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question  and response on blog comments – 04-25-10

jthomaswhite
2010/04/25 at 6:06 pm

In looking over the findings of the committee …. where is the fundamental flaw of having the issuer pay for the ratings rather than the buyer? it used to be so.
why has this topic been dropped … as it stands it’s exactly like illegal bookmaking.
it would do more or equal to stabilize the derivatives game than proposed taxation or increased capital requirements.
it isn’t even in the reform package!

My Response –

It looks like the institutional investors like pension funds, endowments (such as university endowments), probably state and local government / school system treasuries investment account executives, and maybe even, non-profits’ pools used for investments require only certain grades or ratings for purchase. Inversely, it looks like they are required to get rid of those investments that fall below a certain grade or value. It would be like having a constructed menu from which to choose – AAA, maybe BBB rated securities or derivatives filling the menu.

So, therefore, packages were made to fulfill those standards by “cushioning” the bad loan products or poorly performing stocks with something to make it meet some arbitrary standard set into the model used for the rating. If they expected 77% losses in a package, they could make it look like and call it triple-A rated regardless. Then, those losses would be distributed through the many pools of funds who had purchased them. Which, I think is why our budget revenues in school endowments, school and state budgets, the totals in pension funds and others are suffering extreme shortfalls in the millions and sometimes, billions of dollars.

Something covered those losses to pay them off and that insurance taken against them failing – which was also paid off. Those monies came from the funds that were supposed to be enhanced by their involvement with these financial tools. And, consequently was taken from the pockets of those people and missions the funds were intended to serve and from those whose hard-earned money was put into them.

So, two things happened – one part happened when the ratings were given which didn’t satisfy any measure of good sense and were rated by companies who stood to gain profits, market share and volume by assigning AAA ratings where they were not deserved nor appropriate. And the other part happened when the massive downgrades were made all at once by the same ratings agencies that kicked in the credit derivatives / credit default swaps / credit insurance to be required to pay out 100 cents on the dollar to cover the full value of the losses. Like in the case of the Abacus group for example, where $7 million was paid for the play, $840 million was paid out to satisfy the losses. That would be true across the board in every case where the losses were paid out of pension funds and other institutional investment pools.

The game isn’t complicated. It is a shell game and a con. The ratings agencies were as much a part of the game as the rest of the industries they were aligned with serving. All of them took the profits from it and none have suffered the kinds of losses that are being born by investment pools using other people’s money to play in it.

Yes, there is a fundamental flaw of having anyone intimately involved or profiting from the game create the standards by which ratings are given and then assigning those ratings to the products in play. There are no checks and balances. There continue to be the same elements today as there were when the entire economies of the world were shattered including the US economy. The losses are still being born by those whose money was used in the game, but whose best interests were not considered. And, the values of all these products are still being assigned by those involved in the game who have no incentive to be honest or forthright about what is in the products or what their true values might be.

I would say that ultimately, they have gotten away with it and are untouchable – just as they believe. There is no evidence to the contrary. The harms born by every child in America whose school system budgets were cut severely, won’t be experienced by any of those who caused it in Wall Street or Moody’s or Standard & Poor’s or in the boardrooms of banks and investment houses.

I just read an article yesterday that describes the number of repossessions / foreclosures right now is higher than it was even a year ago despite all the programs intended to fix it or help with it. That is because the people wrapped up in the game of re-packaging and selling those loans (RBS – residential backed securities, etc.) and those engaged in selling, trading, and manipulating the credit default swaps on them who stand to gain only if the homes go into foreclosure – aren’t interested in the homeowners, citizens, families and communities in America.

There was a real estate roundtable and several on-air interviews with people involved in those financial industries tied to residential real estate – and their comments were that they hope foreign investors with money can be found to come and buy all those homes across America so they can be resold into the hands of someone for ownership who can pay for it.

That means, there is no intention for families and communities in America to use those homes to live in, grow their communities, be a family, conduct their lives in, or for those residential properties to provide home ownership for the Americans who actually live here. That is only so that their game continues – and their profits are made, despite each of us literally having paid off their losses while they took their profits.

Sorry to be so wordy but the point is, there are so many fundamental flaws in the system as it stands now that it isn’t rocket science to understand any of it. The only real thing that keeps them from being utterly well-known as fraudulent, corrupt and manipulative criminal practices is the degree to which the American people don’t believe it could be that way, even though it is.

– cricketdiane, 04-26-10

***

Do you know what that means?

1. If I said to you, the US Treasury was accessible to you as a private checking account? And that if you lost money gambling and making bets that caused you to lose money, the revenues of the US government would let you dip your hand into the Treasury and give you more money to use and do with as you see fit – would you believe me?

But, that is what has happened. It just wasn’t any of us, that got to do it.

2. If I said to you, that with every $5.00 you put on the table and prove that you might have in some form – which may or may not really be $5.00 – that you could gamble with, borrow, use and have as your own to use for your business activities – any amount of money that you need up to 96 times that amount, would you believe me?

But, that is also what has happened for the bankers, Wall Street investment firms, corporations, hedge funds, financial services companies, loan originators, mortgage traders, and commercial real estate investment groups and traders. It just wasn’t available for any of us that way.

3. If I said to you, that 300% profits were not only to be expected but demanded and an acceptable standard for any business idea as “normal,” would you believe that is a reasonable standard even when your ideas or mine, your business plans and business models or mine, are considered unreasonable if profits are expected to be 5% or 25% even over the course of ten years?

But, that is what has been happening that has shaped the unemployment levels, maintained higher prices for everything than the scale of wages to support it, and created unprecedented damages to our economy. It simply isn’t profits and profit levels to be reasonably expected when we go and do something.

4. If I said to you, that if a business or group of business products fail, then you will get paid more than if any of them succeed because there are funds which will be paid to you many times over what the products or businesses are worth, would you believe me?

But, that is the way it is. And, other businesses have been developed whose sole profits rely exclusively on this fact and are making hundreds of millions of dollars a year doing it. That isn’t what any of us would be allowed to consider as a business model, or as a socially acceptable practice, or a basis of corporate sustenance, or as a way and manner of doing business.

5. If I said to you, that every package you create would be rated as top level regardless of how shoddy, how risky, how likely to fail, how likely to be worthless, and no matter how likely to be hundreds of times more costly in real dollars than any amount of money it generates, would you believe me?

But, that is what the ratings agencies, investment houses and banks have done for themselves to take from our pockets to cover their profits and lifestyles. It simply would be called fraud if we did it and when caught doing it, any of us would go to jail for a long, long time and lose all the proceeds from it to the government who would take them.

6. If I said to you, that you could create the products to sell, have a department in your company write about them, sell them, trade them, invest other people’s money in buying them, form mergers of them and then sell others on the information about the product’s companies being “mergered” and then trade knowing those facts intimately without recourse against you, would you believe me?

But, that is also what has happened. And that insider knowledge would be something for us to spend the next twenty years in prison and lose everything we’ve built in our lives and families, if we were using it the way they are and have been using it to profit.

7. If I said to you, that if you invent something, innovate, create or generate some great thing for mankind, the chances are you will die penniless, spend more time in mental institutions than at home, lose your children, never get to buy a house or a vacation house or a boat or a car, never have any money and never get to see success from it, would you believe me?

