2 Mar 2012

Central Bank Bubble Blowers and the Rehypothecation Inflation-Nation!!

Federal Reserve Chairman Ben Bernanke was on Capitol Hill today delivering his report card, talking economic forecasts and headwinds while defending the Fed's "accommodative monetary policy." Speaking of report cards, we look at how even the failing marks of central bankers and other economic decision makers get glossed over by the mainstream media and ultimately forgotten by the public. Top on our list, of course, is CNBC which is basically a PR machine for the big banks on wall street, let's not forget. Is it this PR machine what has allowed even former Fed Chairman Alan Greenspan to emerge from the financial crisis relatively unscathed after he largely contributed to it with his reckless interest rate policies and serial bubble blowing that earned him the nickname Alan "Bubbles" Greenspan? We interview Danny Schechter, the news dissector (also author and filmmaker), to get his take on this. He bumped into Alan Greenspan recently, and wrote an article on the Rand Man and his legacy as deregulator in chief.
 

Meanwhile, Greek credit default swaps will not pay out...again! What's going on here? Last time we had a major credit event, it led to the collapse and then zombification of AIG as a conduit for bailing out the likes of Goldman Sachs, JP Morgan, Deutsche Bank, etc. Are the issuers on the hook this time around, and this is just the ISDA working on behalf of them against the speculator hedge funds and other people with net short positions in sovereign debt? Pimco's Bill Gross likened the ISDA's decision to a flood protection insurance policy that failed to pay out in the event of a flood. Is this failure to trigger CDS because decision makers are really worried about another AIG-type market paralyzing counter party risk scare? Or is it about protecting the vested interests of CDS writers this time around? And regardless of how you take your leverage, we delve further into one more way that the shadow banking system gets around capital requirements and liquidity restraints by using something called rehypothecation. We break it down in word-of-the-day. Hypothecation occurs whenever a borrower (for example, a bank or financial merchant) pledge collateral to secure a debt. The borrower retains ownership of the collateral, but it is controlled by the creditor in that he has the right to seize possession if the borrower defaults. A common example is when someone enters into a mortgage agreement with a bank. In this case, the mortgagee lives in the house, which remains collateral for the bank until the mortgage is finally paid off. Now, rehypothecation is simply the hypothecation of collateral that has ALREADY been hypothecated. This occurs principally in the financial markets, where a bank or other broker-dealer reuses the collateral pledged by its clients as collateral for its own borrowing. In the US, rehypothecation of collateral by broker-dealers is limited to 140% of the loan amount to a client under Rule 15c3-3 of the SEC. So what then is churning? Well, churning is the process of rehypoethecating something that has already been rehypothecated! Sounds nuts right? Well, it's really nothing other than a form of fractional reserve lending, except you aren't using depots but instead, you are using hypothecated collateral. It's kind of like me going into your safety deposit box and borrowing the money from the box and lending it out to someone else, who then re-lends it to someone else and so on. The only difference is that the cash in the box has not been posted as collateral.

And as another meeting of EU leaders commences over the eurozone crisis, do you ever wonder what policymakers are really doing in the never-ending string of debt crisis meetings? We've got the Sudoku photo evidence to show you. We also tackle the question of bonuses, and if it's really fair to grab the Schiff Brothers (peter schiff and andrew schiff) as examples for excessive profit taking on wall street. After all, they don't have access to the Fed's discount window, and their firm, Euro Pacific Capital, is certainly not too big to fail. Source