We're Going to Make the Banks an Offer They Can't Refuse

Can you believe that there are people who think the forced splitting of the monoline insurers, like MBIA and AMBAC, into two entities would be a positive development for the banks?

The setup is that Eliot Spitzer's insurance enforcer, Eric "The Shiv" Dinallo, has brought the banks and the insurers together and made them an offer they can't refuse.

"Look, you truffatore have a good thing going down there in the City, running the stock market numbers rackets. And we envy the regulators and politicians you have in your pockets. But this move into counterfeit AAA debt and subprime is hurting the municipal and state bond business. That's our turf, and we don't like it when coglioni mess with our thing.

You banks are going to have to bail out these monoline insurers, and we don't care what deals you have to make to get the dough from Benny the Banker and Omar "the Turk" Sovereignfunzo, because we're not going to the public again to save you mamalukes. The terms are between them and you.

Oh, you're going to talk to your Texas stoonads in Washington? Fuhgheddaboutit! Barack "Bumpy" Obama from Chicago has them si stanno cagando sotto. Their scam has had a nice run but you can stick a fork in it fa Nabola, its done. A few of them are going to be sleeping with the fishes before this is over.

So you either paga in anticipo and make the problems you caused for us go away, or we are going to split up the monolines, take all the good parts to protect our business, and you are going to be picking about $580 billion worth of CDO and bad debt tranches out of your culone for the next ten years. Capice?"

New York's Dinallo Considers Splitting Bond Insurers
By Christine Richard and James Tyson

Feb. 14 (Bloomberg) -- Bond insurers may be split into two businesses in what would be the biggest overhaul of the industry since it was created almost four decades ago.

New York Insurance Department Superintendent Eric Dinallo said such a separation is one of the proposals regulators have been discussing with bond insurers, including MBIA Inc. and Ambac Financial Group Inc.

``One would have the municipal bond policies and any other healthy parts of the business,'' Dinallo said in prepared testimony for a hearing today of the House Financial Services subcommittee on capital markets in Washington. ``The other would have the structured finance and problem parts of the business.''

New York Governor Eliot Spitzer told the committee that the step, while ``not optimal,'' may be necessary if the companies can't raise the capital needed to stave off credit-rating downgrades. The world's largest bond insurers may lose the AAA ratings they use to guarantee $2.4 trillion of municipal and mortgage-backed debt, casting doubt on the rankings of thousands of schools, hospitals and local governments around the country.

Dinallo said his main goal is to protect the municipal borrowers and debt holders. Executives of Armonk, New York-based MBIA and Ambac are also scheduled to appear before the committee and will say they can survive the slump in mortgage securities.

Recapitalization

The best option is to recapitalize the bond insurers and stabilize the companies without dividing them, Spitzer told reporters after his testimony. ``That could happen within a couple of days [or else],'' he said.

Dinallo last month organized banks to begin plans for a rescue of the insurers and said he may consider tightening restrictions on what bond insurers can guarantee.

Splitting the companies in two was proposed by billionaire investor Warren Buffett, who this week said he offered to take over $800 billion of the municipal debt guaranteed by MBIA, Ambac and FGIC Corp., the fourth-largest bond insurer. The plan would leave behind the guarantees on mortgage-backed securities and other corporate debt responsible for the companies' losses.

Spitzer told the committee that such a ``good bank, bad bank structure,'' may be necessary if other rescue plans fail. Federal regulation may also be needed, he said. [Never screw with an ambitious district attorney].

``I am not opposed to federal regulation but how and when it is done needs to be thought through,'' Spitzer said in an interview with Bloomberg Television. [I'm not letting those clowns get in on this until OUR problem is solved.]

Insurers are supervised by states rather than the federal government, with New York often taking a lead role. New York regulates bond insurers under Article 69 of the state insurance law, Spitzer said in his testimony, calling the statute ``the standard for state insurance departments around the country...''

To contact the reporter on this story: Christine Richard in Washington at crichard5@bloomberg.net ; James Tyson in Washington at jtyson@bloomberg.net

Last Updated: February 14, 2008 16:14 EST

After Many a Summer Dies the Swan

"The woods decay, the woods decay and fall,
The vapours weep their burthen to the ground,
Man comes and tills the field and lies beneath,
And after many a summer dies the swan.
Me only cruel immortality
Consumes; I wither slowly in thine arms,
Here at the quiet limit of the world,
A white-hair'd shadow roaming like a dream
The ever-silent spaces of the East,
Far-folded mists, and gleaming halls of morn.
Alas! for this gray shadow, once a man--
So glorious in his beauty and thy choice,
Who madest him thy chosen, that he seem'd
To his great heart none other than a God!"
Tithonus, Alfred Lord Tennyson

The recognition of a US slide into stagflation is beginning to appear in the mainstream media, in this case The New York Times. A slackening in aggregate demand was offset by higher prices paid for necessities such as food and energy, which are running at the shocking annual rate of 13%. This is no surpise to use, as it is in-line with the growth of broader monetary aggregates such as MZM.

