Schwarzenegger: California Needs $7 Billion Loan
Saturday, 4. October 2008, 03:37:41
California reveals it is unable to obtain lending in the municipal bond marketplace and requests US Treaury Loan.
MSNBC in conjunction with Reuters reports that the Los Angeles Times on Thursday October 2, 2008, quotes Governor Schwarzenegger, in letter to Treasury Secretary Paulson as saying: “Absent a clear resolution to this financial crisis, California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal treasury for short-term financing.”
The State of California is the biggest of several governments nationwide that are being locked out of the bond market by the global credit crunch, the newspaper reported.
MSNBC also relates that if the state is unable to access credit, "payments to schools and other government entities could quickly be suspended and state employees could be laid off".
And MSNBC relates that "credit markets worldwide have frozen up in the two weeks since the failure of U.S. investment bank Lehman Brothers, prompting concerns that issuers will run into trouble rolling over previous loans."
The credit crisis is a "crisis of confidence", that is, a "lack of trust", showing that trust in the municipal bond market place has utterly broken down.
I infer that one part of the nature of today's crisis is couterparty risk coming from exposure to settlement of default assoicated with derivatives on the bankruptcy of Lehman Brothers.
MSNBC continues: On Wednesday, California Treasurer Bill Lockyer said the most populous U.S. state’s cash reserves may be exhausted near the end of October, and various state-funded services are at risk of grinding to a halt.
“The economic fallout from this national credit crisis continues to drain state tax coffers, making it even more difficult to weather the continuation of frozen credit markets for any length of time. I will continue to do all I can to encourage the passage of the emergency rescue plan,” Schwarzenegger wrote.
A second part of the nature of today's credit crisis is that the SEC stated October 2nd 2008, that the fair value accounting rules have been suspended. And, the Emergency Economic Stabilization Act of 2008, that is EESA, requests that the SEC suspend fair value accounting, which is redundant given that it has already suspended the rule.
Congress went on record most strong urging that the SEC suspend its fair value rules. In other words, the general law making body of the United States stated that it wants fair value accounting abolished for now.
Yet, the suspension of fair value is modern day Enron accounting, and is obscuring the true market value of their assets in mutual fund bond values across the board, and in debt offerings banks as well as state and municipal organizations, thus intensifying the credit crisis day-by-day. Liquidity is freezing up by the hour. This means there is no liquidity to grease the wheels of the economy.
There is coming ever increasing credit gridlock where companies will be unable to meet payroll, and pay debt as it comes due, as the investmebt funds they rely on, do not honor redemptions, as the funds asset values go into meltdown due to suspension of fair value.
With the passage and signing of EESA, then the US government will be stuck with buying assets that are market to fantasy. And I can assure you that the Federal Reserve is going to be buying assets primarily from chrony organizations, such as JP Morgan and Morgan Stanley, and from only those organizations which if they fail would hurt JPM and MS.
What this means is that the assets, that is the debts, on the books of massive numbers of banks and others, will really be reinforced as worthless!!
The passage of the legislation will mean a write down of commercial debt instruments across the board with the longer out, getting a greater marketplace haircut.
Debt ETFs, such as LQD, HYG, CFT and EMB will continue to loose value; and the principal value of the tax free municipal bond mutual funds like USSTX, will continue to fall, as interest rates rise. And the municipal bond ETFs such as MUB and TFI will continually go lower as well.
The suspension of fair value accounting means an ever increasing flight of capital out of the municipal bond market, and thus will soon cause a shut out of municipalities from the credit markets.
The suspension of fair value accounting means companies will find no buyers of corporate debt; and thus, a closure of lending markets.
We are quickly moving from a situation where the US Treasury Notes and Paper is desirable, to a situation where only the US Government Debt will be honored, that is bought and sold!
In other words, only US government debt will be held as valuable, because fair value accounting rules have been suspended by both the SEC and by congressional mandate.
Joshua Crown in 'The Accounting Rule You Should Care About' relates: "A change of course!"
