ECONOMIST FORECASTS CENTRAL BANK ACTION
Financial Times, London
By Chris Giles in London
Published: March 23 2008 19:44

(excerpts)
Central banks and governments in advanced economies will be forced to buy mortgage-backed securities within the next few months to stop the credit crisis, according to a former chief economist of the European Bank for Reconstruction and Development.

?Central banks will be managers for years to come of rather interesting portfolios,? predicted Professor Willem Buiter of the London School of Economics, as the Federal Reserve and the Bank of England sought to play down conversations officials have had regarding purchases of mortgage-related assets.

The Financial Times reported on Saturday that conversations had taken place concerning such plans, as part of a broader, early-stage exchange as to possible future steps in battling financial turmoil.

?Precedents are being broken at a rate of two a minute,? Prof Buiter said, praising central bankers for the flexibility they are showing .

A Bank of England spokesman said: ?Central banks, including the Bank of England, have been looking at ways to ease the strain. The BoE is not, however, among those reported [on Saturday] to be proposing schemes that would require the taxpayer, rather than the banks, to assume the credit risk.?

The Bank added it was still too early to go into details on what it was discussing.

The Bank is also undertaking a review of the collateral it accepts when lending to banks or buying assets.

The problem is compounded because central banks are now accepting wide lists of collateral with highly variable probabilities of default.

Copyright The Financial Times Limited 2008

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THE FINANCIAL DESTRUCTION OF THE AVERAGE MAN
Posted On: Sunday, March 23, 2008, 6:26:00 PM EST
Author: Jim Sinclair
http://www.jsmineset.com/


This weekend?s meeting of four heads of central banks communicates the size of the OTC derivative disaster. It is a system that is broken. A bailout will require the printing of trillions of dollars worth of monetary stimulation making Bernanke?s helicopter drop look like chump change.

The dollar number of pending derivative bankruptcies is the size of the mountain of garbage paper issued by just those who are to be bailed out. That number is greater than the total world economies.

There simply isn?t enough money in the world for central banks to buy up the mountain of worthless paper sold by those who need bailouts; all of which made fortunes for their directors, officers and key people.

When an OTC derivative fails to perform, notional value becomes real value.

The notional value of all OTC derivatives exceeds $500 trillion.

Credit default swaps (OTC derivatives) alone account for over $20 trillion dollars of notional value and are failing. Major dealers in these items, Lehman and JP Morgan, had their debt downgraded last week.

Maintaining the AAA rating on debt of public companies primarily issuing default swaps as credit guarantees is a sick JOKE of fabrication. This is a JOKE that in all probability will lead to litigation that destroys the rating companies.

You can be absolutely sure that all the biggies have their money out.

No one mentions these firms being bailed out are the ones who created this disaster, making billions for their economic sin. You can be sure the big boys have their money out of the now on-the-rocks international institutions.

No one mentions that bailing out the bankers will leave the average man victimized and paying for the pleasure of the economic rape.

Meanwhile Derivative Traders (salesmen of perdition, not traders) and their hedge fund managers are all in Greenwich Connecticut with their hundreds of millions and billions, now retired playing tennis on their indoor courts at their waterfront mansions as the mess deepens.

Litigation against the officers and directors of these international banking firms, both against the biggies personally as well as the company, will make the biggies occupation one of defending against litigation for the rest of their lives.

For those biggies in these companies who trust no one and therefore have wives with no money will lose everything. Some of them I know. What goes around certainly comes around.

Litigation against OTC derivatives are slam-dunk victories for the injured plaintiffs. The biggies will pay.

This is the greatest act in history of ?Public Be Damned? and ?Let them Eat Cake.? It will not come about because in the USA it is already the hottest political potato.

The problem is that the plan of the US legislative is down right STUPID. It is an embarrassment that legislators are so publicly moronic when it comes to economics.

The problem that no one is focusing on right now is the tracking of the mortgage itself to the structured product, which has broken down. That means in these items many can?t connect the underlying mortgage to the structured investment product (derivative).

So far courts have held that the only entity that can foreclose is the entity that actually lent the money. The average guy does not know that with an attorney to protect him he has a free house!

The entity that actually lent the money has sold the mortgage and been paid. Therefore where is the incentive for original lender to foreclose? The answer is there is none. Bankers do not help bankers in the same way that sharks do not help sharks.


CONCLUSION:

Because of the unthinkable size of the problem it is impossible to construct a Resurrection Trust to buy all these worthless and never to be anything but worthless items.

Should any item surface to do this it will destroy all the National currency of the central banks that participate.

If there were an attempt to construct such an entity with the cooperation of the USA, the US dollar would go much lower than .5200. Gold would go to many thousands of US dollars.

Anyone who last week assumed the problem was over and we would be improving from there on out is simply nuts.