But, that is what happened to the inventor of the television, to the creator of the alternating current turbines we use today and to countless other inventors from the windshield wipers used on every car and truck in the world to the inventors of the cd player and many, many others. And, that is what happens to us when we do it as well. Tremendous  resources, money and wealth generally are being created not by the invention of some great breakthrough or innovation, but rather by the manipulation of money in these shell games of Wall Street and bankers whose sole purpose is not to create anything of value, but rather to do the opposite and give as little for as little as possible with the least amount of effort for the most amount of return and the greatest degree of profits from the exchange (not possible or plausible or likely, but rather as far as it can be pushed.)

8. If I said to you, that fair business practices, decent conscience about humanity and reasonable consideration of ethics and trustworthiness, would not make a business profitable nor competitive, would you believe me?

But, that is evidently the way it is. Whether we choose to believe it or not, the profits and profitability of these companies in America has not been based on fair business practices, nor on decent reasonable conscience nor socially acceptable ethics and certainly not on measuring up to that trust given by the public, the employees, the customers, the media and the government.

And, conversely – those who engaged in the above practices were all the more likely to fail than to succeed. If the corporate entities who have chosen to use their legal representatives to find them as “individual citizens” under the law with all the rights, privileges and discretion of the individual citizen, were subjected to the applications of guidelines judging narcissistic, psychotic, anti-social and dangerous behaviors, they would not fair so well. There is every evidence that these corporate entities are pathological liars, pathologically incapable of applying conscientious choices and decisions, are dangerous to the communities they were intended to serve, twisted and delusional in their concepts about reality and generally, incapable of accepting feedback to correct their thinking about anything.

That, in a nutshell, is the problem. If they are going to be considered “individual citizens,” then they need to abide by the same rules as the general population of individual citizens both enjoys and endures, or change it so the rest of us get to use the rules they are playing by. Something has to be done differently because the ones now on the endangered species list are America’s families, her children, her real individual citizens, her communities, and her future in the world.

We are not a grist mill for their profits.

– cricketdiane, 04-26-10

***
“It is a curious fact that, while political economists recognize that for the proper action of the law of supply and demand there must be fluctuations, it has not generally been recognized by mechanicians in this matter of the steam engine governor. The aim of the mechanical economist, as is that of the political economist, should be not to do away with these fluctuations all together (for then he does away with the principles of self-regulation), but to diminish them as much as possible, still leaving them large enough to have sufficient regulating power.”

– The second key idea is clearly illustrated by the following sentence by H.R. Hall in [17] in 1907 and that we have taken from [2]: (see above)

(from – Control Theory)
http://docs.google.com/viewer?a=v&q=cache:nt7BNb-whUkJ:me.wpi.edu/IEEETC_DPS/ARTICLES/DivSEMA.pdf+hyperphysics+non-linear+dynamic+partial+differential+equations+time+dependent&hl=en&gl=us&pid=bl&srcid=ADGEESgJh97IcEH1jWaz-voAncTzPcmGTkX2QFwtyiyw1duHFAZCsIh_AWKNo4U8aKvT1PvyLdauuTHzftLIHsria5dBy5J8Idlr3CEyeBEvKeZgp-Z4dUsXA4GUUhY71KXgbqkt8SUB&sig=AHIEtbRtKwpuK3OOEq45V8ZF_HesEtfVNQ

***

WHICH – came from here –

[PDF]
Control Theory: History, Mathematical Achievements and …
File Format: PDF/Adobe Acrobat – Quick View
by E Fernández-Cara – Cited by 12 – Related articles
dynamical systems, Pontryaguin’s maximum principle and the principle ….. Indeed, by that time it was clear that true systems are often nonlinear and …… Frequently, we have to consider models involving time-dependent partial ….. partial differential equations and are solved by finite difference methods. The …
me.wpi.edu/IEEETC_DPS/ARTICLES/DivSEMA.pdf

(found by google search with these terms together – hyperphysics non-linear dynamic partial differential equations time dependent)

***

My Note –

Please note the year when that was written – 1907. This shit didn’t start sometime yesterday and there have been many guidelines, intelligent thought, and perceptive reasoning applied to the science of economics to have gotten it right long before today.

If I went to the Small Business Administration, a banker, or a group of venture capitalists and said, I expect my salary for running this business as its CEO, to be ten million dollars a year plus a helicopter and a per diem and a corporate jet and a $300,000 membership in my golf activities, and sports arena airbox fees, a retirement and severance package of over a million dollars a month forever, and stock packages worth in excess of thirty million dollars (which in the corporate world is all on the minimum side currently) – they would be offended and not put any money in my business at all.

There would not be one dime added to my business if that were my stated expectations from that business during any course of its life because it would be evident that I was intending to do nothing more than to milk it of its assets and revenues (and unreasonably so.)

– cricketdiane

*** In case you didn’t see it –

NEW YORK (Reuters) – The Swiss bank UBS AG and the accounting firm Ernst & Young LLP have agreed to $250.5 million of settlements to resolve investor lawsuits over a fraud that nearly destroyed the hospital operator HealthSouth Corp.

UBS insurers will pay $117 million to HealthSouth shareholders and $100 million to bondholders, and Ernst & Young will pay $33.5 million to the bondholders, documents filed on Thursday with the federal court in Birmingham, Alabama show.

( . . . )

The litigation stemmed from an estimated $2.7 billion accounting fraud at HealthSouth, a Birmingham-based operator of rehabilitation hospitals and surgical centers.

Fifteen former HealthSouth executives have pleaded guilty over a scheme to artificially inflate earnings and the company’s share price.

Richard Scrushy, HealthSouth’s longtime chief executive, was acquitted on criminal charges in 2005, but an Alabama state judge last June ordered him to pay $2.9 billion in a related civil case.

(etc.)

UBS, Ernst settle HealthSouth cases for $250.5 million
NEW YORK
Sat Apr 24, 2010 2:12pm EDT

The case is In re: HealthSouth Corp Securities Litigation, U.S. District Court, Northern District of Alabama, No. 03-1500.

(Reporting by Jonathan Stempel; Editing by Will Dunham)

http://www.reuters.com/article/idUSTRE63N1IP20100424

***

from Reuters – 04-25-10

Goldman emails lauded profits as economy tanked

According to emails released by the Senate, in 2007 Goldman Sachs officials boasted about making “serious money” off the subprime mortgage crisis.  Full Article

* Abacus might have had other benefits for Goldman
* Goldman execs sold shares after fraud notice
* Felix Salmon: The Abacus prospectus

Greece races for rescue, some fear not enough

WASHINGTON (Reuters) – Finance leaders scrambled to secure aid for debt-stricken Greece on Saturday and Canada cautioned that some European countries feared the 45 billion euros ($60 billion) under consideration was not enough. | Video

http://www.reuters.com/article/idUSTRE63N18020100425

***
This back-and-forth typified exchanges at the firm over whether to continue to neutralize its exposure to subprime mortgages or expand investment in them well into 2007. By Nov. 30, 2007, Goldman had largely canceled out its exposure to subprime mortgages by increasing its bets that the market would continue to slide, according to the document.

http://www.washingtonpost.com/wp-dyn/content/article/2010/04/24/AR2010042401049.html

***

In another e-mail, Goldman executives discussed how the securities of one subprime mortgage lender the company worked with were facing “wipeout” and another collapse was “imminent.” Goldman helped this lender bundle and sell its loans to investors. But one executive, Deeb Salem, wrote that the “good news” was that Goldman would profit $5 million from a bet against the very same bundles of loans it had helped create.