"Tuesday afternoon, the SEC and FASB seemed to change course on the rule, as they published new guidance to firms. The two organizations said when the market for a security disappears, it is now allowable to arrive at a value using "estimates that incorporate current market participant expectations of future cash flows, and include appropriate risk premiums, is acceptable.
In plain English, banks may not be forced to take huge writedowns on investments that lost all their value. But the guidance is just that: guidance. The SEC and FASB suggested that more concrete rule changes could come later.
While the possible end of mark-to-market might please critics of the rule, it doesn't satisfy everybody.
Some financial experts argue that even though banks and Wall Street firms may be able to make their balance sheets look better if the rule changes, these companies will be less attractive to investors because there isn't as much information about their true financial condition.
"The garbage is on the books and no one wants to admit the original error of purchasing this class of assets," said Barry Ritholtz, CEO of Fusion IQ, a research firm.
Ritholtz said mark-to-market accounting forces banks to honestly disclose what they own and how much those investments are worth. Changing the rule would make it tougher to come up with a bank's real value.
"I would advise our clients and the investing public that owning any financials that failed to disclose their holdings accurately is no longer an investment. It is pure speculation, with more in common to spinning a roulette wheel," he said."
Gold Is The Safe Haven
I believe a run on stock brokerages is coming soon; and I suggest that one take one's money out of brokerage accounts, and that one buy gold, even though gold can easily fall from its current $840 to $825, $800 or $775, with a falling EURJPY.
And the gold ETF, GLD, could very easily fall to $77.50.
While bank accounts will have higher FDIC limits, I want something that is tangible, that I can secure, that I can personally own and have a large degee of personal control over.
I recommend diversification of investment in gold in four locations immediately because of financial system instability and lack of liquidity: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins.
I am simply a blogger who communicates what I see as an investment demand for gold; I suggest that one consult with a licensed investment professional before making any investment decisions.
Helpful Interactive Charts For Gold
The Yahoo Finance ongoing chart of GLD relative to the EUR/JPY and the USD/JPY, provides fascinating insights into the interplay of gold and the two major currency pairs.
Gold, $GOLD.
The gold ETF, GLD.
The US Dollar, $USD.
US Treasuries, TLT
The Ten Year US Government Note, $TNX
The on going monthly MSN Finance chart of the gold ETF, compared to world stocks, EFA, and US Stocks, VTI, and US Treasuries, TLT
The ongoing five day Yahoo Finance chart of gold, GLD, relative to the US Dollar ETF, UUP, and the Euro, FXE, and oil, USO
The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to FXE, EFA, and EEB
The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to IWM, and SPY
The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to FXE, USO, and RJI
The ongoing ten day MSN Finance chart of EUM, compared to TWM, SDK, and SFK
The the ongoing five day Yahoo Finance chart of EUM, compared to TWM, SDK, and SFK
The ongoing five day Yahoo Finance chart of the yen, compared to gold and the world's major currencies
Gold relative to world stocks: GLD:EFA
Gold relative to US Stocks: GLD:VTI
Gold relative to the euro: GLD:FXE
Gold relative to world currencies: GLD:DBV
Gold relative to oil: GLD:USO
Suggested Reading And Things To Reflect On
LIBOR Rates Pushing World To Hyper-inflation? Is disregard for fair value rules of accounting going to create massive hyperinflation?
The Ted Spread as of the writing of this article it has gone into uncharted territory at 3.83, that may be a new high; this is like throwing a wrench into a working machine; all I can relate is that the global financial system is going to come to a screeching break down very, very soon.
KeNo's Housing And Economic Portal provides a section of various state, municipality and small businesses being hurt by the credit crunch.
The SEC May Get New Authority Over Fair Value Accounting Two little noticed provisions are Sections 132 and 133, which represent a significant and potentially far-reaching intrusion by Congress into the process by which accounting principles are formulated and implemented. Section 132 gives the SEC the authority to “suspend … Statement Number 157 of the Financial Accounting Standards Board, FASB.
Stop Enronization Of Banking The current bailout legislation does not instill or create trust in wall street and banking.
Goldman Is Getting The Best Of The Credit Crisis Goldman Sachs opponents have been vanquished and bad bets wiped away. Given that its charter has been changed to the status of a bank holding company, it will be the last bank standing.
