Taleb video: credit crunch not black swan, moral hazard now worse

From Bloomberg:

-

Some great comments on the OMB (“lying on their forecasts”), Geithner (“who has a mortage on a house not far from mine… who didn’t understand risk and real estate prices”), Summers (“uses wrong mathematics in his papers” and has “systemic arrogance”), and Bernanke (“the one who crashed the plane”).

He has praise for David Cameron, whom he thinks understands how to solve the crisis.

Plenty of fodder for inflationists and bond bears here: Hard assets like metals and agricultural land would be a good way to protect value. Forget the stock market and most real estate.

Does anybody, such as professors, now understand the issues he raises? No. Don’t go to business school, but if you go, don’t take any business class that has equations in it: “it’s all bogus.”

Civil Lawsuit, Allran vs. New York Fed, alleges cartel & Ponzi

Via Zerohedge, a suit has been filed in the US district court for western North Carolina by a group of citizens alleging that the Federal Reserve is an unconstitutional cartel and Ponzi scheme. Also named as defendants are several large banks and their CEOs, Geithner, Bernanke, Hank Paulson, Greenspan, John Snow, Shiela Bair and several other hacks and oligarchs.

The suit enumerates various “evils” committed over the last 97 years, but reaches way too far and dilutes the case by stringing together an overarching theory of a grand plot against the American way. Since it doesn’t stick to clear-cut issues of constitutionality such as the legal tender laws it is unlikely to get traction, but there can’t be a better place for it than in Western NC.

I take it as a sign of the times. It’s heartening to see people channel their anger about the economy into the study of banking history and take action that will at least open some more eyes.

Allran v NY Fed Reserve http://d1.scribdassets.com/ScribdViewer.swf

Jim Rogers discusses his euro long and stock shorts

I happen to have similar positions at the moment, though unlike Rogers, I’m a bear on commodities and China, which he seems to be perpetually long.  Here’s today’s Bloomberg interview.

Take-aways:

- Long euro as a contrary position. Too many shorts out there.

- All these countries (Spain, Portugal, UK, US) are spending money they don’t have and it will continue.

- ECB buying government and private debt is wrong.

- EU is ignoring its own rules about bailouts from Maastricht Treaty.

- Governments are still trying to solve a problem of too much debt with more debt.

- Fundamentals are bad for all paper currencies. Good for gold.

- Is “contagion” limited now? Well, for those who get the money…

Here’s a longer interview from a few days ago on the same topics as well as stocks:

-

- Rogers has a few stock shorts: emerging market index, NASDAQ stocks, and a large international financial institution.

- Rogers owns both silver and gold, but is not buying any more. He’s not buying anything here, “just watching.”

- Optimistic about Chinese currency. Expected it to rise more and faster, but still bullish.

- Thinking of adding shorts in next week or two if markets rally (my note: they have now).

- “Debts are so staggering, we’re all going to get hit with the problem,” no longer just our children and grandchildren.

Long Euro

I’m not a believer in manipulation, so I’m not counting on the central banks of the world to drive down the dollar. It’s as simple as 2% bulls: as of late last week there were 50 euro bulls for every bear. I always like to be the lone nut.

EUR.USD is looking very oversold at the moment by RSI, also. I’m still a long-term euro bear and would not be surprised by parity or $0.85, which actually looks all the more likely now that euroland is going to print away to relieve its banks of their bad bets on GIPSI bonds.

I thought the bailout was supposed to save the Euro.

In government and mainstream media logic, the bailouts are supposed to be good for the euro. With EUR/USD pushing 1.27, it appears that somebody forgot to tell the market that implied guarantees for GIPSI nations to the tune of 100s of billions of new euros should strengthen the value of those in circulation.

Here’s a 10-year view of the spot market, revealing just how much downside there is in this cross. On the other hand, the euro is getting oversold on a short-term basis, with RSI approaching the conditions preceding the short but violent rally in late ’08. It could trend a little while longer, but don’t get caught short without your stops.

TD Ameritrade

Video on Greece w/ Hugh Hendry: Never compromise when it comes to moral hazard.

On Russia Today via Zerohedge:

-

Hendry:

-  ”This is a bailout of the banking community… especially in France but of course also in Germany.”

-  Questionable whether the French banking system could take the hit, estimated at 35 billion euros.  This would raise questions about their Spanish, Portuguese and Italian bonds. This is not the end, but the “end of the beginning.”

RT:

-  How does this help the Greek people? They will be “paupers in Europe.”

Hendry:

-  There is a remedy. The remedy is that Greece could leave the Euro. If it were to bring back the drachma, the currency would be very, very cheap. This would bolster tourism and exports. London is full of foreign shoppers now that the pound is down 25%.

