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Thread: Economic Warfare

  1. #161
    Council Member tequila's Avatar
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    I'd recommend Lewis' work because he writes so well and so clearly about the products at the heart of the crisis. He is pretty illustrative because the book that made his name, Liars' Poker, was about the origins of the trader culture and the beginnings of the mortgage derivatives business on the Street in the 1980s. Read that, and his accounts of traders "ripping the faces off" of their banks' clients, and you will understand why Ayn Rand is so popular on Wall Street.

    His handicap is that he is, by and large, a narrative writer with a story, and villains/ignoramuses and lonely heroes (in this case, the "shorts", or the guys who bet against the mortgage market, not all of whom were small potatos --- absent from his book, for instance, is John Paulson, the protagonist of The Greatest Trade Ever, or Magnetar Capital, the hedge fund that drove much of the subprime mortgage bond demand in 2006-2007. This makes his stories very interesting and readable, but somewhat slanted and a bit skewed from a journalistic aspect. What he doesn't get is that the "shorts" like his heroes, like Paulson and Magnetar, were absolutely critical to the formation of the synthetic CDOs and the CDS markets that made the real estate bubble into a systemic crisis. It would not have happened without them.

    For a good basis of what the book is about, check out this Portfolio article by Lewis: The End of Wall Street's Boom.

  2. #162
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    Adding on to what Tequila wrote above, Lewis' latest isn't bad, but it's a narrative designed to sell books and tell a part of the story, not the entire drama.

    I would have liked for him to get into the aspects of governmental deregulation from the 1980's to the present, and how that allowed Wall St. firms to grossly manipulate every financial market, not just the derivative markets.
    "Speak English! said the Eaglet. "I don't know the meaning of half those long words, and what's more, I don't believe you do either!"

    The Eaglet from Lewis Carroll's Alice in Wonderland

  3. #163
    Council Member slapout9's Avatar
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    Default Max Keiser Interview Of Matt Taibbi

    Quote Originally Posted by Brian Hanley View Post
    How the nation's biggest banks are ripping off American cities with the same predatory deals that brought down Greece

    MATT TAIBBI
    http://www.rollingstone.com/politics...n_street/print

    ...

    What happened here in Jefferson County would turn out to be the perfect metaphor for the peculiar alchemy of modern oligarchical capitalism: A mob of corrupt local officials and morally absent financiers got together to build a giant device that converted human #### into billions of dollars of profit for Wall Street — and misery for people like Lisa Pack.

    There was so much money to be made ... that banks like JP Morgan spent millions paying middlemen who bribed — yes, that's right, bribed, criminally bribed — the county commissioners and their buddies just to keep their business.

    Birmingham became the poster child for a new kind of giant-scale financial fraud, one that would threaten the financial stability not only of cities and counties all across America, but even those of entire countries like Greece.
    ...

    Once you follow that trail and understand what took place in Jefferson County, there's really no room left for illusions. We live in a gangster state, and our days of laughing at other countries are over.
    ...

    The original cost estimates for the new [municipal] sewer system were as low as $250 million. But in a wondrous demonstration of the possibilities of small-town graft and contract-padding, the price tag quickly swelled to more than $3 billion. County commissioners were literally pocketing wads of cash from builders and engineers and other contractors eager to get in on the project, while the county was forced to borrow obscene sums to pay for the rapidly spiraling costs.
    ...

    Wall Street was happy to help. First, it employed the same trick it used to fuel the housing crisis: It switched the county from a fixed rate on the bonds it had issued to finance the sewer deal to an adjustable rate. The refinancing meant lower interest payments for a couple of years — followed by the risk of even larger payments down the road. ...

    ...For an extra fee, the banks said, we'll allow you to keep paying a fixed rate on your debt to us. In return, we'll give you a variable amount each month that you can use to pay off all that variable-rate interest you owe to bondholders.

