wikileaks - surprise - it was insolvency not liquidity all along

[muldoon]

http://www.guardian.co.uk/world/us-embassy-cables-documents/146196

This really shouldn't be news at all to anyone, but interesting to see it validated in the press.   A few things to note, this was March 2008 and government confidential from the UK government.  I thought no one saw this coming?  I thought everything was fine in March?  It didnt really fall over till Lehman etc in the Fall.  

Monday, 17 March 2008, 18:27
C O N F I D E N T I A L LONDON 000797
SIPDIS
NOFORN
SIPDIS
EO 12958 DECL: 03/17/2018
TAGS ECON, EFIN, UK
SUBJECT: BANKING CRISIS NOW ONE OF SOLVENCY NOT LIQUIDITY
SAYS BANK OF ENGLAND GOVERNOR
Classified By: AMB RTUTTLE, reasons 1.4 (b) and (d)

Summary

-------

1. (C/NF) Since last summer, the nature of the crisis in financial markets has changed. The problem is now not liquidity in the system but rather a question of systemic solvency, Bank of England (BOE) Governor Mervyn King said at a lunch meeting with Treasury Deputy Secretary Robert Kimmitt and Ambassador Tuttle. King said there are two imperatives. First to find ways for banks to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance. Second to ensure there's a coordinated effort to possibly recapitalize the global banking system. For the first imperative, King suggested developing a pooling and auction process to unblock the large volume of financial investments for which there is currently no market. For the second imperative, King suggested that the U.S., UK, Switzerland, and perhaps Japan might form a temporary new group to jointly develop an effort to bring together sources of capital to recapitalize all major banks. END SUMMARY

Systemic Insolvency Is Now The Problem

--------------------------------------

2. (C/NF) King said that liquidity is necessary but not sufficient in the current market crisis because the global banking system is undercapitalized due to being over leveraged. He said it is hard to look at the big four UK banks (Royal Bank of Scotland, Barclays, HSBC, and Lloyds TSB) and not think they need more capital. A coordinated effort among central banks and finance ministers may be needed to develop a plan to recapitalize the banking system.

Unblocking Illiquid Mortgage-Backed Securities

--------------------------------------------- -

3. (C/NF) King said it is also imperative to find a way for banks to sell off unwanted illiquid securities, including mortgage backed securities, without resorting to sales at distressed valuations. He said sales at distressed values only serve to lower the floor to which banks must mark down their assets (mark to market), thereby forcing unwarranted additional write downs. He said we need to find an auction system where banks could move paper they want to sell without fear of stigma that the market views selling at a low price as a sign that a bank is in trouble. King said, however, he did not yet know how to structure such an auction and that further dialogue was needed. Kimmitt acknowledged the need to find ways to unblock these markets and said we should remain in touch bilaterally as well as in the G-7, the Financial Stability Forum, and the central banks.

A Possible Approach To Recapitalization

---------------------------------------

4. (C/NF) The G-7 is almost dysfunctional on an economic level, said King. Key economies are not included, especially those that have large and growing pools of capital. King said that a new international group was needed to address the issue. It could be a temporary group, and he suggested that perhaps the central banks and finance ministers of the U.S., the UK, and Switzerland could coordinate discussions with other countries that have large pools of capital, including sovereign wealth funds, about recycling dollars to recapitalize banks. King said Japan might not be included because it has little to offer. King noted, though that including the Japanese might force their hand in finally marking to market impaired assets. Kimmitt said that he was cautious about starting new groups in the international financial community because of the inevitable debate around whom to include.

Comment

-------

5. (C) The King proposals were not casual ideas developed in the course of luncheon conversation. It was clear that his principal objective in the meeting was to outline his outside-the-box thinking for Kimmitt. King included very few details about his proposals and was content to present broad concepts, thereby planting the seeds for future discussion. END COMMENT.

6. (U) Participants: USG: Ambassador Robert Tuttle; Deputy Secretary Kimmitt; Eric Meyer, Office Director for Europe;

SIPDIS Robert Saliterman, Spokesman, International Affairs, U.S. Treasury; Warren Chane, ECONOFF. UK: Mervyn King, Governor, Bank of England; Chris Salmon, Private Secretary.

7. (U) Deputy Secretary Kimmitt has cleared this message.

[Shawn B]

The red flag went up for me when Bear Sterns went under and was nationalized. But some were predicting the collapse for a few years anyway.

[peternap]

A little OT but POX must be sweating some because after reading a very small percentage of the reports, Glenn is sounding less and less like a conspiracy theorist.

[cbc58]

 

A few things to note, this was March 2008 and government confidential from the UK government.  I thought no one saw this coming?  I thought everything was fine in March?

That's the first thing that came to me... how we were all told no one saw this coming and here's the proof that it was well know back in March.  Paulson and the gang should be jailed. 

[glenn kangiser]

"The individual is handicapped by coming face-to-face with a conspiracy so monstrous he cannot believe it exists.
The American mind simply has not come to a realization of the evil which has been introduced into our midst. It rejects even the assumption that human creatures could espouse a philosophy which must ultimately destroy all that is good and decent."

All you have to do to get the answers is realize that J. Edgar Hoover was telling the truth.