-  Soveriegn bankruptcy is the normal and healthy procedure. Bankers take the hit they deserve.

-  Great political flaw in the euro, trying to join cultures that don’t want to join. Angela Merkel is not being generous. Spending taxpayers’ money is not generousity. She’s trying to salvage a bankrupt philosophy.

RT:

- Moral hazard issue is not being talked about. This gives a green light to Spain, Portugal, etc to spend away.

Hendry:

- The truth is unpalatable. Giving an over-indebted country more debt is not the solution. We need to restructure the debt and punish the irresponsible banks and investors.

- We should never compromise with bailouts, and certainly not on Greece, which is just 2% of the European economy.

Silly Greeks

Those government workers don’t seem to get it: they’re on the same side as their politicians and the foreign bankers. They should all support the bailout and austerity measures, since this is the only way to keep the racket going a little longer. It’s the taxpayers who should be storming parliament and demanding default (just like in the US, UK, Japan, etc)!

Also, it makes perfect sense for the euro to tank on this news — Europe just tipped its hand that it’s likely to print 100s of billions of euros to bail out all these GIPSI nations.

Greece defaulting would be good for the euro, deflationary — 200B in euro balances would go POOF! Even if all the GIPSIs dropped out of the euro, which they would NOT have to do even if they defaulted, the euro could strengthen. In the end, if everyone but Germany defaulted and dropped out of the eurozone, it would be a hard currency and they could just call it the Deutsche Mark again.

Bill Laggner interview: Greece, GS, derivatives, etc.

Eric King always does a good interview, and Bill Laggner is a hedge fund manager (Bearing Fund, LP) who has been on top of the credit bubble and bust. He comes at things from an Austrian perspective.

Listen here.

Some take-aways:

- People of wealth around the world have lost faith in their respective governments.

- There is a limit to government borrowing, but establishment economists and politicians are very complacent right up to the end.

- Goldman’s swap transactions on Greek debt.

- Good luck getting Greece to go from 14% deficit to 3%.  Mathematically impossible — Greece must default like Argentina did in 2001. They’ll probably leave Eurozone, and this may be best for each of them.

- Portugal, Ireland and Spain face the same issue. Spreads blowing out. Puts heavy pressure on European banks.

- Politicians and talking heads are saying sovereign debt issue is contained, just like they said sub-prime was contained.

- European banks are at least as levered as US banks were two years ago.

- We’re at a juncture where we can print and delay or default and get it over with.

- Some countries may realize they are better off defaulting than taking IMF money and being slaves.

- GS people have been hired by Greek government to advise on bailout.

- Monetary elites like GS face a risk of the structured finance business, their bread and butter, disappearing.

- GS and others don’t produce capital. They speculate and then siphon money from taxpayers when they lose.

- Goldman’s proprietary trading book is highly lucrative, much more so than most other investment banks’. They make money over 90% of the time – how is that possible if it’s all honest?

- Goldman was a credit facility for New Century, one of the worst loan originators in sub-prime. We’ll find out more about their roll in helping build a market for junk mortgages. Possible exposure of fraudulent practices.

- Goldman sold a lot of this mortgage paper on leverage — they provided loans to funds to let them go levered long CDOs.

- Civil litigation will open up Pandora’s Box. Where there illegal activities within Goldman? Possible reputational risk. If they survive, they’ll be a shell of their former self.

- US has the same problems as Europe. US cities and states are just as bankrupt as Greece.

- Local politicians are corrupt and clueless and bankers took advantage of them, as in Jefferson County Alabama.

- Criminal proceedings in Italy against Deutsche Bank should provide insight into possible bribery and fraud related to derivative transactions.

- Expect litigation related to US city and state derivative transactions, as in Jefferson County Alabama.

- Expect increased outrage towards bankers.

- No transparency in US financial system.

- As states and cities go bankrupt, expect them to default on derivative transactions and enter litigation.

- (My own note: what about government employee unions? If you’re looking for an explanation for municipal and state bankruptcies, look there first.)

- US financial reform bill doesn’t solve anything. Still have the moral hazard of too-big-to-fail.

- Geithner is walking moral hazard.

- Amazing rally in risk assets over the last 14 months. Complete about-face in sentiment. New low in bearishness.

- Bill and partner Kevin Duffy are two of the few remaining bears left on the planet.

- VIX is ticking back up, Fed has ended a key lending program, sentiment is too extreme, leading economic indicators are rolling over. Stimulus will wear off like any drug, and there has been nothing done to sustain economy.

- If central banks hit the accelerators on their printing presses to bail out bankrupt governments we could enter a hyperinflationary mode. If we go the route of default, that could be avoided (deflation).