    In financial terms, this is known as a synthetic rate swap — the spidery creature you might have read about playing a role in bringing down places like Greece and Milan. On paper, it made sense: The county got the stability of a fixed rate, while paying Wall Street to assume the risk of the variable rates on its bonds. That's the synthetic part. The trouble lies in the rate swap. The deal only works if the two variable rates — the one you get from the bank, and the one you owe to bondholders — actually match.
    ...

    "It was right around the corner here, at the hotel," Martin says. "That's where they met — that's where this all started."

    They means Charles LeCroy and Bill Blount, the two principals in what would become the most important of all the corruption cases in Jefferson County. LeCroy was a banker for JP Morgan, serving as managing director of the bank's southeast regional office. Blount was an Alabama wheeler-dealer with close friends on the county commission. For years, when Wall Street banks wanted to do business with municipalities, whether for bond issues or rate swaps, it was standard practice to reach out to a local sleazeball like Blount and pay him a ####load of money to help seal the deal. "Banks would pay some local consultant, and the consultant would then funnel money to the politician making the decision," says Christopher Taylor, the former head of the board that regulates municipal borrowing.
    ...

    The scheme they operated went something like this: LeCroy paid Blount millions of dollars, and Blount turned around and used the money to buy lavish gifts for his close friend Larry Langford, the now-convicted Birmingham mayor who at the time had just been elected president of the county commission. ... Langford then signed off on one after another of the deadly swap deals being pushed by LeCroy. ... "The transactions were complex, but the scheme was simple," said Robert Khuzami, director of enforcement for the SEC. "Senior JP Morgan bankers made unlawful payments to win business and earn fees."

    ...

    Just tell us how much. That sums up the approach that JP Morgan took a few months later, when Langford announced that his good buddy Bill Blount would henceforth be involved with every financing transaction for Jefferson County. ... But the bank had one small problem: Goldman Sachs had already crawled up Blount's trouser leg, and the broker was advising Langford to pick them as Jefferson County's investment bank.

    The solution they came up with was an extraordinary one: JP Morgan cut a separate deal with Goldman, paying the bank $3 million to back off, with Blount taking a $300,000 cut of the side deal. ...

    That such a blatant violation of anti-trust laws took place and neither JP Morgan nor Goldman have been prosecuted for it is yet another mystery of the current financial crisis. "This is an open-and-shut case of anti-competitive behavior," says Taylor, the former regulator.

    ...

    All told, JP Morgan ended up paying Blount nearly $3 million for "performing no known services," in the words of the SEC. ...

    The deals wound up being the largest swap agreements in JP Morgan's history. Making matters worse, the payoffs didn't even wind up costing the bank a dime. As the SEC explained in a statement on the scam, JP Morgan "passed on the cost of the unlawful payments by charging the county higher interest rates on the swap transactions." In other words, not only did the bank bribe local politicians to take the sucky deal, they got local taxpayers to pay for the bribes. ... According to an analysis of the swap deals commissioned by the county in 2007, taxpayers had been overcharged at least $93 million on the transactions.

    ...

    The crazy thing is that such arrangements — where some local scoundrel gets a massive fee for doing nothing but greasing the wheels with elected officials — have been taking place all over the country. In Illinois, during the Upper Volta-esque era of Rod Blagojevich, a Republican political consultant named Robert Kjellander got 10 percent of the entire fee Bear Stearns earned doing a bond sale for the state pension fund. At the start of Obama's term, Bill Richardson's Cabinet appointment was derailed for a similar scheme when he was governor of New Mexico. ...

    ... Imagine a mortgage that you have to keep on paying even after you sell your house. That's basically how a swap deal works. And Jefferson County had done 23 of them. At one point, they had more outstanding swaps than New York City.

