“The terrible financial tempest that I see breaking,” writes ShadowStats.com’s John Williams, “is one where massive dollar selling will trigger or exacerbate a major sell-off in U.S. stocks and bonds
Williams sees the Fed’s rhetoric about letting the market clean up the subprime mess…as applicable when convenient. But “Now that the banking system is flailing for a life preserver, the Fed will do whatever they can to preserve the same system that allows them to survive, the U.S. dollar be damned.” For example, the Fed agreed to bend a longstanding rule last week to help bail out two of the country’s largest banks. Bernanke exempted Citigroup and Bank of America from rules that would limit the amount of lending their bank arms can float to brokerage affiliates. In other words, Citi and BoA need to lend more money than is legally permissible to their respective mortgage operations in order to keep them from imploding.
Previous regulations permitted banks to float up to 10% of their capital to troubled affiliates. Now Citigroup and BoA can lend up to 30% of their capital to mortgage units in desperate need of a bailout. That means each bank needed more than $8 billion in to relieve their distressed lenders… the current cap will allow each to loan about $25 billion.
“Beyond any near-term covert central bank currency intervention,” Williams concludes, “rigged economic data or other machinations imposed on the markets, the proximal trigger for the dollar's sell-off could be any one of a number of factors ranging from an official Fed easing to expanded U.S. military activity in the Middle East.”
Williams sees the Fed’s rhetoric about letting the market clean up the subprime mess…as applicable when convenient. But “Now that the banking system is flailing for a life preserver, the Fed will do whatever they can to preserve the same system that allows them to survive, the U.S. dollar be damned.” For example, the Fed agreed to bend a longstanding rule last week to help bail out two of the country’s largest banks. Bernanke exempted Citigroup and Bank of America from rules that would limit the amount of lending their bank arms can float to brokerage affiliates. In other words, Citi and BoA need to lend more money than is legally permissible to their respective mortgage operations in order to keep them from imploding.
Previous regulations permitted banks to float up to 10% of their capital to troubled affiliates. Now Citigroup and BoA can lend up to 30% of their capital to mortgage units in desperate need of a bailout. That means each bank needed more than $8 billion in to relieve their distressed lenders… the current cap will allow each to loan about $25 billion.
“Beyond any near-term covert central bank currency intervention,” Williams concludes, “rigged economic data or other machinations imposed on the markets, the proximal trigger for the dollar's sell-off could be any one of a number of factors ranging from an official Fed easing to expanded U.S. military activity in the Middle East.”
No comments:
Post a Comment