Zero Hedge Exclusive: Is State Street Trading For Federal Accounts?

Zero Hedge has always been fascinated by the behemoths of securities lending (or not so much lately) State Street and Bank Of New York: these firms, which allegedly had just marginal toxic exposure, were in the front lines for the TARP bailout and have traditionally been handled with velvet gloves by the administration. In fact, many would say the custodian firms are in a league of importance much higher than even Goldman or JP Morgan as with their repo activity, security lending and cash collateral reinvestment, they are the de facto center of the shadow banking system.

A Cliff notes version of the stock lenders' Modus Operandi, sent in compliments of a reader:

• In the securities lending arb, stocks and bonds are lent out by custodians and investment managers. The loan is collateralized by the borrower with cash, the lender promises the borrower a return on that cash and then invests the cash in repo and short-term debt at a spread to that promised rate of return. The sec lending market is in the trillions. This market is basically rolling overnight repo right now as it tries to dig itself out of the MTM/liquidity hole.

• Many of the Fed/Treasury balance sheet efforts have been basically attempts to supplant securities lenders. Sec lending funds were the biggest buyers of 1-3yr FRNs (hence, TLGP). Lenders were also the biggest buyers of AAA cards and autos (read TALF 1.0). They were the second-biggest buyers of ABCP after 2a7 funds (ergo AMLF). Indirectly they were the largest funder of LT2 bank debt (via SIVs MTNs). They're large repo counerparties, and did everything from short-dated CDS to liquidity put options on Canadian levered super-senior CDOs.

• Many stock lending funds, which have similar accrual accounting regimes to '40 Act money-market funds, have broken the buck but are still trading at $1. for example see the section beginning "We may be exposed to customer claims" on p.11. What does this mean? Not only are certain securities lending providers opening themselves up to significant litigation risk but, importantly, clients in stocks can't reallocate to bonds (or vice-versa), since the sec lending funds aren't letting them out (except in-kind). Finally, of course, as long as sec lenders remain hurt but unsupplanted, they stay short duration, which extracts hundreds of billions of $$ in term financing capacity out of the market. Fed won't act as a lender of last resort since they're still smarting from the AIG sec lending bail-out they didn't see coming.

It is no surprise that in order to incite a return to pre-Lehman economic levels (the administration's #1 goal bar none), not only the stock market would have to much higher from its March lows (a task largely accomplished through market increases on disappearing breadth, liquidity extraction by the likes of Goldman Sachs, and assorted last minute inexplicalbe ramp ups in the various futures and ETF markets), but also the shadow system would have to be back with a vengeance. And while new mechanisms to achieve this such as securitization replacement alphabet soups have yet to prove their efficacy, the real heart of the shadow banking system Frankenstein is and has always been the repo market.

Which is why we were greatly troubled when we learned recently on good authority that Federal representatives may have opened multiple undisclosed-type accounts with none other than State Street Global Advisors over the past few months. All of these accounts are allegedly handled by one single trader, who is cocooned and isolated from interaction with other partners.

Zero Hedge can, as of yet, not vouch for this being 100% factual and is asking readers who may have additional knowledge of the situtation to please come forward and share their views (tips@zerohedge.com). If, indeed, the Federal Reserve or other derivatives of the administration, are now directly involved in trading, managing repo terms, stock lending, collateral distribution and other liquidity-crucial aspects of what was once an efficient market, then indeed this rally could be written off not merely as the biggest short covering rally of all time, but one that has been explicitly orchestrated by those who should be most impartial to an efficiently working market.

Mind blowing speech by Robert Welch in 1958 predicting Insiders plans to destroy America

Check this link ...... http://bit.ly/9382z

Hudson: The Financial Parasites Have Killed the American Economy

Hudson: The Financial Parasites Have Killed the American Economy, and They Are Sucking as Much Money Out as They Can Before Jumping Ship

Michael Hudson is a highly-regarded economist. He is a Distinguished Research Professor at the University of Missouri, Kansas City, who has advised the U.S., Canadian, Mexican and Latvian governments as well as the United Nations Institute for Training and Research. He is a former Wall Street economist at Chase Manhattan Bank who also helped establish the world’s first sovereign debt fund.

Hudson has frequently described Wall Street as “parasitic”. For example, in a 2003 interview, Hudson said:

The problem with parasites is not merely that they siphon off the food and nourishment of their host, crippling its reproductive power, but that they take over the host’s brain as well. The parasite tricks the host into thinking that it is feeding itself.

Something like this is happening today as the financial sector is devouring the industrial sector. Finance capital pretends that its growth is that of industrial capital formation. That is why the financial bubble is called “wealth creation,” as if it were what progressive economic reformers envisioned a century ago. They condemned rent and monopoly profit, but never dreamed that the financiers would end up devouring landlord and industrialist alike. Emperors of Finance have trumped Barons of Property and Captains of Industry.