MSNBC in conjunction with Reuters reports that the Los Angeles Times on Thursday October 2, 2008, quotes Governor Schwarzenegger, in letter to Treasury Secretary Paulson as saying: “Absent a clear resolution to this financial crisis, California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal treasury for short-term financing.”
The State of California is the biggest of several governments nationwide that are being locked out of the bond market by the global credit crunch, the newspaper reported.
MSNBC also relates that if the state is unable to access credit, "payments to schools and other government entities could quickly be suspended and state employees could be laid off".
And MSNBC relates that "credit markets worldwide have frozen up in the two weeks since the failure of U.S. investment bank Lehman Brothers, prompting concerns that issuers will run into trouble rolling over previous loans."
The credit crisis is a "crisis of confidence", that is, a "lack of trust", showing that trust in the municipal bond market place has utterly broken down.
I infer that one part of the nature of today's crisis is couterparty risk coming from exposure to settlement of default assoicated with derivatives on the bankruptcy of Lehman Brothers.
MSNBC continues: On Wednesday, California Treasurer Bill Lockyer said the most populous U.S. state’s cash reserves may be exhausted near the end of October, and various state-funded services are at risk of grinding to a halt.
“The economic fallout from this national credit crisis continues to drain state tax coffers, making it even more difficult to weather the continuation of frozen credit markets for any length of time. I will continue to do all I can to encourage the passage of the emergency rescue plan,” Schwarzenegger wrote.
A second part of the nature of today's credit crisis is that the SEC stated October 2nd 2008, that the fair value accounting rules have been suspended. And, the Emergency Economic Stabilization Act of 2008, that is EESA, requests that the SEC suspend fair value accounting, which is redundant given that it has already suspended the rule.
Congress went on record most strong urging that the SEC suspend its fair value rules. In other words, the general law making body of the United States stated that it wants fair value accounting abolished for now.
Yet, the suspension of fair value is modern day Enron accounting, and is obscuring the true market value of their assets in mutual fund bond values across the board, and in debt offerings banks as well as state and municipal organizations, thus intensifying the credit crisis day-by-day. Liquidity is freezing up by the hour. This means there is no liquidity to grease the wheels of the economy.
There is coming ever increasing credit gridlock where companies will be unable to meet payroll, and pay debt as it comes due, as the investmebt funds they rely on, do not honor redemptions, as the funds asset values go into meltdown due to suspension of fair value.
With the passage and signing of EESA, then the US government will be stuck with buying assets that are market to fantasy. And I can assure you that the Federal Reserve is going to be buying assets primarily from chrony organizations, such as JP Morgan and Morgan Stanley, and from only those organizations which if they fail would hurt JPM and MS.
What this means is that the assets, that is the debts, on the books of massive numbers of banks and others, will really be reinforced as worthless!!
The passage of the legislation will mean a write down of commercial debt instruments across the board with the longer out, getting a greater marketplace haircut.
Debt ETFs, such as LQD, HYG, CFT and EMB will continue to loose value; and the principal value of the tax free municipal bond mutual funds like USSTX, will continue to fall, as interest rates rise. And the municipal bond ETFs such as MUB and TFI will continually go lower as well.
The suspension of fair value accounting means an ever increasing flight of capital out of the municipal bond market, and thus will soon cause a shut out of municipalities from the credit markets.
The suspension of fair value accounting means companies will find no buyers of corporate debt; and thus, a closure of lending markets.
We are quickly moving from a situation where the US Treasury Notes and Paper is desirable, to a situation where only the US Government Debt will be honored, that is bought and sold!
In other words, only US government debt will be held as valuable, because fair value accounting rules have been suspended by both the SEC and by congressional mandate.
Joshua Crown in 'The Accounting Rule You Should Care About' relates: "A change of course!"
"Tuesday afternoon, the SEC and FASB seemed to change course on the rule, as they published new guidance to firms. The two organizations said when the market for a security disappears, it is now allowable to arrive at a value using "estimates that incorporate current market participant expectations of future cash flows, and include appropriate risk premiums, is acceptable.
