And then the descent into madness in Asia, Africa, the Mideast, and in Europe: and finally a world in flames. Monstrous actions done in the name of economic necessity, room for growth, fuel for industry, a new order for the ages, and at all times the will to power of the few. All the gods of greed.

And at last, the twilight of the gods. Götterdämmerung. Until the old gods rise again.

And so here we are, trembling at the veil.

(Note: this news piece below is not current. It is from earlier this year. It demonstrates the 'roots' of the rallies which we are seeing today in the world bourses. They are an illusion.)

Bloomberg
Japan May Need to Buy Stocks, Ex-BOJ Deputy Muto Says
By Mayumi Otsuma

March 10 (Bloomberg) -- Former Bank of Japan Deputy Governor Toshiro Muto said the government and the central bank may need to buy shares temporarily to support the country’s ailing stock market.

When global equities plunge, “it’s very meaningful for the government’s share-buying institution and the Bank of Japan to buy stocks to support the market,” Muto said at a forum co- hosted by Bloomberg News in Tokyo today. “However, such purchases cannot last forever and should be justified only as a tool to avert a crisis.”

The Nikkei 225 Stock Average is at a 26-year low, eroding banks’ capital and making them reluctant to lend. Finance Minister Kaoru Yosano said today that the government has a “strong will” to combat the credit squeeze resulting from the stock-market slump.

Muto, currently head of the Daiwa Institute of Research, added that "in principle" equity values should be set by the market and authorities should avoid manipulating prices because doing so would hurt the stock market’s reputation.

The government has already allocated 20 trillion yen ($203 billion) and the Bank of Japan has set aside 1 trillion yen to buy shares owned by banks. Yosano last month ordered lawmakers within the ruling Liberal Democratic Party to study ways to bolster stocks, including the feasibility of the government directly purchasing equities in the market.

Keidanren’s Plea

Keidanren, Japan’s largest business lobby, yesterday called on the government to allow a public entity to sell state-backed bonds and funnel the proceeds into the flagging stock market.

The Nikkei slid 0.4 percent today to 7,054.98, the lowest since October 1982, on concern shrinking global demand and rising fuel prices will weigh on company earnings.

An unprecedented drop in exports since last quarter has forced Japanese manufacturers to cut production at a record pace and fire thousands of workers. The central bank forecasts the economy will shrink 2 percent in the year starting April 1, the worst in 60 years.

Muto said exports will drive Japan’s eventual recovery. Deflationary risks outweigh concerns about inflation in the world’s second-largest economy, he added.

Muto served as the central bank’s deputy chief for five years following a 37-year career at Finance Ministry. He was the government’s first choice to succeed Toshihiko Fukui as governor last year, only to be rejected by the opposition- controlled upper house, which said his stint at the ministry may hamper the bank’s independence.

Barrick Capitulates

Barrick Gold and their bullion bank partner J.P. Morgan were the target of lawsuits by the gold bulls, most recently Blanchard and Company, for price manipulation through the use of forward sales in their hedge book. The contention was that the selling was being used to manipulate the price of gold.

Barrick's initial defense was that if they were acting in conjunction with the central banks, they were therefore immune from prosecution since the central banks are immune from prosecution. Details of that story are here. The public document that Blanchard had put forward was shocking in its implications indeed, and can be seen here.

Almost as shocking as the complete lack of interest and follow up in such a potential scandal by the financial community, market regulators, and the media.

One has to wonder what Barrick's management now sees in the precious metal markets, in order to accept this significant shareholder dilution to take down those fixed price contracts now.

On a related note, one of the current largest holders of the gold ETF (GLD) is now reported to be J.P Morgan, which is also a holder of one of the largest short gold positions on the COMEX. There was a bit of a row last year when it was revealed that the rules of the exchange would allow holders of short gold positions to make delivery good in, wait for it, the GLD ETF rather than in physical bullion.

In an ideal, efficient market there would have been transparency and symmetric disclosure of information under the auspices of the CFTC and the SEC, rather than cross accusations and lawsuits. The exact details of what had transpired are not known as the Blanchard lawsuit was settled.

The CFTC seems to be finally willing to act to place position limits on some of the commodity markets, such as oil, that have been the subject of speculative manipulation in recent years. Perhaps some day this will also include other reforms, and will include all the commodity markets.

How sweet it must be for the 'gold bugs' who had repeatedly cautioned Barrick's management on their use of hedges and fixed priced arrangement with the bullion banks.