    Judgment Day was coming — just like it was for the Delaware River Port Authority, the Pennsylvania school system, the cities of Detroit, Chicago, Oakland and Los Angeles, the states of Connecticut and Mississippi, the city of Milan and nearly 500 other municipalities in Italy, the country of Greece, and God knows who else. All of these places are now reeling under the weight of similarly elaborate and ill-advised swaps — and if what happened in Jefferson County is any guide, hoo boy. Because when the #### hit the fan in Birmingham, it really hit the fan.

    For Jefferson County, the deal blew up in early 2008, when a dizzying array of penalties and other fine-print poison worked into the swap contracts started to kick in. ...

    It gets worse. Remember the swap deal that Jefferson County did with JP Morgan, how the variable rates it got from the bank were supposed to match those it owed its bondholders? Well, they didn't. Most of the payments the county was receiving from JP Morgan were based on one set of interest rates (the London Interbank Exchange Rate), while the payments it owed to its bondholders followed a different set of rates (a municipal-bond index). Jefferson County was suddenly getting far less from JP Morgan, and owing tons more to bondholders. ...

    ... Last year, when Jefferson County, staggered by the weight of its penalties, was unable to make its swap payments to JP Morgan, the bank canceled the deal. That triggered one-time "termination fees" of — ... $647 million. That was money the county would owe no matter what happened with the rest of its debt, even if bondholders decided to forgive and forget every dime the county had borrowed. It was ... debt that does not go away, ever, for as long as you live. On a sewer project that was originally supposed to cost $250 million, the county now owed a total of $1.28 billion just in interest and fees on the debt. Imagine paying $250,000 a year on a car you purchased for $50,000, and that's roughly where Jefferson County stood at the end of last year.

    ... The destruction of Jefferson County reveals the basic battle plan of ... banks like JP Morgan and Goldman Sachs have systematically set out to pillage towns and cities from Pittsburgh to Athens. These guys aren't number-crunching whizzes making smart investments; what they do is find suckers in some municipal-finance department, corner them in complex lose-lose deals and flay them alive. In a complete subversion of free-market principles, they take no risk, score deals based on political influence rather than competition, keep consumers in the dark — and walk away with big money. "It's not high finance," says Taylor, the former bond regulator. "It's low finance." And even if the regulators manage to catch up with them billions of dollars later, the banks just pay a small fine and move on to the next scam. This isn't capitalism. It's nomadic thievery.

    Link to Max Kesier interview of Matt Taibbi on looting Amercian cities.
    http://www.youtube.com/watch?v=vAYlg-4v4rM

  4. #164
    Council Member slapout9's Avatar
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    Default W.F. Engdahl On Covert Economic Warfare


  5. #165
    Council Member tequila's Avatar
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    An outstanding report on how Magnetar, a hedge fund based out of Chicago, was key to keeping the bubble growing in 2006-2007. If you want to understand how a real estate bubble came close to destroying the entire global financial system, this is something you have to read.

    On a personal note, I had something of a ringside seat for several Magnetar-related issues.

    For a more user-friendly but still very thorough explanation of this, you can check out the This American Life podcast of the same report.

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    After spending countless hours on this topic in the past 5 years I've found Eric Janszen at the iTulip.com forum to possess one of the best track records in decrypting the current state of economic affairs and accurately predicting the economic path we are on.

    The short-term stuff is not his strength....but on the medium to long term stuff he's been batting a thousand for the better part of a decade since circa 99.

    Eric coined the term Economic MAD...which touches on(too lightly in my opinion) the greater geopolitical consequences of our global predicament.

    Some of the key issues on the iTulip.com forum moving forward include:

    How and when will China see its first crash? At what stage will the benefit of instantaneous stimulus allowed by China's form of government and the massive capital reserves in it's armory be overwhelmed by massive excess capacity in industrial production and commercial real estate?

    How and when to make the energy investment of a lifetime? The iTulip position is that energy price lows made in early 2009 could be the lowest we see in our lifetime and are gearing up for significant energy price increases and volatility moving forward.

    Developing a successful energy investment thesis is the Itulip.com main effort right now as it's deemed to be a current and future key form of currency, and while the forum has some paid subscriber only content, much of it is freely available to all forum visitors.