In a November 2007 e-mail, Blankfein wrote that the firm “lost money” on the housing market, “then made more than we lost because of shorts.”

The e-mails portray a different narrative than the one Goldman conveys in an internal document summarizing the company’s experience in the mortgage crisis.

On Dec. 14, 2006, Viniar called Goldman’s mortgage traders and risk managers to a meeting and concluded they would reduce overall exposure to the subprime mortgage market. This was largely done by making bets against the market to cancel out bets it had placed that the market would rebound. The company’s document acknowledges that Goldman at times shorted the overall market but describes those periods as temporary while the firm was rebalancing its portfolio.

(etc.)

“Investment banks such as Goldman Sachs . . . were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis,” said Carl M. Levin (D-Mich.), chairman of the Senate panel. “They bundled toxic mortgages into complex financial instruments, got the credit rating agencies to label them as AAA securities and sold them to investors, magnifying and spreading risk throughout the financial system and all too often betting against the instruments they sold and profiting at the expense of their clients.”

The documents show that the firm’s executives were celebrating earlier investments calculated to benefit if housing prices fell, a Senate investigative committee found. In an e-mail sent in the fall of 2007, for example, Goldman executive Donald Mullen predicted a windfall because credit-rating companies had downgraded mortgage-related investments, which caused losses for investors.

“Sounds like we will make some serious money,” Mullen wrote.

(etc.)

– from same article above –

http://www.washingtonpost.com/wp-dyn/content/article/2010/04/24/AR2010042401049.html

Goldman executives cheered housing market’s decline, newly released e-mails show

By Zachary A. Goldfarb
Washington Post Staff Writer
Sunday, April 25, 2010

***

On another occasion in February 2007, Goldman President Gary Cohn noted there was a big trade brewing that would “get us out of our short risk,” suggesting the firm didn’t want to make a big bet on the mortgage market in either direction.

By late 2007, the meltdown was in full swing, heading toward the peak in September 2008 when Lehman Brothers Holdings collapsed.

Goldman executives made a presentation to the board in September 2007 on the residential-mortgage market. The presentation gave bullet points on the firm’s response to the downturn including “shut down residential mortgage warehouses,” and “increased protection for disaster scenarios.” It said in the third quarter of that year Goldman “actively managed risk exposure to hedge funds.”

For the first time Goldman disclosed the gross revenue it made from its mortgage business in 2007. For the year the division posted revenue of $1.02 billion, with much of that, $735 million, coming in the fiscal third quarter alone. In the second quarter, it had negative revenue of $86 million.

(etc.)

At another point in July 2007, Goldman executives appear to discuss how their mortgage investment numbers were up, despite big losses on securities known as collateralized debt obligations and residential mortgages.

http://online.wsj.com/article/SB10001424052748704627704575203882067718088.html?mod=rss_Today%27s_Most_Popular

***

2009_09_Restoring_Liquidity_in_CRE.pdf

http://www.rer.org/uploadedFiles/RER/Policy_Issues/Credit_Crisis/2009_09_Restoring_Liquidity_in_CRE.pdf?n=8270

from Real Estate Roundtable –

During the past few years, banks and the commercial mortgage backed securities (CMBS) market provided about 83% of the growth in commercial real estate debt. Today, both of these (traditionally) large sources of commercial real estate credit remain virtually shut down.
The CMBS market is illustrative of the problem. CMBS issuance peaked in 2007 with $230 billion of bonds issued. This plunged to $12 billion in 2008, a decline of nearly 95%. Thus far in 2009, there has been no new CMBS issuance.

For millions of Americans whose pension funds invest directly or indirectly in approximately $160 billion of commercial real estate equity, increased loan defaults and lower property values will cause further erosion of their retirement savings.

(My Note – So, guess who is covering those losses – and that is probably only one piece of it because the pension funds, state budgets, school budgets, endowments and other investment pools also bought default swaps that pay out on the failures and defaults of the loans – cricketdiane)

Commercial real estate represents $6.7 trillion of value supported by $3.5 trillion in debt. The health of this vast sector is vital to the economy (estimates show commercial real estate constitutes 13% of GDP by revenue) and to our nation’s financial system.

The current credit system in America simply does not have the capacity to meet the ongoing demand for commercial real estate debt. With an average of $300 billion in commercial real estate loans maturing each year for the next decade — and still virtually no way to refinance these loans — stress to the financial services system, individual financial institutions, and those who have invested in real estate directly or indirectly will increase.

· With very limited capacity to meet this ongoing demand for credit, a potential wave of defaults from maturing loans could jeopardize economic recovery and, potentially, undo much of the progress made to date in healing the banking system and credit markets.

http://www.rer.org/ContentDetails.aspx?id=3045

http://www.rer.org/uploadedFiles/RER/Policy_Issues/Credit_Crisis/2009_09_Restoring_Liquidity_in_CRE.pdf?n=8270

My Note – what they did was to borrow to pay off a loan that was maturing and apparently, that was standard acceptable practice.

It was and probably still is, a never ending loan / credit line  / US banking system and US government , regionally – locally – state and federal level checking account system whereby loans were paid off with loans –

that were made to pay off loans –

which were paid in the first place with commercial paper type loans in order to make the payments on the loans, etc., etc., etc., –

in a big loop that continued to get loans to pay off the loans and never investing any real money in the system to pay any of it.

Hmmm….

Wish I could do that, don’t you?

– cricketdiane

***

And, now they’re upset because they actually might have to put some of the real revenues their for-profit enterprises have been generating into covering the costs of the loans they took out to pay for it – but, more likely, they will simply take the profits and let the losses be absorbed by the public through bankruptcy or default and then, start the whole process over again.

**

(and from – RealtyTrac®’s U.S. Foreclosure Market Report™ for Q1 2010.)

Bank Repossessions Hit All-time High
Published: April 15, 2010
Bank repossessions of homes (REOs) hit a record high in the first quarter, with a total of 257,944 properties repossessed by lenders— an increase of 9 percent from the previous quarter and an increase of 35 percent from the first quarter of 2009, according to RealtyTrac®’s U.S. Foreclosure Market Report™ for Q1 2010.
The record number of repossessions were part of overall 7 percent increase of all foreclosure filings reported on 932,234 properties in the first quarter. Foreclosure filings increased 16 percent from the first quarter of 2009. One in every 138 U.S. housing units received a foreclosure filing during the quarter.

Illinois documented the fourth highest foreclosure activity total, with 45,780 properties receiving a foreclosure filing — still a 17 percent increase from the first quarter of 2009.

A total of 45,732 Michigan properties received a foreclosure filing during the quarter, the fifth highest state total. Michigan foreclosure activity increased nearly 11 percent from the previous quarter and was up nearly 38 percent from the first quarter of 2009.