In plain English, banks may not be forced to take huge writedowns on investments that lost all their value. But the guidance is just that: guidance. The SEC and FASB suggested that more concrete rule changes could come later.
While the possible end of mark-to-market might please critics of the rule, it doesn't satisfy everybody.
Some financial experts argue that even though banks and Wall Street firms may be able to make their balance sheets look better if the rule changes, these companies will be less attractive to investors because there isn't as much information about their true financial condition.
"The garbage is on the books and no one wants to admit the original error of purchasing this class of assets," said Barry Ritholtz, CEO of Fusion IQ, a research firm.
Ritholtz said mark-to-market accounting forces banks to honestly disclose what they own and how much those investments are worth. Changing the rule would make it tougher to come up with a bank's real value.
"I would advise our clients and the investing public that owning any financials that failed to disclose their holdings accurately is no longer an investment. It is pure speculation, with more in common to spinning a roulette wheel," he said."
Gold Is The Safe Haven
I believe a run on stock brokerages is coming soon; and I suggest that one take one's money out of brokerage accounts, and that one buy gold, even though gold can easily fall from its current $840 to $825, $800 or $775, with a falling EURJPY.
And the gold ETF, GLD, could very easily fall to $77.50.
While bank accounts will have higher FDIC limits, I want something that is tangible, that I can secure, that I can personally own and have a large degee of personal control over.
I recommend diversification of investment in gold in four locations immediately because of financial system instability and lack of liquidity: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins.
I am simply a blogger who communicates what I see as an investment demand for gold; I suggest that one consult with a licensed investment professional before making any investment decisions.
Helpful Interactive Charts For Gold
The Yahoo Finance ongoing chart of GLD relative to the EUR/JPY and the USD/JPY, provides fascinating insights into the interplay of gold and the two major currency pairs.
Gold, $GOLD.
The gold ETF, GLD.
The US Dollar, $USD.
US Treasuries, TLT
The Ten Year US Government Note, $TNX
The on going monthly MSN Finance chart of the gold ETF, compared to world stocks, EFA, and US Stocks, VTI, and US Treasuries, TLT
The ongoing five day Yahoo Finance chart of gold, GLD, relative to the US Dollar ETF, UUP, and the Euro, FXE, and oil, USO
The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to FXE, EFA, and EEB
The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to IWM, and SPY
The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to FXE, USO, and RJI
The ongoing ten day MSN Finance chart of EUM, compared to TWM, SDK, and SFK
The the ongoing five day Yahoo Finance chart of EUM, compared to TWM, SDK, and SFK
The ongoing five day Yahoo Finance chart of the yen, compared to gold and the world's major currencies
Gold relative to world stocks: GLD:EFA
Gold relative to US Stocks: GLD:VTI
Gold relative to the euro: GLD:FXE
Gold relative to world currencies: GLD:DBV
Gold relative to oil: GLD:USO
Suggested Reading And Things To Reflect On
LIBOR Rates Pushing World To Hyper-inflation? Is disregard for fair value rules of accounting going to create massive hyperinflation?
The Ted Spread as of the writing of this article it has gone into uncharted territory at 3.83, that may be a new high; this is like throwing a wrench into a working machine; all I can relate is that the global financial system is going to come to a screeching break down very, very soon.
KeNo's Housing And Economic Portal provides a section of various state, municipality and small businesses being hurt by the credit crunch.
The SEC May Get New Authority Over Fair Value Accounting Two little noticed provisions are Sections 132 and 133, which represent a significant and potentially far-reaching intrusion by Congress into the process by which accounting principles are formulated and implemented. Section 132 gives the SEC the authority to “suspend … Statement Number 157 of the Financial Accounting Standards Board, FASB.
Stop Enronization Of Banking The current bailout legislation does not instill or create trust in wall street and banking.
Goldman Is Getting The Best Of The Credit Crisis Goldman Sachs opponents have been vanquished and bad bets wiped away. Given that its charter has been changed to the status of a bank holding company, it will be the last bank standing.
WIDGETIZE