Birthday Shout Out
My blogger friend Au Soleil Levant is celebrating her birthday today! It's been quite a journey for the tough little lady. Happy Birthday!:
Soleils's song request will be leading off Friday Night Rock Blogging as a present.
It was a wild news day towards the end and there were plenty of developments that are worth a look. Many stories tie in to things I have been writing about lately so I wanted to pull some of them together and see if it makes a clearer picture.
China and Treasuries
I recapped a piece I wrote a long time ago on Monday that related to China and their massive US Treasury holding. This week Minyan Todd Harrison recalled a John Succo missive from 2004 that speaks to the core issue I was trying to cover:
Right now they [China] are acting in our best interest by using their dollars from trade to buy our treasuries to keep our interest rates low, but that is only because right now their interests align with ours. If they ever deviate, I think we can be certain that they will go their own path.It shocks me that the imbalance with China was allowed to progress so far for so long when thinking in theses terms. Is anyone thinking beyond the next 10 minutes that is in charge of policy?
But what if it is even worse and they actually have a plan for their benefit at the detriment of ours? This is at least a possibility, the consequences of which are significant. Our government has left us exposed to this possibility.
Blood and Oil; Always a Pair
First the good news:
BP HAS STOPPED THE LEAK FOR NOW
The new cap is holding and things are looking positive at right now. Already I have seen plenty of writers railing that this will not work and/or make things worse as noted in the story:
But the drama is NOT over. BP will now test the pressure in the closed well. If pressure readings are low, that could mean oil is leaking from the ocean floor -- and BP will have to remove the cap to avoid causing an even bigger rupture.We will know more in a bit. For now, this is a huge positive and one should be hoping it works, not that it fails.
On the other hand, we are reminded that oil is a nasty business without the spills and blood always figures into it:
CONFIRMED: BP Petitioned For Release Of Lockerbie Bomber In Exchange For Oil Contract
What could I add to that? This is how it's done.
Gold BIS Swaps; Twisted Stuff
Some more commentary by Jesse on the BIS gold swaps that have thrown things for a loop, quoting Reg Howe:
Not surprisingly, revelation of these swaps has generated considerable discussion, comment and analysis by students of the gold market. What appears to have happened is that one or more central banks loaned gold to one or more bullion banks, which then swapped the gold with the BIS for cash, leaving the physical metal in place. Under this arrangement, the accounting conventions promulgated by the International Monetary Fund allow the central bank or banks to continue to count the gold in official reserves while the BIS enjoys a high level of security on the gold side of the swap."This is why I hate complex financial baloney (it's just a big hot dog). If you cannot explain something to somebody in 3 minutes, it's probably bullchit. If anyone can add any clarity to this, please do so in the comments.
Goldman Sachs Settles Even Though They Did Nothing Wrong
The biggest news of the day, besides every economic indicator coming in terrible, was that Goldman Sachs has settled the SEC lawsuit. It's classic lawyer stuff, and I will not bore you with the details.
What is important is what it means on a few levels.
Fitting in with my concerns that officials really have no idea what is going on you can sure the SEC will be touting the "monster" penalty GS has to pay. $550 million sounds pretty huge, but here is a fitting headline:
GOLDMAN WINS AGAIN! Settles With SEC For Chump-Change $550 Million
This amounts to a good week of work by Goldman Sachs! Amazing. Maybe they will have to trim bonuses a little. Martha Stewart was not so lucky!
Tim Knight has a great chart that may predict my call for S&P 1150 by noting that the last downtrend started with the GS lawsuit. Now it is over and the breakout is clear. Check it here as Tim does not allow using his stuff.
The Reformed Broker has an important summary and I am clipping it in here:
So in this era, with trillions of dollars in wealth demolished and incinerated, the big case was finally brought to serve as a symbol that "someone on Wall Street was gonna pay." Two government appendages, Goldman and the Commission, faced off in conference rooms and before the cameras on Capitol Hill. After months of wrangling, they came to an agreement that allows shareholders and regulators alike to carry on business as usual and hold their heads up high.Wow.
Just as I predicted would happen, word for word.
Remember kids, crime never pays, but institutional influence and deep pockets can absolve you of anything.
Of course I could not just leave it there and offered in the comments:
I was going to use the analogy of the inmates running the asylum, but it does not fit.An obvious "Shawshank Redemption" reference, but fitting I felt.
The banks and the regulators/government are the warden and the guards and we little folk are the inmates. Sometimes if we play nice we get to have a few beers on the roof of the prison after working on the roof, or maybe a new library. In the end we just get jammed in the hole for a month.
Perfect story to pair with the above comment was at Zero Hedge from a guest poster David Fiderer who correctly shows that GS was always going to get off easy because legally they did nothing wrong just trounced on fools who relied on another sham in place, the ratings agencies:
But the dirty little secret on Wall Street was that all too often, due diligence was a sham. People went through the motions without a thorough understanding of what they were doing, like kids who write a report by plagiarizing the encyclopedia. Investors saw triple-A ratings and stopped thinking. Goldman didn’t need to lie in order to sell “shitty deals.” It only needed to find a greater fool with an impressive resume at a multibillion-dollar institution who didn’t ask too many questions. And it was able to keep the scam going because all CDOs remain shrouded in secrecy to this day. The only people who can buy access to CDO performance data on ABSNet are actual investors, who are subject to nondisclosure agreements.
Your money (well, maybe not if you read this blog) is in the hands of these types of fools that play with other scammers on the scale of trillions of dollars. They have no clue and there is no recourse. GS was ugly but legal here. Sad thing is when all the banker games (finally, or the only time?) blew up, they got bailed out and not ended once and for all. That missed opportunity is already exacting a huge price. It will only get bigger.
Have a good night.