Other states with foreclosure activity totals among the nation’s 10 highest were Georgia (39,911), Texas (37,354), Nevada (34,557), Ohio (33,221) and Colorado (16,023).

http://www.upi.com/Real-Estate/2010/04/15/Bank-Repossessions-Hit-All-time-High/6501271355525/

California alone accounted for 23 percent of the nation’s total foreclosure activity in the first quarter, with 216,263 properties receiving a foreclosure notice — the nation’s highest foreclosure activity total.

Florida’s total was second highest, with 153,540 properties receiving a foreclosure filing during the quarter, and Arizona’s total was third highest, with 55,686 properties receiving a foreclosure filing during the quarter.

(etc.)

***

Indeed, in the past week and half, banks have tried to estimate their proprietary trading, with most banks suggesting that it is a minuscule part of their business. JPMorgan Chase, Morgan Stanley and others estimated it at less than 2 percent of their business; Goldman Sachs said it was under 10 percent.

But as the chief executive of a global bank said to me, knocking back a shot of vodka, “The numbers you’ve heard about don’t include all the investments we make that are related to our clients. Nobody’s talking about that. That’s a much bigger number.”

http://www.nytimes.com/2010/02/02/business/02sorkin.html

My Note –

That means they get to make insider trades for their own portfolios of their business and their own profits with the intimate inside information they have using their client’s trades which they made for them.

Along with the fact that most of the mergers, acquisitions, hostile takeovers and other shady deals are being managed (for pay) by the same companies who are making those investments listed above.

If that isn’t criminal – I don’t know what is. It gives a legal? right to trade on insider knowledge acquired through the normal course of doing business but not available to everyone else in the marketplace?

– cricketdiane

***

Bob Diamond, president of Barclays, argued in favour of large universal banks because they were liked and needed by big business, by governments and by large institutional investors, such as pension funds. “I’ve seen no evidence … that suggests that shrinking banks to make them smaller and narrower is effective,” he said.

Yesterday, George Soros, the billionaire investor, attacked bankers, accusing them of being “tone deaf” to public opinion, as some of the world’s most senior industry figures used the platform of Davos to launch a fightback against President Obama’s proposed crackdown. Mr Soros defended Mr Obama’s plans to stop banks growing too big and to prevent them undertaking riskier activities such as proprietary trading and said that he had been unimpressed by the bankers’ response to it. “I think the banking community . . . is tone deaf. I think it is a very unfortunate reaction.”

The bankers will also press the point that any perception that there could be an extension of this year’s tax on bonuses could damage London’s status as a financial capital. However, it is also believed that Mr Darling — who faces a wave of hostile anti-banker sentiment in the run-up to the general election — is also trying to achieve a consensus between London-based bankers before presenting the UK’s position in an increasingly globalised debate.

(etc. – from January 2010, Davos meeting, World Economic Forum)
January 28, 2010
Davos: Top bankers to hold secret talks with Darling in bid to avert tough sanctions
Patrick Hosking, Helen Power and Suzy Jagger

http://business.timesonline.co.uk/tol/business/economics/wef/article7005340.ece

***

Lack of new CRE loans: Banks are not lending on new transactions but, rather, temporarily extending existing loans at maturity (rather than foreclosing) and categorizing them as “new loans.” Scarcity of credit is making it very difficult to find new loans at institutionally sized proceeds and terms, even those that should normally qualify under new, tighter underwriting standards.


Mountain of debt maturities: There is a total of $3.5 trillion of CRE debt outstanding (excluding government-sponsored and agency loans).

Ø CMBS represents $700 billion (or 25%) of total CRE debt outstanding. At its peak in 2005-2007, CMBS saw $600 billion in total issuance (three-quarters was interest-only and on average 87% was rated AAA at securitization) and now constitutes nearly 70% of total delinquent CMBS. $236 billion of total CMBS matures between now and 2013.
Ø Banks and life insurance companies, which make up 50% and 10% of total CRE debt outstanding, respectively, are potentially an even bigger problem. Banks have $1.5 trillion in CRE loans on their books that look even more vulnerable than CMBS, especially smaller regional and community banks that have very high exposures to troubled construction and land development loans. According to the FDIC, this includes $1 trillion of core CRE loans and $532 billion of highly volatile construction and land development loans.

http://www.rer.org/uploadedFiles/RER/Policy_Issues/Credit_Crisis/2009_09_Restoring_Liquidity_in_CRE.pdf?n=8270

***

Life insurance companies have approximately $222 billion of direct loans maturing through 2018 according to the Mortgage Bankers Association.
Ø The total rolling maturities from these three sources (CMBS, insurance companies and Banks/Thrifts) is $1.3 trillion maturing through 2013 and $2.4 trillion maturing through 2018.

(from link above – real estate roundtable white paper information)

***

Modern competition law begins with the United States legislation of the Sherman Act of 1890 and the Clayton Act of 1914. While other, particularly European, countries also had some form of regulation on monopolies and cartels, the US codification of the common law position on restraint of trade had a widespread effect on subsequent competition law development. Both after World War II and after the fall of the Berlin wall competition law has gone through phases of renewed attention and legislative updates around the world.

The two largest and most influential systems of competition regulation are United States antitrust law and European Community competition law. National and regional competition authorities across the world have formed international support and enforcement networks.
[edit] United States antitrust
Main article: United States antitrust law

The American term antitrust arose not because the US statutes had anything to do with ordinary trust law, but because the large American corporations used trusts to conceal the nature of their business arrangements. Big trusts became synonymous with big monopolies, the perceived threat to democracy and the free market these trusts represented led to the Sherman and Clayton Acts. These laws, in part, codified past American and English common law of restraints of trade. Senator Hoar, an author of the Sherman Act said in a debate,  We have affirmed the old doctrine of the common law in regard to all inter-state and international commercial transactions and have clothed the United States courts with authority to enforce that doctrine by injunction.  Evidence of the common law basis of the Sherman and Clayton acts is found in the Standard Oil case,[31] where Chief Justice White explicitly linked the Sherman Act with the common law and sixteenth century English statutes on engrossing.[32] The Act’s wording also reflects common law. The first two sections read as follows,
Modern competition law is modeled on the United States’ Sherman Act, which aimed to  bust the trusts .

Section 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine….

Section 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine….

(etc.) – out of its original order)

The English law of restraint of trade is the direct predecessor to modern competition law.[23] Its current use is small, given modern and economically oriented statutes in most common law countries. Its approach was based on the two concepts of prohibiting agreements that ran counter to public policy, unless the reasonableness of an agreement could be shown. A restraint of trade is simply some kind of agreed provision that is designed to restrain another’s trade.

( . . . )

The Sherman Act did not have the immediate effects its authors intended, though Republican President Theodore Roosevelt’s federal government sued 45 companies, and William Taft used it against 75. The Clayton Act of 1914 was passed to supplement the Sherman Act. Specific categories of abusive conduct were listed, including price discrimination(section 2), exclusive dealings (section 3) and mergers which substantially lessen competition (section 7). Section 6 exempted trade unions from the law’s operation. Both the Sherman and Clayton acts are now codified under Title 15 of the United States Code.