Although for a large shareholder or group of shareholders in Barrick, one would think that a much more complete disclosure of the nature of this loss and the counter parties would be expected. How involved was J. P. Morgan? Was the Federal Reserve or any other central bank an actual counterparty or collaborator as Barrick apparently claimed in court in 2003? Does this have anything to do with China's recent position on derivatives obligations held by its State Owned Enterprises?

It does sound like there is now a Barrick put under the price of gold, in addition to the China put, that is, a floor under the price of the metal in the front month or spot markets.

In these opaque markets one can still only wonder what is really going on behind the scenes, in a number of financial arrangements. Yes we can.

Reuters
Barrick to Sell $3 Billion in Stock to Buy Back Hedges
By Cameron French
Tuesday, September 8, 2009

TORONTO -- Barrick Gold, the world's biggest gold producer, said on Tuesday it will issue $3 billion in stock and use the proceeds to buy back all of its fixed-price gold hedges and a portion of its floating hedges.

Barrick will take a $5.6 billion charge on its third-quarter earnings as a result of the move.

During times of weak prices, gold miners often sell a portion of their future production to protect, or hedge, against the possibility that prices will fall.

When prices rise, as they have done since 2001, the company suffers because value of the future production they've sold does not increase with the gold price. (The central banks of the world have turned from net sellers to buyers of gold this year, led by the BRIC countries who wish to hedge their reserves against a declining dollar - Jesse)

"The gold hedge book has been a particular concern among our shareholders and the broader market, which we believe has obscured the many positive developments within the company," Barrick Chief Executive Aaron Regent said in a statement.

Barrick stopped hedging, or forward-selling, its gold in 2003.

It exited its production hedge book two years ago, and the company has faced repeated questions from analysts and shareholders since then about its plans for the remaining 9.5 million ounces it had hedged to finance projects.

The equity deal comes as a resurgent gold price and healing credit markets have prompted investors to snap up gold stocks, bullion and equity.

The metal's price hovered just below $1,000 an ounce on Tuesday.

Barrick will issue 81.2 million shares at $36.95 a share, a 6 percent discount to the stock's New York closing price of $39.30 on Tuesday.

The company will use $1.9 billion of the proceeds to eliminate all of its fixed-price gold contracts -- on which the company effectively lost money every time the gold price rose -- by purchasing gold on the open market and delivering it into the contracts.

It will use about $1 billion to eliminate some of its floating spot price contracts. (Are they buying them out from the counterparties? Is J. P. Morgan one of them? - Jesse)

After the deal, Barrick will still hold floating hedges with a negative mark-to-market value of $2.7 billion, but the $5.6 billion charge will remove it from the balance sheet. (It sound as if they are writing them off as a loss - Jesse)

Bill O'Neill, a partner at LOGIC Advisors in Upper Saddle River, New Jersey, said the deal would not likely have a material impact on the gold market. (Off the cuff, the Barrick statement implies that they will be purchasing 4% of total world production in the open market for bullion which is already tight at these prices in addition to taking an enormous amount of forward selling off the market. Unless, of course, they can take delivery directly from existing reserves, such as from the Fed via the IMF. - Jesse)

US Dollar Seasonality

Rough seas ahead for Uncle Buck.



Chart Courtesy of ContraryInvestor.com

Fed: Consumer Credit Contracted at an annual rate of 10 1/2 Percent

Federal Reserve G.19 Report

Consumer credit decreased at an annual rate of 10-1/2 percent in July 2009.

Revolving credit decreased at an annual rate of 8 percent, and
nonrevolving credit decreased at an annual rate of 11-3/4 percent.

Cuomo: Bank of America Officials May Be Charged

The charges center around the acquisition of Merrill Lynch, and the lack of disclosure regarding losses, and the accelerated bonuses paid to Merrill.

Cuomo also cites their indiscriminate use of attorney - client privilege to mask wrongdoing.

Cuomo's action is a slap at the SEC which has crafted a settlement with the Bank, which has been challenged repeatedly by the Judge as a wristslap, defying commen sense and basic justice.

This comes as the SEC faces further charges of a whitewash of their involvement with the Madoff Ponzi scheme scandal, and the lack of discovery of the fate of the billions which Madoff took from investors.

Reminds one of the Spitzer actions as the New York Attorney General in which he brought Wall Street to judgement and a settlement on its scandals regarding analysts improper rating of stocks from the tech bubble. There had been repeated attempts by the federal regulators to short circuit Spitzer.

Reuters
UPDATE 1-NY's Cuomo may charge BofA execs over Merrill
Tue Sep 8, 2009 3:05pm EDT

NEW YORK, Sept 8 (Reuters) - New York's attorney general threatened on Tuesday to file charges against top executives of Bank of America Corp over the disclosure of details regarding bonuses it authorized to Merrill Lynch & Co employees before the company's merger.

