Meredith Whitney Delivers a Body Shot While Tim Geithner Hallucinates

Ten billion is starting to seem like very little to write down. That's because we are become insensitive to the economic rot that is being uncovered, in large part because of the actions of the Fed and Treasury to hide the problems, papering over the deep gouge in the foundation of the financial system, diverting us with smooth talk and facile arguments.

The next shoe is about to drop. It will come out of the credit card and Alt-A mortgage debt, and the severe cutbacks in consumer spending. A reasonable look at the math shows that consumers hit the wall in the US in the past two years, and have been 'running on fumes.' Their real wage growth has been strangled by the financial engineering of the multinational corporations, who never seem to learn that a successful parasite does not kill its host.

Tim Geithner, Ben Bernanke's graduate assistant at the NY Fed, is speaking this afternoon about reforming the financial system. Its almost too much to bear to listen to the financial engineers asking for more power, even as schemes of their own construction are collapsing all around them. Tim has spent most of his adult life in large institutions such as academia, the Treasury and now the Fed.

Timmy doesn't realize that in the real world you normally don't get MORE power when you fuck things up, at least not if you are in a competitive and thriving organization, and/or if you are under adult superivision. But nice try promoting Paulson's plan to a friendly audience. Its DOA.

The pain which is to be delivered to all holders of US dollars as a price for this naive exercise in academic hubris will be of epic proportions.

Protect yourself.


Citi, Merrill, UBS Face Monoline Losses, Whitney Says
By Jeff Kearns and Bradley Keoun

June 9 (Bloomberg) -- Citigroup Inc., Merrill Lynch & Co. and UBS AG may post losses of $10 billion on bond insurance after MBIA Inc. and Ambac Financial Group Inc. lost their top credit ratings, Oppenheimer & Co. analyst Meredith Whitney said.

MBIA and Ambac, the world's largest bond insurers, had their AAA ratings cut two levels by Standard & Poor's June 5, which trimmed ratings on more than $1 trillion of securities they guaranteed. The downgrades may limit the so-called monoline insurers' ability to write new policies, putting further pressure on earnings, she wrote today in a note to investors.

``The limited earnings potential of monolines poses a risk to the value of the insurance and hedges on the subprime-related securities provided to the banks and brokers,'' Whitney wrote. ``The collateral damage could be in excess of an additional $10 billion.''

Whitney, one of the first bank analysts last year to gauge the depth of the U.S. credit crisis, said in January that losses tied to the bond insurers for all banks might top $40 billion. She didn't update her estimate. Citigroup, Merrill and UBS have taken more than $10 billion of writedowns related to the insurers, she wrote.

Citigroup, the biggest U.S. bank, and Merrill, the world's biggest brokerage, have ``underperform'' stock ratings from Whitney. Both companies are based in New York. She doesn't cover Zurich-based UBS, the European bank hardest hit by the U.S. subprime contagion.
UBS had $6.3 billion of ``exposure'' to bond insurers at the end of March, Whitney said. Citigroup had $4.8 billion and Merrill had about $3 billion, she wrote.

Citigroup rose 12 cents to $20.18 at 11:31 a.m. in New York Stock Exchange composite trading, Merrill Lynch fell 28 cents, or 0.7 percent, to $38.74, and UBS slid 80 centimes to 23.82 francs in Zurich trading.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Bradley Keoun in New York at bkeoun@bloomberg.net.

Lehman to Post Loss Much Greater Than Expected

Lehman Aims to Raise More Capital
Second-Quarter Loss Likely to Be Greater Than Was Expected
By SUSANNE CRAIG
June 9, 2008
Wall Street Journal

Lehman Brothers Holdings Inc. is close to raising more than $5 billion of fresh capital from an array of investors including the New Jersey Division of Investment, according to a person familiar with the matter.

The move comes as the firm is set to report a second-quarter loss of more than $2 billion, this person said. Until recently, most analysts who follow Lehman have been predicting a loss of about $300 million.

On Sunday afternoon, the firm was still pulling together final details of the capital raising, which could be announced Monday or Tuesday. Additional capital raisings are sure to follow for other banks.

Barclays PLC, the big British bank, also is moving toward raising capital from outside investors such as those in the Middle East or Asia, according to people familiar with the matter. Last month, the bank left the door open for a capital injection but skipped seeking money from existing shareholders in a rights issue.

Lehman canvassed the globe in its capital raising but in the end found a group of primarily U.S. investors. Lehman's stock has tumbled about 50% this year as concerns have mounted over its financials and its exposure to the mortgage market.

So far, the firm has strong commitments from the New Jersey Division of Investment, which manages the state's $80 billion of pension funds and recently invested in Merrill Lynch & Co., and from C.V. Starr, the investment vehicle of Maurice R. "Hank" Greenberg, former chairman and chief executive officer of American International Group Inc. A significant foreign investment remained a possibility. (Who is the governor of NJ again? Oh yeah, Jon Corzine, late of Goldman Sachs - Jesse)

Lehman officials didn't respond to calls seeking comment, nor did New Jersey officials. A spokesman for C.V. Starr declined to comment.

So far, Friday's market turmoil hasn't deterred the outside investors, but Lehman may decide to see if markets stabilize on Monday before announcing its plans. A big capital increase from Lehman could help calm nervous investors and stabilize the broader market. The capital raising would come primarily through common shares, the first such issue since Lehman went public in 1994. (A little market timing here gentlemen? - Jesse)

So far this year, Lehman has raised almost $6 billion, but that was mostly in the form of preferred shares, a stock-bond hybrid that doesn't dilute the ownership of common shareholders. While a common-share issue would hurt Lehman's already-suffering shareholders by diluting their ownership stake, rating companies and regulators are likely to look favorably toward a greater capital cushion.