The first provision is Article 81 EC, which deals with cartels and restrictive vertical agreements. Prohibited are:

(1) …all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market…

Article 81 EC’s goals are unclear. There are two main schools of thought. The predominant view is that only consumer welfare considerations are relevant there.[36] However, a recent book argues that this position is erroneous and that other Member State and European Union public policy goals (such as public health and the environment) should also be considered there.[37] If this argument is correct then it could have a profound effect on the outcome of cases[38] as well as the Modernisation process as a whole.

Article 81(1) EC then gives examples of  hard core  restrictive practices such as price fixing or market sharing and 81(2) EC confirms that any agreements are automatically void. However, just like the Statute of Monopolies 1623, Article 81(3) EC creates exemptions, if the collusion is for distributional or technological innovation, gives consumers a  fair share  of the benefit and does not include unreasonable restraints (or disproportionate, in ECJ terminology) that risk eliminating competition anywhere.

Article 82 EC deals with monopolies, or more precisely firms who have a dominant market share and abuse that position. Unlike U.S. Antitrust, EC law has never been used to punish the existence of dominant firms, but merely imposes a special responsibility to conduct oneself appropriately.[39] Specific categories of abuse listed in Article 82 EC include price discrimination and exclusive dealing, much the same as sections 2 and 3 of the U.S. Clayton Act.

Also under Article 82 EC, the European Council was empowered to enact a regulation to control mergers between firms, currently the latest known by the abbreviation of Regulation 139/2004/EC. The general test is whether a concentration (i.e. merger or acquisition) with a community dimension (i.e. affects a number of EU member states) might significantly impede effective competition. Again, the similarity to the Clayton Act’s substantial lessening of competition.

Finally, Articles 86 and 87 EC regulate the state’s role in the market. Article 86(2) EC states clearly that nothing in the rules can be used to obstruct a member state’s right to deliver public services, but that otherwise public enterprises must play by the same rules on collusion and abuse of dominance as everyone else. Article 87 EC, similar to Article 81 EC, lays down a general rule that the state may not aid or subsidise private parties in distortion of free competition, but then grants exceptions for things like charities, natural disasters or regional development.

(etc.)

Competition law has already been substantially internationalised along the lines of the US model by nation states themselves, however the involvement of international organisations has been growing. Increasingly active at all international conferences are the United Nations Conference on Trade and Development (UNCTAD) and the Organisation for Economic Co-operation and Development (OECD), which is prone to making neo-liberal recommendations about the total application of competition law for public and private industries.[41] Chapter 5 of the post war Havana Charter contained an Antitrust code[42] but this was never incorporated into the WTO’s forerunner, the General Agreement on Tariffs and Trade 1947. Office of Fair Trading Director and Professor Richard Whish wrote sceptically that it  seems unlikely at the current stage of its development that the WTO will metamorphose into a global competition authority. [43] Despite that, at the ongoing Doha round of trade talks for the World Trade Organisation, discussion includes the prospect of competition law enforcement moving up to a global level. While it is incapable of enforcement itself, the newly established International Competition Network[44] (ICN) is a way for national authorities to coordinate their own enforcement activities.

The bigger problem is however poor governance – in societies with widespread corruption, inadequate public finances,[45] and weak judiciary (and fiduciary, my note) and oversight institutions, competition policy may become another tool for capture by vested interests – becoming in itself a barrier to entry.

“A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly under-stocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate. [47]” – Adam Smith, Wealth of Nations author – excerpt from ^ Smith (1776) Book I, Chapter 7, para 26, (according to wikipedia entry footnotes.)

Contrasting with the allocatively, productively and dynamically efficient market model are monopolies, oligopolies, and cartels. When only one or a few firms exist in the market, and there is no credible threat of the entry of competing firms, prices rise above the competitive level, to either a monopolistic or oligopolistic equilibrium price. Production is also decreased, further decreasing social welfare by creating a deadweight loss.

http://en.wikipedia.org/wiki/Competition_policy

***

* Monopoly
o Coercive monopoly
o Natural monopoly
* Barriers to entry

***

Treasury Financial Manual
Volume IV: Treasury Tax and Loan Depositaries

Volume IV Table of Contents

Part 1 Table of Contents

Chapter 2300 Treasury Investment Program (T/L 6)
Web File HTML File PDF FilePDF File

http://fms.treas.gov/tfm/vol4/index.html

My Note – but this is why this is interesting –

http://fms.treas.gov/tip/ipt/index.html

Treasury Investment Program
Overview

Treasury’s operating cash balance is maintained in a portfolio of four separate investment vehicles under investment authority codified at Title 31 U.S.C. Section 323. Currently, only financial institutions that are designated as Treasury Tax and Loan (TT&L) depositaries are eligible to participate in Treasury’s investment program.

Treasury’s Federal Reserve Account:
Represents Treasury’s checking account. The vast majority of payments and collections are paid out of and received into this account maintained at the Federal Reserve Bank of New York. Treasury does not earn explicit interest earnings on the account although it does receive implicit interest on the balances in the form of Federal Reserve earnings. Treasury generally targets a $5 billion end-of-day balance in its Federal Reserve Account.

TT&L Balances:
Represents funds invested with commercial depositaries that agree to pay Treasury interest at the rate determined by the Secretary of the Treasury. Treasury has the ability to call TT&L funds on a same-day basis and place funds on a same-day or one-day basis depending upon each depositary’s designation (almost 90% of Treasury’s TT&L capacity is available on a same-day basis). TT&L investments may be placed as direct investments, dynamic investments, or special direct investments.

(etc.)

Today, the CFTC assures the economic utility of the futures markets by encouraging their competitiveness and efficiency, protecting market participants against fraud, manipulation, and abusive trading practices, and by ensuring the financial integrity of the clearing process. Through effective oversight, the CFTC enables the futures markets to serve the important function of providing a means for price discovery and offsetting price risk.

The CFTC’s mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.

http://www.cftc.gov/About/MissionResponsibilities/index.htm

The next time you complain about the high price of gas, think of Mr. Ma. The owner of small logistics firm in Beijing, Ma was forced to shut it down temporarily earlier this week after he simply couldn’t find enough diesel to fuel his company’s 20 trucks.  Gas stations even serving diesel have been difficult to come across,  says Ma, who didn’t wish to give his first name.  I’m losing 100,000 renminbi [$12,500] a day.

With crude oil closing in on $100 a barrel, the pinch of higher prices is being felt worldwide. In China, however, the impact of the hikes has been shortages at the pump, and tempers are running hot. Last weekend, a man was fatally stabbed in Shandong province after he jumped the queue at a local gas station. A second man in Henan province was killed in a similar incident Tuesday.

2006. In that same period of time, international oil prices have risen about 30%, sticking refineries with spiraling costs for the crude they buy and shrinking profits for the gasoline they sell. Some smaller refineries stopped production altogether to avoid losses, while others begun hoarding their crude supplies, leading to gas shortages around the country.