Andrew Cuomo, the attorney general, made the threat as U.S. District Judge Jed Rakoff considers whether to approve the bank's $33 million civil settlement with the U.S. Securities and Exchange Commission about the disclosures.

The judge has rejected the settlement twice, and Bank of America and the SEC are expected to made new submissions in the matter by Wednesday.

Cuomo accused Bank of America of using a defense of attorney-client privilege to explain why it should not release more information about who authorized the payment of billions of dollars of bonuses.

"We cannot simply accept Bank of America's officers' naked assertions that they sought and relief on advice of counsel in good faith, and that, therefore, they should not be charged," Cuomo wrote in a letter to the bank's lawyer.

He gave the bank until Sept 14 to provide more information.

Bank of America did not immediately return a call seeking comment. (Reporting by Jonathan Stempel; Additional reporting by Elinor Comlay and Grant McCool; Editing by Ted Kerr)

China Admonishes US Monetization, Sees a Hard Fall for the Dollar Over Time

China is saying many things which are true.

They are also omitting many things that are key to the cause of our financial problems. They bought the silence of a succession of US political administrations over their blatant currency manipulation in support of trade subsidies, including the outright contributions to Clinton and Gore, and the cronyism with Bush.

China is a significant part of the problem, and like so many dogs that Wall Street helps to set up to further their gains, this one refuses to wag its tail on command.

The blowback on the US dollar will be significant.

Telegraph UK
China alarmed by US money printing
By Ambrose Evans-Pritchard
Cernobbio, Italy
9:06PM BST 06 Sep 2009

The US Federal Reserve's policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy.

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China's green energy drive, said Beijing was dismayed by the Fed's recourse to "credit easing".

"We hope there will be a change in monetary policy as soon as they have positive growth again," he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

"If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said. (China is already a strong buyer in the precious metals markets, and is encouraging its citizens to buy gold and silver as well - Jesse)

China's reserves are more than – $2 trillion, the world's largest.

"Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added. (The short interest being held by three or four US banks is grown remarkably large. As Barrick gold claimed in their lawsuit with JP Morgan by Blanchard, they are being backstopped by the US government. Larry Summers has been a long time proponent of controlling the price of gold to influence longer term interest rates. See his paper on Gibson's Paradox. Greenspan understood the same relationship all too well, as does Bernanke. - Jesse)

The comments suggest that China has become the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction. (The other central banks of the world have put a significant halt to their own selling, now realizing that the US Federal Reserve and Treasury are fighting a losing battle. - Jesse)

Mr Cheng said the Fed's loose monetary policy was stoking an unstable asset boom in China. "If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise. (How about releasing the peg to the US dollar and allowing the yuan to appreciate, dampening your exports, Uncle Cheng? Along with encouraging domestic consumption and higher wages. - Jesse)

"Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down." (Apparently the Chinese do not lie to their people yet about the true state of their economy. Greenspan and Geithner have much to teach them. - Jesse)

Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets.

"This is where Greenspan went wrong from 2000 to 2004," he said. "He thought everything was alright because inflation was low, but assets absorbed the liquidity." (He didn't go wrong. He did not care. He was willfully blind. He was brought in to the banking ponzi scheme in 1996 - Jesse)

Mr Cheng said China had lost 20m jobs as a result of the crisis and advised the West not to over-estimate the role that his country can play in global recovery. (We should have NO illusion about China doing anything to promote imports and growth for anyone but themselves, ever. It is not a free market, it is a command economy with a strong mercantilist bent. - Jesse)

China's task is to switch from export dependency to internal consumption, but that requires a "change in the ideology of the Chinese people" to discourage excess saving. "This is very difficult". (No it is not. It is hard because the Chinese elites are afraid to lose control of the country to a growing merchant and middle class. - Jesse)

Mr Cheng said the root cause of global imbalances is spending patterns in US (and UK) and China. (One of the root causes was the devaluation of the Chinese yuan in the mid-1990's, and the allowance thereafter of China into most favored nation trading status with the US after making considerable contributions to Bill Clinton and Al Gore, through the Chinese military. Remember that scandal? - Jesse)

"The US spends tomorrow's money today," he said. "We Chinese spend today's money tomorrow. That's why we have this financial crisis...."

(Perhaps it is more correct to say that we have this crisis because statist governments and crony capitalists continually interfere with market mechanisms, creating unintended consequences and downtream crises that are growing increasingly severe and systemically threatening. - Jesse)