It has been the custom of Americans since WWII increasingly to place their savings in their homes, or the housing portion of their balance sheet. The decline of total credit outstanding as debt defaults increase will be charged against the value of that housing asset, which is equivalent to the US consumers savings account. Money is the transmission mechanism between balance sheets and income statements. Therefore we see no fundamental reason for the aggregate money supply to contract, except for brief periods of liquidity constriction which will be more than offset by the Fed. generating monetary inflation as it attempts to restore the bank's balance sheets.

The US middle class will receive the worst of all worlds: higher prices for necessities while their savings evaporate, in large part to underpin the financial system and rescue the banks, ironically securing the advantage gained by the top 1% of US families over the past 27 years, from Reagan to Bush. The situation is a classic case of overreach by the ruling elite.

We expect this trend to intensify, wax and wane, and not abate until median US wage growth starts to outpace inflation. This will require a much cheaper dollar than we have today, perhaps on the order of thirty-five percent or more, to achieve a sustainable equilibrium.

These gains cannot be achieved solely against the euro, but must include the Asian countries running large trade imbalances with the US. Since this conflicts with their long established mercantilist industrial policy we can look for considerable turmoil in the world's government-managed markets. Trade wars will be interspersed by localized military conflicts in resource important areas at worst if we are fortunate.

Politically it will be a replay of the politics of the New Deal in which a Democratic majority attempts to reform and provide relief, while a Republican minority in Congress and a Republican backed Supreme Court use every method to thwart and overturn these reforms and programs.

Unless the Fed mismanages the situation badly, or there is a precipitous shift in world reserves away from the dollar, we believe that hyper-inflation is as unlikely as a true monetary deflation in the US. Stagflation of varying intensity for a period of fifteen years of adjustment seems more probable, unless it is interrupted by an exogenous global conflict or domestic revolutionary change. The desired outcome which will be proffered by the power elitest will be a regional to global oligarchically managed economy.

"FACED with tightening credit and a slowing economy, America’s consumers are being forced to scale back their purchases, but high prices of necessities are keeping their overall purchases rising at a reasonably strong rate.

The retail sales report for January showed overall retail sales that were stronger than many economists had expected, and was well received by the stock market on Wednesday, the day it was released. In total, retail sales are running more than 4 percent over the level of a year ago, an increase that is above the overall inflation rate and much stronger than the sales were when the last recession began in early 2001.

But the overall change is misleading. One reason for its strength is that prices of necessities are up sharply over the past year, meaning that those items consume more and more of the household budget, leaving less for other things.

Over all, Americans are spending about 13 percent more on food and energy now than a year ago. The figures, as are all the figures shown in the charts accompanying this article, are based on three-month moving averages of seasonally adjusted figures, and compare this year with last year."

New York Times, Floyd Norris, Feb 16, 2008

The Dollar Vs. the Euro

A brief discussion of the Dollar Vs. the Euro by Tom Campbell, Haas School of Business, UC Berkley.

The Dollar Vs. the Euro: Video Presentation

A Chart of the Euro Versus the US Dollar Index

A Chart of the Euro and US Dollar Index Versus the Currency of Enduring Resort

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. ... This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.(1967)...Gold still represents the ultimate form of payment in the world....(May, 1999) " Alan Greenspan

"Gold is not necessary. I have no interest in gold. We will build a
strong state without an ounce of gold behind it. Anyone who sells above
the set price, let him be marched off to a concentration camp. That's
the bastion of [fiat] money." Adolf Hitler

Michigan Consumer Sentiment, the SP 500, and Gold

U.S. Michigan Consumer Sentiment Drops to 69.6 This Month
By Courtney Schlisserman

Feb. 15 (Bloomberg) -- Confidence among U.S. consumers fell more than expected this month, reaching a 16-year low, as the labor market cooled.

The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 69.6 from 78.4 in January, the lowest since February 1992.

The first drop in employment in more than four years and higher gasoline prices are causing Americans to take a dimmer view of the economy and their financial situation. That may reduce consumer spending, which has already has slowed in recent months.


The first chart compares the SP 500 and Michigan Consumer Sentiment. There is a pronounced divergence between the stock market and Consumer Sentiment.

The second chart adds the SP 500 as deflated by gold, which shows a remarkable coincidence with the Consumer Sentiment.

One can only wonder.