More recently, Hudson said:

You can think of the financial sector as being wrapped around the real economy, almost like a parasite, and that’s why it’s been called parasitic for so long. The financial sector extracts interest from the economy, the property sector extracts economic rent, as do monopolies. Now the key thing about parasites, is that it’s not simply that they extract nourishment from the host. The parasite takes over the
host’s brain, to make it think it’s part of the economy, to make it think
it’s part of the host’s own body, and, in fact, that’s it almost like a child of the host, to be protected. And that’s what the financial sector has done today.

You have Obama coming out and saying, “We have to save the banks in order to save the real economy”. The fact is, you can’t serve both the parasite and the host.

And see this.

On August 10th, Hudson went even further. Specifically, he said:

• The giant financial institutions have already killed their host – the real American economy

• Since they realize that the American economy is dead, they are trying to suck as much blood out of America as possible while the corpse is still warm

• Because the American economy is dead, their plan is to soon jump to another host. They will ship all of their money overseas

Economic Collapse: Bank Runs, China, Peter Schiff, Gerald Celente, Max Keis

Very good link, you must watch ........ http://bit.ly/1cvfCY

Glenn Beck: "Speak without fear" - 8/26/2009

Must watch link ....... http://bit.ly/2mbRNi

Moon Mission Accidentally Burns Up Fuel Reserves

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In an unexpected control glitch this weekend, NASA’s Lunar Crater Observation and Sensing Satellite (LCROSS) went berserk and burned up all its extra fuel.

It turns out the spacecraft had an attitude problem: A broken sensor in the LCROSS attitude control system, which keeps track of the satellite’s orientation, caused the spacecraft to repeatedly fire its thrusters and burn up about 140 kg of hydrazine propellant. Fortunately, NASA says the spacecraft was carrying more fuel than it needed and still has 50 kg left, enough to complete its mission.

If all goes well, LCROSS will release its Centaur rocket on October 9, 2009, sending the projectile hurtling at the south pole of the moon at 1.55 miles per second, about twice the speed of a bullet. Scientists hope the impact will send up a huge plume of moon debris, possibly containing ice, vapor or traces of hydrated materials that prove the existence of water on the moon.

Four minutes later, the rest of the spacecraft will follow the rocket’s path through the cloud of lunar dust, analyzing its contents and transmitting data back to Earth before the entire spacecraft crashes into the moon’s surface. NASA says the impact will generate a cloud of dust so big that we may be able to see it from Earth using an amateur telescope.

This isn’t the first time we’ve crashed rockets into extraterrestrial bodies to find out what’s inside. In 2005, NASA’s Deep Impact spacecraft sent a probe crashing into Comet Tempel 1 to study the contents of the comet’s interior. A European probe called SMART-1 crashed into the moon in 2006, and Japanese scientists crashed their Kayuga probe into the moon this June. So far, none of the missions have discovered the water LCROSS is looking for.

Image: Artist’s rendering of LCROSS launching its Centaur rocket into the moon/NASA.

Killing of China steel plant boss halts sale

The privatisation of a state steel group has been scrapped after an executive was beaten to death by workers angry at the threat to their jobs from a takeover of their company, according to a Hong Kong rights group.

The violent riot in north-east China late last week involved up to 30,000 workers, a reminder of the ongoing sensitivity about lay-offs from state companies in industries targeted for consolidation.

The government laid off about 50m workers in state enterprises in the 1990s, equal to the combined workforces of Italy and France at the time, but many companies still retain bloated staffing rosters.

Tonghua Iron & Steel, a traditional state enterprise, has about 50,000 workers and has struggled to make consistent profits in recent years, making it a prime target for restructuring by its owner, Jilin province.

The privately held Jianlong Group, one of China’s largest private steel companies, had first proposed taking over Tonghua in 2005, backed out of the deal when the economy slowed last year, but re-entered negotiations recently when industrial demand picked up.

Propelled by the government’s stimulus package, China produced steel at an annualised rate of 545m tonnes in June, a record level of output.

The interim general manager sent by Jianlong to run Tonghua, Chen Guojun, had infuriated the workers with his high-handed attitude, according to comments posted on internet bulletin boards in China.

He had reportedly said that he would re-establish Tonghua “under the name of Chen” and lay off almost all the employees.

“With Tonghua Steel’s retired workers each receiving only Rmb200 ($29) a month for living expenses, Chen Guojun was paid an annual salary of Rmb3m,” the rights group reported.

When Mr Chen returned to the plant late last week, a large crowd of workers surrounded his office and beat him unconscious, according to a report issued by the Hong Kong Information Centre for Human Rights and Democracy.

Outside the factory, mobs of workers stopped an ambulance and police from entering the compound to rescue him. The thousands of riot police then mobilised by the authorities took several hours to bring the situation under control.

Staff at Jianlong’s headquarters in Beijing confirmed Mr Chen’s death but declined to give any further details.

Zhang Zhixiang, the owner of Jianlong, was China’s 10th-richest man in 2008, according to China’s most widely quoted rich list, with a fortune estimated at $2.9bn.

Private entrepreneurs in China have made substantial inroads into the steel sector in the past decade, usually by buying up and restructuring tottering state-owned companies such as Tonghua.

By Richard McGregor in Beijing

Copyright The Financial Times Limited 2009