Using Veritas to Construct the "Per…

29-04-2017 Hits:94732 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:85605 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:85977 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:90083 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:88510 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:88246 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:59387 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:87859 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:87395 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:87747 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:94167 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:91445 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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I have commented on the interconnected counterparty risks in the banking and shadow banking system. A tidbits are now coming out in the news. Anytime a big lender defaults, another big lender (or three will be on the hook for it).

Goldman Owed $1 Billion if CIT Goes Bankrupt: Report 

The report said Goldman would be owed the payment under a $3 billion rescue finance package it gave to CIT in June 2008, before the U.S. government bought $2.33 billion of CIT preferred shares in December.

According to the FT, CIT "would be required to pay a make-whole amount" that totals $1 billion under that agreement.

Goldman is likely to agree to allow CIT to delay payment on some of the amount, according to the report. Beyond the $1 billion payment from its rescue package, Goldman would also receive payment from credit insurance it holds if CIT were to go bankrupt.

Of course, that credit insurance was most likely a swap and not true insurance, thus opens Goldman up to counterparty risk down the line, and so on and so on.  See "As the markets climb on top of one big, incestuous pool of concentrated risk..."  and  ?Any objective review shows that the big banks are simply too big for the safety of this country".

From the FT:

The relationship between Goldman Sachs and ailing commercial lender CIT provides further evidence that the credit default swap market can put a company in jeopardy.

Credit default swaps have become an increasingly contentious issue in debt restructurings such as the one that CIT is now trying to complete. Many creditors who hold such insurance make more if a company files for Chapter 11 bankruptcy protection than they make on their debt if the company succeeds in restructuring its debt outside of bankruptcy.

In the case of CIT, market players have bought more insurance than the company’s $30bn in debt. Those holders include Goldman, who purchased such a credit protection to hedge against a June 2008 rescue financing of up to $3bn to CIT, Goldman said. Goldman also held other CIT debt, although the company declined to comment on these other exposures.

Goldman carefully structured the rescue financing so that it was heavily collateralised. But as markets plunged, concerned about the value of that collateral, Goldman bought credit default swaps to hedge its exposure. However Goldman declined to comment on the amount.

However, today markets have stabilised and Goldman is over-collateralised on rescue financing. And thanks to the position in credit default swaps, Goldman will actually profit in the event CIT files for Chapter 11 bankruptcy protection in what one regulator describes as a “double bonanza”.

Again, there are no free lunches. If Goldman does win that big, the guys on the other side of the swaps must lose equally big. Then they have to pay. Intro, counterparty risk. There is also the repercussions of the rapid decline in collateral quality. It directly effects the valuations, or at least the perception of valuations, of the collateral held by CIT competitors, namely commmercial and community banks, who don't need any more asset devaluation issues.

But regardless of Goldman’s intention, it would profit handsomely if CIT were to file for bankruptcy protection. Before the company could even arrange the so-called debtor in possession financing to survive in bankruptcy, it would have to pay Goldman $1bn – as part of a make whole agreement – while Goldman’s valuable credit insurance would pay off at once.

To many analysts, the fact that such insurance can mean that a group of holders have an incentive to see a company file for Chapter 11 is perverse. The matter is delicate – it is always difficult to draw a distinction between hedging and speculating. What begins as hedging may end up being the opposite – the outcome market players are hedging against becomes the preferred outcome.

And what if CIT either can't or won't pay Goldman, as its collateral falls towards the zero mark? Goldman calls upon its CDS counterparties. Who would have been silly enough to write the other side of those swaps is beyond me, but they must have been hedged up the wazoo, just like Goldman. This begs the question, if everyone was doubtful about CITs prospects, and everyone that dealt with them was overcollaterized and thrice hedged, who the hell is the last guy in line ultimately responsible for payment if and when CIT goes bust?

Probably the taxpayer, but then again, what do I know?


 In other news...

US Officials Exaggerated Banks' Health: Watchdog.

| 05 Oct 2009 | 02:54 AM ET

Senior U.S. officials deliberately created the impression last year that banks receiving huge government cash infusions were healthier than was the case, a Treasury Department watchdog's report released Monday said.