Lehman's larger-than-expected second-quarter losses stem partly from asset write-downs and hedges used to offset losses in real estate and other securities, according to people familiar with the matter. The firm bet that indexes tracking markets such as real-estate securities and leveraged loans would fall. If that happened, it would book profits that would make up some of its losses from holding these securities and loans.

However, in an unexpected twist, some of the indexes rose, even as the assets they were supposed to hedge against continued to lose value or stayed relatively flat.

Write to Susanne Craig at susanne.craig@wsj.com

SP 500 Daily and Weekly Charts May Target 1180 Before Year End

A word of caution is that charts cannot predict the future; no one and nothing can. They do provide a useful context for placing trades, marking changes in trend, and accomodating trading plans. As the market provides new information, the charts may change, and sometimes radically. There is a difference between "trading" and "predicting." Trading is what you do in the light of new company data and macroeconomic disclosures. Prophets go broke and then sell their predictions, whereas traders get by on their ability to process information and perform position and money management defensively as well as advantageously.

We see exogenous events as the biggest deltas to these charts. The two most likely will be a war, a major catastrophe, or perhaps even a more determined effort by the central banks to inflate the currencies and hold off at least the appearance of a major market break.

For what its worth, in our own trading accounts we flattened out on Friday near the close, having been considerly short the financial sector. We like to pull back to a short term cash position as we approach major support and resistance levels, and take an 'agile' trading stance with the ability to take short term positions in either direction while the market sorts itself out.

Our long term positions tend to be asset related, and we do not trade them.

Russian President Warns on Risk of Economic Depression

Although he is right on most counts, it gives us an uneasy feeling that statists around the globe smell blood in the water. Its tough enough worrying about domestic threats to freedom like the Republicans and Democrats.

Would you care to order more rope, Mr. Lenin?

Medvedev Raises Specter of Depression, Faults U.S.
By Lyubov Pronina and Sebastian Alison

June 7 (Bloomberg) -- Russian President Dmitry Medvedev said ``economic egoism'' has led to what may be the worst economic contraction since the depression of the 1930s, and placed some of the blame on the U.S.

The Russian leader said no single country, even the U.S., can reverse the global economic decline alone, and claimed a role for Russia in finding a solution.

``An underestimation of risks by the largest financial companies together with the aggressive financial policy of the world's largest economy led not only to corporate losses; unfortunately, the majority of people on the planet became poorer,'' Medvedev said in St. Petersburg.

Medvedev was speaking at the opening of the St. Petersburg International Economic Forum, Russia's largest trade and investment fair, held in his hometown for a 12th year. Officials expect the event to match the $12 billion worth of deals signed last year.

``For global financial markets, 2007 was one of the hardest years in recent decades and, if experts are to be believed, the most complicated since the Great Depression of the 1930s,'' Medvedev said.

`No Levers'

The Russian president said the global institutions responsible for financial regulation had ``no levers'' to counteract ``economic nationalism,'' when countries' ``pragmatic interests'' give way to ``political concerns.''

``The modern world is already globalized. And in such conditions, mistakes in the policies of individual countries, not to mention national egoism, immediately affect the situation in the entire global economy,'' he said.

``The disparity between the formal role of the U.S. in the world economic system and its real potential is one of the main reasons for the current crisis,'' Medvedev said. ``As strong as the U.S. market is, and as reliable as the U.S. financial system is, they aren't capable of replacing global goods and financial markets.''

U.S. Commerce Secretary Carlos Gutierrez, attending the forum, said he didn't think Medvedev had singled out the U.S. for criticism.

`Global Player'

``It's a very good point,'' Gutierrez told reporters. ``I brought up an example of economic egoism when I talked about the Doha round of negotiations for the WTO,'' he said, referring to talks on the World Trade Organization. ``We could help food prices to come down. We could help 500 million people to get out of poverty. Every country has to make some sacrifices.''

Medvedev said Russia's economic strength makes it a ``global player'' that should play a role in reviving the world economy.

``We want to take part in establishing new rules of the game,'' he said. Among the changes needed in the ``global financial architecture,'' Medvedev called for better coordination between regulatory agencies, an enhanced role for ratings services, more transparent accounting standards and an ``effective system for promoting rational behavior.'' (Sounds like everyone wants a piece of the New World Order - Jesse)

Business leaders from more than 400 Russian and foreign companies are attending the forum, including representatives of oil companies such as BP Plc and Royal Dutch Shell Plc, technology companies including Microsoft Corp., and food giants such as Nestle SA and Kraft Foods Inc.

Economic Growth

``Contracts worth $12 billion were signed last year. I think this year it will be no less than that,'' Deputy Economic Development Minister Andrei Klepach said in comments confirmed by his spokeswoman, Yulia Rybalchenko.

The St. Petersburg forum only took off last year, after then-President Vladimir Putin put pressure on Russian businesses not to attend a rival gathering in London and to come to the domestic forum instead.

During Putin's eight-year presidency, which ended last month, Russia's economy grew nearly five-fold, from about 7 trillion rubles in 2000 to almost 33 trillion rubles by the end of last year. The country is basking in a boom fuelled by high oil and natural gas prices, making the forum a major draw for the world's business leaders.

To contact the reporters on this story: Lyubov Pronina in St. Petersburg at lpronina@bloomberg.net; Sebastian Alison in Moscow at Salison1@bloomberg.net

Last Updated: June 7, 2008 09:50 EDT