Canaries in the Financial Coal Mine
Monday, July 09, 2007 - FreeMarketNews.com
For some time Canaries in the financial coal mine who have warned of the dangers to the global financial system posed by exotic derivatives instruments such as Jim Sinclair and others have been dismissed as Cassandras. With the recent near-melt down at Bear-Stearns, that appears to be changing in a big way.From Bob Chapman: The International Forecaster writes:"In this regard hedge funds abuse their shareholders in arbitrarily assigning value to these financial instruments. The rip off can be huge because no one knows what the market value is unless they are sold. The management is compensated by fees on the values of their portfolios and that says it all. As it’s called, "marking by model," is a scam, and we have said this for years – since 1994. We have also asserted that hedge funds and other financial entities should be forced to reveal unrealized gains on derivatives in their statements to customers and regulators…This is the glue that is holding world markets together. This is how they have prevented collapses of the financial system. No regulation – no oversight. When called upon by Treasury, Fed or their British counterparts enter markets at their direction. On paper everyone involved gets rich, especially the brokerage houses taking the orders. This is the biggest financial scam in history."Martin Weiss, Editor, Safe Money Report in a post on financialsense.com answers the question as to how people know what a CDO is worth if it isn't traded, saying:"The answer provided by companies like Bear Stearns: We guess! More specifically, their procedure has been to…Estimate what these CDO investments should be worth based on assumptions about delinquency rates ... hope that, if their assumptions turn out to be wrong, no one will find out ... and pray that, if someone does find out, they'll be able to cover it up. That's precisely what we believe has happened here! They figured it would be impossible for delinquency rates to be this high, especially without a recession. But now the "impossible" has happened."...Because there is little trading in the securities, prices may not reflect the highest rate of mortgage delinquencies in 13 years. An auction that confirms concerns that CDOs are overvalued may spark a chain reaction of write downs that causes billions of dollars in losses."
For some time Canaries in the financial coal mine who have warned of the dangers to the global financial system posed by exotic derivatives instruments such as Jim Sinclair and others have been dismissed as Cassandras. With the recent near-melt down at Bear-Stearns, that appears to be changing in a big way.From Bob Chapman: The International Forecaster writes:"In this regard hedge funds abuse their shareholders in arbitrarily assigning value to these financial instruments. The rip off can be huge because no one knows what the market value is unless they are sold. The management is compensated by fees on the values of their portfolios and that says it all. As it’s called, "marking by model," is a scam, and we have said this for years – since 1994. We have also asserted that hedge funds and other financial entities should be forced to reveal unrealized gains on derivatives in their statements to customers and regulators…This is the glue that is holding world markets together. This is how they have prevented collapses of the financial system. No regulation – no oversight. When called upon by Treasury, Fed or their British counterparts enter markets at their direction. On paper everyone involved gets rich, especially the brokerage houses taking the orders. This is the biggest financial scam in history."Martin Weiss, Editor, Safe Money Report in a post on financialsense.com answers the question as to how people know what a CDO is worth if it isn't traded, saying:"The answer provided by companies like Bear Stearns: We guess! More specifically, their procedure has been to…Estimate what these CDO investments should be worth based on assumptions about delinquency rates ... hope that, if their assumptions turn out to be wrong, no one will find out ... and pray that, if someone does find out, they'll be able to cover it up. That's precisely what we believe has happened here! They figured it would be impossible for delinquency rates to be this high, especially without a recession. But now the "impossible" has happened."...Because there is little trading in the securities, prices may not reflect the highest rate of mortgage delinquencies in 13 years. An auction that confirms concerns that CDOs are overvalued may spark a chain reaction of write downs that causes billions of dollars in losses."
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