As a result, the government and the bailout lost public credibility when the financial crisis deepened. Actually, after reading the comments section on popular sites such as Seeking Alpha, it appears as if the government did a decent job of pulling the wool over the populace's eyes. They may have lost credibility in the eyes of professional fundamental investors, but then again how much credibility did they have in those circles to begin with?

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke said at the time that their dramatic force-feeding of $125 billion into nine banks in October 2008 was a program for "healthy" institutions.

Privately senior officials worried about the health of some of those firms, Treasury's Special Inspector General for the Troubled Asset Relief Program, Neil Barofsky, said. "Liar, liar, pants on fire!"

"By stating expressly that the 'healthy' institutions would be able to increase overall lending, Treasury may have created unrealistic expectations about the institutions' condition and their ability to increase lending," the report said. Paulson won approval from Congress to spend $700 billion to repair the financial system.

However, the decision to use the money from the Troubled Asset Relief Program, or TARP, to recapitalize banks, rather than to buy assets tainted by association with defaulted credits, was controversial.

The New York Fed, which was at the time headed by current Treasury Secretary Timothy Geithner played a key role in developing the capital injections program, Barofsky's report said. And look at the current Treasury Secretary currently defending said actions. Coincidental, indeed!

Officials said they shifted strategy because capital infusions were the fastest and most effective way to stabilize the financial system. $750 billion just isn't enough capital to remove the trash from the US bank's balance sheets. All it would have done was set an artificially high price for the assets, which still would have been too low for the banks to swallow, then given a false sense of security as the other poorly underwritten assets the banks still had on their books started to default - just as they are doing now. Reference the prime loans, leases and commercial loans. The report accepts that reasoning. But privately, officials worried about the health of several of the nine, the report says.

Paulson thought one firm, which has since paid back its government infusion, might fail. Banks that caused concern are not named in the report. To think that many traders believe that the return of the TARP was a rubber stamp of a bank's health.

The Treasury and the Troubled Asset Relief Program lost credibility when the recipients of those capital infusions failed to start lending again and when firms including Citigroup and Bank of America needed further life support, the report said.

Danger of Panic

Officials were understandably reluctant to stigmatize any bank by saying it was weak, which could have created a panic at an already chaotic time, Barofsky's report said. Is this a channeling Jack Nichoslon moment? "The Truth! The Truth! You can't handle the TRUTH!!!" 

However, "government officials should be particularly careful, even in time of crisis, of describing their actions (and the rationales for such actions) in an accurate manner," he said.

Fed General Counsel Scott Alvarez, in a response, acknowledged transparency and effective communication with the public were important to restoring and maintaining public confidence during a crisis.

The Treasury official in charge of administering the TARP program, Herbert Allison, signaled dissent from the report's conclusion, saying that "people may differ" on how comments about the banks should have been phrased. Hmmm... How many ways can you spell the word "LIE"?

Go figure. I've been saying this for some time now. See "Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux" as well as

The Treasury with their stress tests, lacking any form of realistic stress:

  • America, You have been outright lied to! Bamboozled! Swindled! Hoodwinked! The Worst Case Scenario
  • Regarding Housing Price Decline, You Ain't Seen Nothing Yet
  • America, You have been outright lied to! Bamboozled! Swindled! Hoodwinked! The Worst Case Scenario,
  • The Real Stress Test Results;
  • and Reggie Middleton Releases More Goldman Sachs Secrets that Tim Geithner Might not Share with You!
  • as well as The Truth About the Banks Has Been Released: the open source spreadhseet edition;
  • Welcome to the Big Bank Bamboozle! and
  • The Re-Release of the Open Source Mortgage Default Model]
  •  The FASB allowing politicians and special interest groups tell them how to perform accounting, to the beneficial interest of the banking lobby, of course: see: The Folly of US Financial Poitical Games.

     The Fed and thier "shroud of secrecy to prevent unfounded rumors from being created from founded facts", see The Fed Believes Secrecy is in Our Best Interests. Here are Some of the Secrets.