    Eric has a book that just went to the publisher:

    http://www.amazon.com/Postcatastroph...1274520&sr=1-2

    Not due out until September...while I plan on buying it....I think that the speed of events at times leapfrogs a lot of book publishing content.

    A couple other websites I recommend also include:

    www.shadowstats.com

    www.nowandfutures.com

    The extremely frustrating part for me as a former undergrad political science student, amateur economist, and part-time soldier is the complete failure, in my opinion, of the internet to yet offer a single location/source to effectively merge the political/economic/military facets of geopolitical analysis.

    While I think iTulip's position and consensus among members regarding the likelihood of a global trend towards energy nationalization as Peak Cheap Oil takes hold and China's government becoming increasing challenged to keep it's job creation perpetual motion machine moving to prevent internal dissent are likely to be accurate.......what's lacking is the complementary analysis to determine the direct and indirect consequences if one or both occur.

    In a nutshell, If I had a magic wand I'd put a community of folks like Itulip.com together with a community of folks like smallwarsjournal.com in a pub for a day....add some beer, and shake, to see what comes out.

    Just my 0.02c

  7. #167
    Council Member bourbon's Avatar
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    Stock Swing Still Baffles, With an Ominous Tone, by Graham Bowley. The New York Times, 22 August 2010.
    The stock market mysteriously plunges 600 points — and then, more mysteriously, recovers within minutes. Over the next few weeks, analysts at Nanex, an obscure data company in the suburbs of Chicago, examine trading charts from the day and are stunned to find some oddly compelling shapes and patterns in the data.

    To the Nanex analysts, these are crop circles of the financial kind, containing clues to the mystery of what happened in the markets on May 6 and what might have caused the still-unexplained flash crash.

    The charts — which are visual representations of bid prices, ask prices, order sizes and other trading activity — are inspiring many theories on Wall Street, some of them based on hard-nosed financial analysis and others of the black-helicopter variety.

    To some people, like Eric Scott Hunsader, the founder of Nanex, they suggest that the specialized computers responsible for so much of today’s stock trading simply overloaded the exchanges.
    Could a foreign power or non-state actor “weaponize” High-Frequency Trading? Have they already?

  8. #168
    Council Member Brian Hanley's Avatar
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    Default They would be called "Soros the Second"

    Quite a long time ago now, I worked at Bank of America when the ATM system crashed. I was one of those assigned to analyze why. In any system that services orders, there are queues. In the physical world the lines at supermarket checkouts are queues, at an oil change place the line of cars is the queue. Queue depth is economically beneficial for the serving agent, it's sometimes called "backlog". Queue depth has a negative economic impact for the requesting agent, it's sometimes called "backorder."

    Orders are never processed instantly. If the system is mostly idle, the average queue depth will be less than 1. If the system is busy, the average queue depth will rise. The queuing time is often a major, if not the major time period delaying the request for service.

    Analyzing the logs of traffic in the ATM system that day, we saw that it all started with one ATM having a customer call in complaining. Someone sent a shutdown-reset out, then turn on. For some reason it didn't happen quickly, and so they did it again. Each ATM was on a shared leased line with 5 or 6 others. All of them started slowing down because there were many messages sent back and forth when an ATM shutsdown and restarts. So they did the same thing with all of them on that line. That generated enough traffic to slow down the controller. Each controller had up to 8 leased lines worth of ATMs, and all the ATMS on the impacted controller got slow. So they did the shutdown restart on all the ATMs on that controller.

    You see where this is going. The mainframe computers had never been tested with that much traffic. The people in operations had gone from 1 ATM down to almost 50 in about 10 minutes. And since the shutdown restarts all got slow, it flooded the mainframes with messages. Then things really got out of hand as the ops guys started getting calls from all over the state. They ended up doing a shutdown-restart on every ATM. But that brought everything to a crawl. And ATMs would come online then go offline. Customers called to complain about that because the ops guys had just been hitting the keys again and again to restart. Each time, that meant a whole cycle had to be re-initiated and that request went into the queue. The end result was that after the software guys were brought in and told ops to stop touching the keyboards, it took around 8 hours for all those restarts to go through the system.