[Windpower]

The GEAB report

I used to subscribe to this paid monthly bulletin, but is is quite expensive to get the full report (365 Euros per year IIRC)
It gave me a heads up but I was too slow to realize that the "very conservative, preservation of capital" T Rowe Price (already retired) retirement portfolio my 401K was in was not safe at all -- I  lost about $100,000 before moving to all cash -- I am thankfully almost back to April 2008

http://www.europe2020.org/spip.php?article586&lang=en

(emphasis mine)

"In 2007, LEAP/E2020 announced that US banks and consumers were both insolvent. More than a year ago, our team estimated that USD 10,000-billion worth in « ghost-assets » would vanish in the crisis. Both announcements came in complete opposition with the common opinion of that time; however they proved perfectly justified in the months after. In the same line, LEAP/E2020 today estimates that a new sequence of the fourth phase (so-called « decanting phase ») of the unfolding global systemic crisis has began: the sequence of global insolvency.

The heavy consequences conveyed by the global insolvency are anticipated in this GEAB N°31, of which this announcement presents an excerpt meant to put clearly what is at stake in this new sequence of the crisis. GEAB N°31 also details the 20 "ups and downs" of the year 2009 according to the LEAP/E2020 team : fifteen upward trends and fourteen downward trends, as many decision- and analysis-support instruments for all those worried or intrigued by the coming year.

[Windpower]

http://www.leap2020.eu/English_r25.html

price came down for the Global Europe Anticipation Bulletin (GEAB)

now only 200 Euros per year ($260)

The second half of 2011 will mark the point in time when all the world's financial operators will finally understand that the West will not repay in full a significant portion of the loans advanced over the last two decades. For LEAP/E2020 it is, in effect, around October 2011, due to the plunge of a large number of US cities and states into an inextricable financial situation following the end of the federal funding of their deficits, whilst Europe will face a very significant debt refinancing requirement (1), that this explosive situation will be fully revealed. Media escalation of the European crisis regarding sovereign debt of Euroland's peripheral countries will have created the favourable context for such an explosion, of which the US "Muni" (2) market incidentally has just given a foretaste in November 2010 (as our team anticipated last June in GEAB No. 46 ) with a mini-crash that saw all the year's gains go up in smoke in a few days


more here

http://www.leap2020.eu/GEAB-N-50-is-available-Global-systemic-crisis-Second-half-of-2011-European-context-and-US-catalyst-Explosion-of-the_a5625.html

[Ajax]

The collapse started in July of 2007 when Bear Stearns High-Grade Structured Credit Fund andBear Stearns High-Grade Structured Credit Enhanced Leveraged Fund busted.  Seeing it in 2008 is no great shakes

[ScottA]

Largest ripoff in the entire history of the world and no one is going to jail. Only proves one thing, if you're going to break the law do it in a big way.

[glenn kangiser]

http://wakeupfromyourslumber.com/blog/sullivan/wikileaks-assanges-lawyer-has-connections-rothschilds

As everyone says - inside propaganda operation...

Rothschild lawyer for Assange.

[Sassy]

A short article from "The Daily Reckoning" on the deception of the Federal Reserve Bank...  talk about subsidies & welfare!!!   

How the Fed Interprets Free-Market Capitalism
Cutting Out the BS of Crisis-Era Bailout Activities
Eric Fry

Reporting from Laguna Beach, California...

Deception, like a mushroom, flourishes in darkness and manure. And the only way to end a deception is to drag it out into the light...and cut out the BS.

Two weeks ago, for the first time ever, the Federal Reserve dragged its crisis-era bailout activities out into the light of day (thank you Senator Bernie Sanders and Congressman Ron Paul!). The resulting revelations exposed a number of shocking truths, like the truth that the big Wall Street banks did not merely receive one $10 billion loan each from the TARP facility; they also received tens of billions of undisclosed loans from other lending facilities. On top of that, many of the big banks raised hundreds of billions dollars by secretly selling mortgage-backed securities directly to the Fed.

These massive undisclosed bailouts contributed greatly to the relatively robust earnings results many big banks produced during 2009 and early 2010 - results that would have been impossible without the hidden assistance. Accordingly, stock market participants came to believe the fiction that the big banks were "healthy," rather than the truth that they were massively subsidized. As opinions changed, so did share prices, corporate bond prices, credit default swap prices, etc.

Some investors made money from the resulting asset-repricing, some lost money. Neither side reaped the reward it deserved, but only the result that the Fed's manipulations produced. In an honest and transparent marketplace, the list of winning and losing investors would have been very different than the actual list that emerged from the crisis.

In a truly free market, the financial markets, themselves, pick the investors who win or lose, not the Chairman of the Federal Reserve or the Secretary of the Treasury.

Deceptions flourished during 2009, primarily because the Fed was secretly pumping trillions of dollars into various private companies without ever disclosing the recipients, timing or sums involved. The outside world was left to guess. By so doing, the Fed dramatically "un- leveled" the playing field of American capitalism.

Many undeserving companies benefitted from preferential treatment during the crisis, while many deserving investors, savers and taxpayers directly or indirectly subsidized this preferential treatment. That's not free-market capitalism, dear investor. That's cheating.

[cbc58]

That's not free-market capitalism, dear investor. That's cheating.

What's our recourse?  Sue?  Whom?  Those that make the rules - win.