Emergency Blog!
Entry posted by Gaius Octavius
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Greetings & Salutations:
In re the new $5 bill - good for one gallon of petrol:
Soon, it will be a Ten Spot! Follow me: It costs a little less than 10 bucks to get oil out of the ground. The 'Spot' market is ~ +$110/barrel. But, I lied saying that oil comes out of the ground - it is produced by the 'Spot' market. Get it so far? It is well known that such as Exxon have no $10 oil. (As a matter of fact, they have no oil at all!) No depletion allowances, (aka nanny government tax subsidy), for that which they did not produce, but found in the ground. Still with me? Ergo, one must conclude that the problem is in the 'Spot' market. Yes? Now, if the 'players' in the 'Spot' market had to take/make delivery of oil futures, the price would tumble to ?. Or just as good, raise the margin requirements to 100%!
Still here? Good.
Let us amble together unto the Sub Prime Fraud: In days of old, when community banks existed by the gaggles, a president would have a cup of joe in the local diner with the early wandering farmers and business men. Yea!, I say unto you, he might even take toast with a member of the Great Unwashed! When called upon to make loans or mortgages, the prez could read and understand financial statements! He never packaged his loans and palmed them off to others. Putting exceptionally little trust in sleazy schiesters or lying CPA's, he corroborated the info. He required a decent down payment for mortgages and collateral for most business loans.
Now let us charge into the more recent past. Some while back, a couple of most intelligent and all knowing statistician/economists wrote up a paper in a Federal Reserve Bank (of somewhere) Review. They proved beyond any doubt whatsoever, with enough statistics and formulas to build a neutron bomb, that now that 'derivatives' had been discovered, the Circle of Risk had been closed! The No-Risk; No Profit Theory was now consigned to Hades! Humungus profits were now guaranteed. Since all the stops were pulled on regulation, and the regulators and bond raters were safely in the thrall and pockets of investment, merchant and commercial bankers, Collateralized Debt (of all sorts) Obligations could be conjured up by the most worthy investment bankers and their lackey liars (Sorry! Sorry!, I meant lawyers.). These little beauties were to be laid off on those seeking yield. Such honest men went about convincing real estate types of all greedy stripes (Yes!, even their own hungry frauds.), to convince anyone who asked for a mortgage, that he could afford one. Why that's why we have Adjustable Rate Mortgages. (In effect, borrow short; buy long.) Why LIBOR is your best friend. One day we will introduce you to HIBOR. And the masses were over joyed and completely shafted. Why some even announced that they would name their last born Libor. The prices for used toilet paper constructed shacks climbed upwards to Uranus. I am as rich as Croesus cried the polloi. Bring me credit cards!!!
Now we all know that lawyers can only say 'yes' in nothing less than a thousand pages. Thus, the I.B's and L's concocted these CDO's. Neither they, nor the good folk they were to palm them off on, knew what these CDO's were/are. So the banks said unto themselves, we must take advantage of these instruments that we know nothing of. After all, why should we worry? It's really only depositor/creditor money we are playing with. But, it came to pass that something was amiss (or was/is it?). All sorts of 'banks' claim that they are losing bundles. We must go to Sovereign Funds and leeches to get us out of this Serbonian mess. Why should we worry about watering our stock said the gangs at the tops of the corporate ladders. It's not our money. We used back dated options for ours. We're 'in the money' by a long shot. Anyone know what any IBOR is? Never mind.
Thence it came to ground that Bear, Siht was in a mound of poo. J.P. Morgan-Chase Malignancy in for the kill (I meant rescue.). Frankly, I am still not sure if JPM has aggregated Ursus Siht unto itself or not. Now enters the Bearded Liberarian, St. Bernanke, who, along with Mr. Greenspun knew all, but didn't call the gendarmes. Quoth St. B. to JPM: You may deposit any worthless or troubling CDO's at the RE-Discount Window. And any Primary Dealers may follow suit. Anyone know what a P.D. is? It ain't Laybach & Whachit, your friendly broker.
At last the god-Consul enters - stage right! Hold up there St. Bernanke! Why the blazes didn't you allow Bear Siht to go to the Window in the first place? Might there be much more to this? Let us investigate. Compared to the trillions of CMO's outstanding, only a paltry amount have actually gone the way of all flesh. Aha!, said Gaius. Could it be that Lord Effingham is paying a visit? One may 'buy' a tax loss, e.g., the one that exists at B/S. Or one may be created by marking down ones un-marketable inventory. One may use 'models', 'guesses', or whatever comes to mind in the case of CDO's. Now, assume that some honest folk are telling mere fibs, OK? A write down that does not come to fruition, means that the Treasury is being pilfered out of current tax revenue. Who knows, there may be another King Georgie-poo in the future. Then again, the whole Congress can be bought off to make life easier - for guess who?
Some very short while back, Gaius said to Claudia, in one of his tender moments: Why don't the 
CENSORED children simply return the sub-prime mortgages to their teaser rates? Like the squirrel, She shrugged. Guess what? That is exactly what the Brits are now doing for a two year period! 
Did I forget to mention that Bulls and Bears make markets; pigs make a mess!
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Gaius would like to find something out. If he mis-spells a word here, a little red line appears under it. Right? No suggestions appear for repair of the blunder. Now, if Gaius knew how to spell the Shame on you G.O.! word in the first instance, he would not have erred! Your turn Moon - in easy language for my ancient wits.
Done This Twenty-Fifth Day of April,
In the Year of Grace,
The Two Thousand and Eighth,
At Dusthaven
C. Octavius, Cos.
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