Read more: http://www.time.com/time/business/article/0,8599,1678731,00.html#ixzz0lyeYinq3

(from)
China Feels the Fuel Pinch
By  Kathleen Kingsbury   Thursday, Nov. 01, 2007
http://www.time.com/time/business/article/0,8599,1678731,00.html

**

My Note –

But this was the result of the Goldman Sachs analysts coming out with a projection that there was a scarcity to be expected and his ideas about it along with a parade of the “experts” on every media outlet saying there would not be enough crude oil to meet the demand, and on and on and on.

That sent speculators to drive the price of the oil futures into the stratosphere along with the prices for gasoline at the retail consumer level which raised or gained in price every half hour that the markets were open anywhere in the world – which is effectively twenty-four hours a day.

The game made money for everyone except the businesses and consumers in the real world who are still paying for it today, but nothing in the Commodities oversight group alerted them that any manipulation of the markets were occurring in oil or anything else. So, were they blind, deaf and dumb or were they intentionally looking the other way at the expense of us all?

They destroyed people’s livelihoods, they literally made people go hungry as a result of this “trading strategy” and by manipulating public information, they literally stood to gain . . .

– my note, cricketdiane

***

Gas Prices Soar: Markets or manipulation? | Jerry Taylor and Peter …
by J Taylor – 2010
Apr 30, 2006 – Goldman Sachs reports that return on investment capital in the oil business … The net result is that gasoline supplies are tighter this spring than would … the economic pipeline will increase world crude oil production by 25 percent …
www.cato.org/pub_display.php?pub_id=6375

***

[PDF]
Microsoft PowerPoint – BNAC Conference
File Format: PDF/Adobe Acrobat – Quick View
Oct 15, 2006 – U.S. Motor Gasoline Plunge. ? In early August, Goldman. Sachs Commodity Index tossed out MOGAS. …. Is Oil And Gas Supply Peaking? ? High prices created intense Peak Oil debate: … December 2005 crude oil record off >1 million barrels … Post-Peak Oil and Gas world: Prices rise significantly. …
www.simmonsco-intl.com/files/BNAC%20Conference%20BW.pdf

***

So, in this scenario that Wall Street has set up – I get to tell you what to think of world supplies in oil and then sell you products that invest on those assumptions and profit by it while making trades with my backhand that serve my own interests based on the knowledge that you’re doing what I told you to do and that I took your money to invest it for you that way –

damn, what a game .

– cricketdiane

Oh Yeah, I almost forgot the other part of the game which bets against those same things at the same time, so that any losses which might be realized are covered for me but not for my customers who pay them out of their own pockets . . .

***

In addition, Goldman Sachs announced that, in calculating the trading volumes of the NYMEX Henry Hub natural gas contract and WTI crude oil contract for purposes of determining the 2007 GSCI weights, Goldman Sachs took into account the volumes of the related contracts traded on IntercontinentalExchange and its ICE Futures subsidiary, but will not include these related contracts in the GSCI at this time.  Goldman Sachs, in consultation with the Policy Committee, will also consider whether changes should be made to the GSCI Manual to take volumes of related contracts into account on an ongoing basis.  In calculating the volumes of the ICE Futures WTI crude oil contract, as well as the NYMEX Reformulated Gasoline Blendstock for Oxygen Blending ( RBOB ) contract, Goldman Sachs annualized the data from the three-month period of June, July and August 2006.

Goldman Sachs is a leading global investment banking, securities and investment management firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high net worth individuals. Founded in 1869, it is one of the oldest and largest investment banking firms. The firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.

2007 GSCI Contract Production Weights

(etc.)

http://www2.goldmansachs.com/gsci/articles/gsci_061106125458.html

**

The GSCI is a world production-weighted commodity index which in 2007 will be composed of 24 liquid exchange-traded futures contracts.  The GSCI includes energy, industrial metals, precious metals, agricultural and livestock products.  The 2007 GSCI will include all of the futures contracts in the 2006 GSCI.  No new commodities will enter the index and no existing commodities will be removed from the Index.  The weights of the 2007 GSCI are listed below.

Goldman Sachs also announced that the Investment Support Level (ISL), which is the estimated level of investment in the GSCI and other commodity indices, will be increased from the current level of $70 billion to $110 billion, effective, January, 2007.  The increase in the ISL reflects an increase in the general level of investment in the GSCI and other commodity indices.

Press Release
Monday, November 6, 2006

***

Alrighty then, what makes me think that entry into this arena as a competitor or competing agency is barred to me? Hmmm . . . let me think . . .

Does it look like Moody’s and Standard & Poor’s are the only ones in the market whose products are being used for ratings?

Yep, looks that way.

Does it look like Goldman Sachs is telling the customers what to do and providing the intellectual information sources that analyze the information and bias that information to suit their own advantages?

Yep, but they have good company doing that and often they are accepting the handshake from Harvard and other prestigious business schools and scholarly research sources which props up their views of it regardless of how “off” they might be . . . how could I compete with that?

Does it look like there is no entry point into that marketplace which could compete with them?

Yep, looks like quite a private little club. They golf together, they meet in boardrooms of other companies where they sit on the board of directors together. They go to the same gyms and spas, to the same world-class hotels, eateries and social clubs – along with all attending the same industry representing meetings, organizations, conventions, conferences and info-rich gatherings made to suit them and to specifically appeal to them. And, some of the same lobbying companies are working for all of them to suit whatever needs of the moment they have – but it is the same group of lobbying companies serving all of the same businesses that are supposed to be competitors.

How would anyone compete with that?

And, does it look like they have the private phone numbers and email addresses of the people that are supposed to be serving the interests of the public, from ratings agencies and government regulators, to Senators, Congressmen, bankers, competitors, media news producers and writers, international banking supervisors, accounting standards setting firms and just about anybody else who could sway opinion or determine the outcome in their favor and for their own profits? And, don’t all those sources take their calls and treat them with deference and respect, hanging on every word they say as if it is gospel fact? (and extraordinarily so.)

And, don’t all these firms agree with one another? How is that possible unless they are forming together to produce united fronts about their products and the values of their products?

Would I get to call the ratings agencies and scream at them over the phone and cuss them and threaten them and behave like a bestial master of them (and get away with it)?

Would I get away with manipulating data and then simply calling it a matter of “rhetoric” in interpreting the results in some fashion that is at best, far obtuse from reality and at worst, a pathologically created lie or set of lies?

Would I get to do business as they do? Would I get to borrow all the money to do it despite having little or none to start with and use as collateral, things that I ascertained the value of with no bearing in reality?

What kind of shit is that?

No, I have no entry into the marketplace, but then neither does any one else that could compete with them. And, all the tangible resources from currency values to assets of real property and businesses are tied up into what they are doing, so they have effectively canceled out anyone competing with them to make those values in any other way along with barring any competition that would re-establish those values in line with reality anywhere in the world.

And, that is a problem.

– cricketdiane

***

If the truth had been told to investors whose money was sitting in pension funds, 401k’s, endowments, investment portfolios and pools of funds – would’ve been this –

“You give us access to all the money you’ve sacrificed to earn and save then we will gamble with it and give you back 20 cents for every dollar you gave us.” Because that is what they did. And, then they charged them a fee for “brokering” in the deal . . . some people ended up owing fees for the abuse of their money along with losing it and absorbing any other losses that were in the overall market.