    So yes. I am sure that a savvy player or set of players would be capable of overwhelming the system, at least for a short period of time. It could also easily be the case that this was one of those random "Storms" that chaos theory predicts. That the orders are instantly canceled is a little suspicious.

  9. #169
    Council Member bourbon's Avatar
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    SEC Probes Canceled Trades: Regulators Looking Into Role 'Quote Stuffing' May Have Played in Flash Crash. The Wall Street Journal, 1 September 2010.
    Regulators are scrutinizing what some in the stock market are calling "quote stuffing," trading in which unusually large numbers of orders to buy or sell stocks are placed in a fraction of a second, only to be canceled almost immediately.

    The Securities and Exchange Commission has begun looking into whether the practice is putting some investors at a disadvantage by distorting stock prices, according to people familiar with the matter. The SEC is looking at what role, if any, quote stuffing played in the May 6 "flash crash," when the Dow Jones Industrial Average collapsed 700 points in minutes, the people say.

    The SEC is looking at what role, if any, 'quote stuffing' played during the May 6 flash crash. Above, traders at the New York Stock Exchange that day, when the Dow Jones Industrial Average fell 700 points in minutes.

    Traders say the phenomenon of huge bursts of orders flooding stocks and then getting canceled has risen with the growth of high-speed computerized trading in recent years.

    In addition, the SEC is looking into another practice in which large numbers of orders are placed. In these cases, what's unusual is that the orders are priced in increments as small as one-tenth of a cent and far away from the actual price at which a stock is trading, says a person familiar with the line of inquiry.

  10. #170
    Council Member slapout9's Avatar
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    Link from sic semper tyrannis to nice article on how we engaged in Economic Warfare against the Soviet Union.

    http://turcopolier.typepad.com/sic_s...sale.html#more

  11. #171
    Council Member Brian Hanley's Avatar
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    Default And that is why the current Russia is in Chechnya & Georgia

    The oil of Central Asia, and control over it, is the key to Russian survival. The situation has not changed today from Soviet times in terms of revenue for the Kremlin. Chechnya itself is a worthless piece of mountainous guerrilla favorable territory filled with hillbillies with guns. Some of them make the boys in "Deliverance" seem like cultured gentlemen. (I've met them out there. A village headman wanted to breed me to the village's women - all of them. Another story...)

    Russia's incursions in Georgia, first taking Abkhazia, and solidifying their presence in South Ossetia during the last summer Olympic games in Beijing, are all about that unpleasant pipeline from Baku that pays no tolls to Moscow. Since Armenia is in bed with the Kremlin, there is literally about 30 miles of land now that the pipeline runs through which is not under Kremlin control. Sooner or later the pincers will strike. I've been surprised it hasn't happened already, but my best guess is that Putin doesn't have enough support in the Kremlin to test the American Tiger. And I suspect that BP is aware of the problem and some deals have been cut.

    I am sure the Kremlin would like to rerun the huge runup and overshoot in the oil market of a few years ago. They could do it if Osama bin Laden gets hold of nukes. My guess is that they don't want him and/or the Muslim Brotherhood controlling Pakistan and its nukes because he's crazy enough to use them on Russia.

    And that brings us to Iran and its nuclear program which has about as much chance of being peaceful as a shark does of being vegetarian. As a nation-state that has depended in part on Russian help and has more than its quota of Russian agents, Iran is more controllable. Just pointing out here that it is in Russia's interests for Iran to nuke Israel and if possible the oil fields of the Gulf. That would provoke a counterstrike that would wreck oil production in Iran and put the Kremlin in the driver's seat. Probably end with Moscow owning Iran. The price of oil would spike if only Iran's production was clobbered, and the West would fall to its knees if the gulf went with it.