But that would’ve been closer to the truth.

It is like playing the board game Monopoly with a banker that is cheating and stealing as the game goes along. Nobody likes playing with a player who is doing that because it cheats the value of the game and the experiences that might otherwise be enjoyable being involved with playing the game. And, that is only in a board game where the stakes aren’t really going to impact the players permanently and substantially in the real world lives after the fact.

(my note)

***

an online analyst’s notes from 2006 publication –

But the nature of the hedge is that you were also supposed to sell an oil futures contract at the same time. On May 22, the June 2011 crude futures contract sold for $68.75 per barrel, which you could have closed out yesterday by buying at $63.29, a gain of about $5.50 per barrel, or $5,500 on a standard 1,000 barrel contract. So on balance, the hedging strategy– simultaneously buy natural gas and sell crude– would have put you ahead $3,500.

Well, that’s a relief– whatever Amaranth did to lose $6 billion, it wasn’t by incorporating Econbrowser advice into standard hedge fund strategy. But what was it doing instead?

Let’s say you didn’t hedge at all, but just bought the natural gas futures, and moreover managed to pick the worst possible day to do so, namely September 20 at $7.07 per 1000 cubic feet. Then you’re just plain out $6,000 per contract. However, note that the bottom line on the above graph, labeled  open interest , indicates that the total number of June 2011 contracts currently outstanding is less than 1,000. Even if Amaranth had been the buyer of every single one of these, they still couldn’t have lost more than $6 million, or 3 orders of magnitude less than what they did.

(etc.)

Does this suggest some policies we ought to be taking to regulate hedge funds? From a legal perspective, these are often construed simply as partnerships. How in the world would the government presume to dictate whether a small group of investors can buy or sell futures contracts with their own money? Furthermore, if we agree that the basic problem is that the destabilizing funds are going to end up like Amaranth, you’d think losing $6 billion ought to be a pretty strong incentive all by itself.

But then I saw this detail, which brings the story closer to home. It seems that $175 million of the cash that Amaranth had to play with came from the San Diego Employees Retirement Association, which may have lost $87 million on their Amaranth investment.

It seems outrageous to me that a public pension fund would be investing its money in this sort of scheme. However, I could well imagine that the incentives for the pension fund manager are for exactly what a risky hedge fund delivers– a short-run historical track record of unusually good returns, as long as nobody pays too close attention to exactly how you got it.

So here’s a regulatory proposal that I could support– no more than 10% of any pension fund’s holdings can be invested in institutions whose balance sheets have not been subjected to an arms-length audit.

Technorati Tags: Amaranth, natural gas, hedge funds, commodity prices

Posted by James Hamilton at September 29, 2006 10:00 AM

http://www.econbrowser.com/archives/2006/09/amaranth_hedge.html

**
The smoking gun for Amaranth’s near fatal wound was first pointed out by Russ Winter who noted how Goldman Sachs Gamed the Gas futures-

http://www.xanga.com/russwinter/532194209/goldman-sachs-games-gasoline-futures.html

Goldman Sachs elected in July to arbitrarily game their widely followed commodity index. Illustrating how this can be done, and with no questions asked, they suddenly changed the unleaded gasoline component of the index from 8.45% to 2.30%, right at a point in time when speculative funds were heavily long. In addition GS blew up the arbs with this jewel,

On July 12, 2006 Goldman, Sachs & Co. announced that, for the roll occurring in September 2006 (the September Roll) in relation to the Goldman Sachs Commodity Index (GSCI) futures contract expiring in October 2006, it would roll the existing portion of the GSCI that is attributable to the Reformulated Gasoline Blendstock for Oxygen Blending (RB) futures contract on the New York Mercantile Exchange but would not roll any portion of the GSCI that is attributable to the New York Harbor Unleaded Gasoline contract (HU) contract into the RB contract.

Goldman Sachs made a tidy profit at the expense of your pension funds, and lowered gas prices right in time for the elections, sweet

Posted by: Alan Greenspend at September 30, 2006 04:47 AM

http://www.econbrowser.com/archives/2006/09/amaranth_hedge.html

**

Hedge funds play major role in gas price hikes

Ken Alltucker
The Arizona Republic
May. 15, 2006 12:00 AM

(excerpts)

Meanwhile, price signs at gas stations in the Valley spin like slot-machine reels, forcing residents to dig deeper in their pockets to fill up vehicles with gasoline that costs more than $3 a gallon.

Try the likes of investors who fashion themselves after Gordon Gekko, the fictional character in the 1987 Oscar-winning film Wall Street, which portrayed the wheeling, dealing nature of the financial capital and its impact on ordinary Americans.

While politicians and pundits point to outsized oil-company profits as a reason for rising prices, these companies have little control over setting oil’s daily price, which is established on trading exchanges around the globe.

Sophisticated investors increasingly buy and sell oil contracts, not to fuel cars or run factories, but to profit from these paper instruments.

They see crude oil as a lucrative investment because of tight supplies, political turmoil in oil-producing nations, strong worldwide economic growth and disruptions at pipelines, oil rigs and refineries.

A barrel of light sweet crude oil, the type that is easiest to convert into gasoline, has spiked more than $20 this year to nearly $72 a barrel on Friday. That’s about double the price of early 2005, when oil cost just more than $35 a barrel.

( . . . )

Sophisticated investors are drawn to the price swings of oil, natural gas and other commodities because they see a daily chance to make money.

Oil and other energy bets attract such venerable Wall Street firms as Goldman Sachs and Morgan Stanley, which have beefed up energy-trading divisions.

But increasingly, others also see the allure of oil. Once reserved for oil companies, airlines or banks, new investors are jumping into oil futures.

Hedge funds, which are private vehicles that invest money mainly for the wealthy, see a golden opportunity in oil and other commodities. Even smaller speculators have joined the game.

There is money to be made,  said Howard Lindzon, a Phoenix hedge-fund manager with $10 million under management.  Speculators generally go where there is motion, and right now there is motion in energy.

Of the 500 hedge funds tracked by New York-based Energy Hedge Fund Center, an estimated 140 to 200 funds trade heavily in oil, gas or other types of energy.

That’s a significant change from just a few years ago when just a handful of such funds traded in energy.

What you’ve got is a lot of speculators coming in and playing the market,  said Peter Fusaro, principal of the Energy Hedge Fund Center.  Traders like volatility. They don’t like flat markets.

Investors can rapidly buy or sell futures contracts over such exchanges as the New York Mercantile Exchange or upstarts like Intercontinental Exchange, an Atlanta-based energy exchange.
According to Intercontinental Exchange, hedge funds and other speculators account for 28 percent of the exchange’s North American oil and gas market participants, up from 5 percent just a few years ago.

The influx of players has triggered more activity, more trades and more price swings.

Last month, Intercontinental Exchange logged average daily trades of 240 million barrels a day, up from 100 million five years ago.

All acknowledge that hedge funds have played a key role in daily price changes. These traders seize on the news of the day, such as last week’s news that an oil worker was shot and a report that suggested oil consumption will be lower than expected. Then the traders make daily trades to profit.

(reminder – this is from 2006)

With oil prices well above $70 a barrel, the concerns about the commodity’s price have alarmed politicians, consumers and even oil industry executives, who claim the price is beyond their control.

Phoenix residents see the results daily. The price of gasoline rose to a record $3.14 a gallon in September, up from $2.22 just after Christmas. Prices are hovering near September’s record again.

http://www.azcentral.com/arizonarepublic/news/articles/0515biz-oil0515.html

***

My Question is this –

Why, since oil futures contracts in 2006 were being sold for 2011 at less than the media was suggesting at the time –

“On May 22, (2006), the June 2011 crude futures contract sold for $68.75 per barrel, which you could have closed out yesterday by buying at $63.29, a gain of about $5.50 per barrel, or $5,500 on a standard 1,000 barrel contract.”

Why, since airlines bought huge contracts when it was low – (less than $30 per barrel) and gasoline refiners bought it at somewhere less than the going market rate in huge contracts, – why did gasoline prices ever get over $4.00 a gallon and diesel fuel get over $5.00 a gallon throughout the US?

How is that possible?

– cricketdiane

**

Small but Significant and Non-transitory Increase in Price

In competition law, before deciding whether companies have significant market power which would justify government intervention, the test of Small but Significant and Non-transitory Increase in Price is used to define the relevant market in a consistent way. It is an alternative to ad hoc determination of the relevant market by arguments about product similarity.

The SSNIP test is crucial in competition law cases accusing abuse of dominance and in approving or blocking mergers. Competition regulating authorities and other actuators of anti-trust law intend to prevent market failure caused by cartel, oligopoly, monopoly, or other forms of market dominance.

http://en.wikipedia.org/wiki/Small_but_Significant_and_Non-transitory_Increase_in_Price

***

Anti-competitive practices

***

Establish a federally-backed credit facility, possibly created from the Public-Private Investment Fund (PPIF) structure under the Legacy Loans Program, or through a privately funded guarantee program, for originating new commercial real estate loans.

Encourage non-U.S. debt and equity investment in U.S. real estate by amending or repealing the outdated Foreign Investment in Real Property Tax Act (FIRPTA) which applies to equity investments and by clarifying the effectively connected income tax application to debt investment.

Extend the Term Asset-Backed Securities Loan Facility (TALF) beyond its current June 30, 2010 sunset date, through the end of 2010, and ensure that the program is accessible to investment grade securities beyond solely AAA.

http://www.rer.org/Policy_Issues/Credit_Crisis/The_Liquidity_Crisis_and_Commercial_Real_Estate.aspx

(And that’s what the real estate roundtable and chamber of commerce is trying to get done for their own interests and profits to keep the game going.)

***

And from the hearings about the ratings agencies this last week –

The carrot for the ratings agencies was a big reward, $1 million or more, for providing an investment grade to a complex deal.

Both involve pools of loans, most often mortgages, which were packaged into bonds that were sold to investors. Institutional investors such as pension funds and endowments are often restricted to purchasing only investment-grade securities, so Wall Street worked feverishly to win investment grades from Moody’s or its competitors, Standard & Poor’s and Fitch.

Moody’s dominated the rating of  structured-finance products,  the general term for complex financial instruments concocted by Wall Street. Chief among these were collateralized debt obligations and mortgage-backed securities.

(and also included commercial real estate loans packaged in the same ways, my note)

http://www.mcclatchydc.com/2010/04/20/92540/senate-to-ask-moodys-chief-why.html

***

Yale to Cut Capital Spending by 60% After Endowment Losses

February 08, 2010, 1:23 PM EST

Feb. 8 (Bloomberg) — Yale University, the second-richest institution of higher learning in the U.S., will cut its capital program by 60 percent to $250 million next year after endowment losses, according to bond offering documents.

http://www.businessweek.com/news/2010-02-08/yale-to-cut-capital-spending-by-60-after-endowment-losses.html

(also)

Yale Makes $50 Million Budget Cut, Seeks More Savings (Update1)

(from the same article – )

School endowments lost on average 18.7 percent in the year ended June 30, according to the National Association of College and University Business Officers. The losses are forcing schools to rein in capital programs after boosting long-term debt by 54 percent in fiscal 2009, according to the survey of 842 of the institutions released on Jan. 28.

Harvard suspended work early this year on a $1 billion science center after the value of its endowment fell to about $26 billion in the year ended June 30, from a peak of $36.9 billion in 2008. The university in Cambridge, Massachusetts may cut its capital spending in half to $500 million a year, according to a report last year from Moody’s Investors Service.

(etc.)

http://www.businessweek.com/news/2010-02-08/yale-to-cut-capital-spending-by-60-after-endowment-losses.html

It’s ridiculous, there is real money and real lives being profoundly affected by this – but all the while real estate roundtable leaders, bankers, mortgage packagers and Wall Street firms continue to say there are no victims in their crimes or profits at the expense of very shady practices that in all measure should be criminal – because they would be criminal if I did them or you did it that way.

If I took Harvard’s endowment and gambled away $10.9 billion dollars, would anyone find that okay? or would I be in trouble for it somehow – yeah, I’d probably be in jail while they figured out what to charge me with – – –

However, the other thing I wanted to note about the absurdity of these vastly different sets of rules for big Wall Street players and me ( or you or anybody else) – is that none of us get to call the head of the US Treasury Department on Saturday and get a loan for $145 billions dollars by Monday.

Oh, if I could do that when I wanted, needed or had a whim for some money – or needed to pay my bills that got behind, or when someone was threatening to take away my business if I didn’t pay off their credit default swaps right this very minute – or my car payment needed to be made or I wanted to pay for my friends to go on a junket to Las Vegas or to a spa weekend for an extended weekend at $500,000 per person or what the f – k ever.

And yes, that was “what the f — k ever.” which is exactly the excuses they’re using for it – but the truth is that AIG did do that and Bear Stearns did do that and America’s great Bank of America and Merrill Lynch did do that and got away with using our money to do it. Just write me a check – and they did get that money and much more besides to use as they saw fit for as long as they felt like it with no accountability and then everything that they had in their business which wasn’t worth a damn, the Treasury used our money to buy from them so it wouldn’t hurt their business any.

Well, I’ve got some things I bought that I don’t like very much either and some that have been pretty costly that I don’t want any more, including some products that I created that didn’t do anything but lose money too – but the US Treasury isn’t available to me to take it off my hands so that my life and livelihood is financially solvent – and neither would they do that for you . . .

– cricketdiane

***

And, there has yet to be a weekend in my life when I could call up the US Treasury and ask for, or be given – a loan of $145 Billion dollars that I never had to pay back if I didn’t have the means to do it and could get another $100 billion dollars here or there, if I needed even after that.

– surprisingly enough, when I haven’t had the money to pay off my bills, that was NOT the time when I was considered a good risk in the way that AIG was given that money as if they had everything going for them even though they were up to their eyeballs in stupid.

That money was given to Goldman Sachs and other Wall Street firms straight out of the pockets of the American taxpayers’ / the American citizens’ revenues in the US Treasury through the AIG bailout which never even went in front of Congress for a considered decision about it. That is disgusting whether it is “populist” to think so or not.

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