  12. #172
    Council Member slapout9's Avatar
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    Interview with Dr. Michael Hudson on currency wars.



    http://www.youtube.com/watch?v=8P1fi...layer_embedded

  13. #173
    Council Member Dayuhan's Avatar
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    Quote Originally Posted by Brian Hanley View Post
    Just pointing out here that it is in Russia's interests for Iran to nuke Israel and if possible the oil fields of the Gulf. That would provoke a counterstrike that would wreck oil production in Iran and put the Kremlin in the driver's seat. Probably end with Moscow owning Iran.
    Minor point perhaps, but while this might be in Moscow's interest, how would it be in Iran's? Why would the Iranians play along with a program that ends with them being wrecked and owned?

  14. #174
    Council Member Fuchs's Avatar
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    Quote Originally Posted by Brian Hanley View Post
    Just pointing out here that it is in Russia's interests for Iran to nuke Israel and if possible the oil fields of the Gulf. That would provoke a counterstrike that would wreck oil production in Iran and put the Kremlin in the driver's seat. Probably end with Moscow owning Iran.
    It's way too risky and very, very unlikey.

    Moscow has had it with Muslims in the South - they're not interested in getting more involved with them on another than the diplomatic level.

    They would furthermore consider the possibility of a Western take-over of Iran - but Iran is one of the few non-Western-controlled routes to the Indian Ocean for Moscow.


    It makes most sense for Moscow to foster friendship with Iran as a nation, sit out the current Iranian government, keep the West out of Iran and to work towards a close relationship (possibly a loose alliance; arms exports, naval and air base, military training, railway traffic to Indian Ocean) in the future.

  15. #175
    Council Member slapout9's Avatar
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    Default The Bears Explain China's Currency Manipulation

    Link to the educational bears.
    http://www.youtube.com/watch?v=XnAT7FZpmg0

  16. #176
    Council Member Backwards Observer's Avatar
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    Default me so solly

    Always a pleasure.

    "He was speaking and they weren't translating. They normally translate every couple of words, but Hu Jintao was just going, 'ching chong, ching chong, chong,'" Limbaugh said, continuing his imitation at length.
    US radio host criticized for mocking China president - AFP

    $$$

    In early October, China's Premier Wen Jiabao addressed European leaders in Brussels. Ominous talk of currency wars dominated the proceedings. And why not? After all, America — and a growing coalition of forces — has mounted a massive attack on China. And the American led coalition's weapon of choice is the renminbi- U.S. dollar exchange rate. According to America's war "plan," a maxi appreciation of the RMB against the greenback will generate economic instability in China. This will rein in the hegemon.

    Premier Wen had good reasons to be worried and to warn the assembled in Brussels that a maxi renminbi appreciation would destabilize China and be "a disaster for the world."

    America's 'Plan' to Destabilize China - Cato Institute

    Steve Hanke - Wikipedia

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    Council Member Backwards Observer's Avatar
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    "Ching chong ching chong chong."

    That means, "Smell ya later."

  18. #178
    Council Member slapout9's Avatar
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    Quote Originally Posted by Backwards Observer View Post
    "Ching chong ching chong chong."

    That means, "Smell ya later."
    I didn't know you spoke Panda-nese.

  19. #179
    Council Member Backwards Observer's Avatar
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    Quote Originally Posted by slapout9 View Post
    I didn't know you spoke Panda-nese.
    Actually, I don't; but I learned some Douchebag-ese while in the States.

  20. #180
    Council Member Sergeant T's Avatar
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    Default Economic Warfare: Risks and Responses

    Have not dug into this one in depth yet. Thus far it has the odor of someone with a hypothesis that went in search of facts to shore it up. Anyone that uses that double word score term financial terrorism repeatedly makes me a bit suspicious.

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