Question of Trust Between Banks

Question of Trust Between Banks

In one of the biggest gap and crap plays I have seen for quite some time the market gapped up 2% on Wednesday, went into the red then closed slightly higher.

Already there is speculation that the Fed Cash Proposal May Not Be Enough.

The plan may not matter much, said Richard Yamarone, chief economist at Argus Research in New York. "It doesn't address the underlying problem here, which is trust," Yamarone said. "Banks don't want to lend to each other because they don't know what the counterparties own and, in all actuality, they don't even know what they own and they don't even know how to price it."

What's The Right Question?

Is the question about trust or is the question about insolvency or is that really the same question?

Sometimes it's hard to know what the proper question even is, but this Question from Todd pretty much sums it up for me:

"Between the coordinated agendas, discount window collateral changes, invisible hands, superfund conduits, sub-prime bailout plans and now, the biggest act of international economic cooperation since the 9/11 terrorist attacks, you can't help but wonder what the heck the Fed sees that the markets, 5% off their highs, have yet to price in?"

I think that's a rhetorical question as I discussed in Global Coordinated Panic, but perhaps others disagree.

Who was surprised and why?

Given that economists were almost unanimous in predicting a 25 basis point cut, why should there have been such a huge selloff? And then why the gap and crap with the latest Bernanke surprise party? Was no one really surprised? Was this a pretend surprise? Did everyone want a bigger surprise? Was everyone surprised at 8:30 but unsurprised an hour later?

The questions keep mounting up here. For an entertaining perspective on all these questions I recommend reading Fed's Expected Cut Spurs Shoulda-Woulda-Couldas by Caroline Baum.

So much disappointment in so many quarters over something so expected. Go figure.

• The stock market was disappointed.
• The TV commentators were disappointed.
• Economists were disappointed.
• Money managers were disappointed.
• Even money markets were disappointed with the cut.
• And yours truly was disappointed at the wave of disappointment.

The only people who weren't disappointed but were surprised nonetheless were bond investors, who sent Treasuries soaring.

Maybe all the disappointment was just a dose of reality creeping in. Investors are looking for the magic bullet that would make everything OK, encourage banks to lend (a lower rate would help), heal the wounds in the home-loan market, wipe away the accumulated debt of consumers and put the economy back on track. Alas, there is no such tool in the Fed's arsenal.

That there is no magic wand Fed's arsenal should not be such a great revelation but perhaps it is. The number of people that have emailed me recently describing the Fed's ability and willingness to inflate forever and for the market to respond favorably to that stimulus is staggering.

Maybe that realization that the Fed has no magic wand is what has everyone surprised here. And if you can't trust the grand wizard who can you trust?

Charlie Rose Interview of CIC's Jesse Wang

American readers, pardon me for my previous ignorance of who Charlie Rose is. Aside from not watching TV that much, I didn't even own a set while I was studying in the States. Also, the Public Broadcasting System (PBS) is not widely available internationally, especially compared to CNN. Of course, Larry King's choice of guests is, shall we say, more pedestrian than that of Rose (though the OJ/Buttafuoco set may disagree). I recently came across some of Rose's work and have been much impressed by the highbrow guests he often features as well as the generally intelligent questions he usually asks--two things you don't see much of on today's TV.

Anyway, the clip above features Rose in Beijing interviewing Jesse Wang, chairman of the state-owned Jianyin Investment Company. Wang is also part of the management team at the PRC's newish China Investment Company (CIC). I have poked fun at the $200B fund's investment in the sinking stock of private equity operator the Blackstone Group, but the interview is instructive nonetheless. Wang explains that the CIC has been on the drawing board for quite some time in Party circles. He then elaborates on the logic driving SWFs such as portfolio diversification and the quest for better returns before turning to why the rest of the world does not have to fear the CIC buying up the rest of the world, especially for political motivated purposes.

There are several other clips that are worth watching as well for sinologists on Rose's website. It seems he has done several interviews regarding China's economic rise. His guests include He Ya-Fei, assistant minister for foreign affairs; Ted Fishman, author of China, Inc.; Robert Zoellick before he became World Bank president who has commented on China's need to address "stakeholder" concerns; Henry Paulson who's currently busy with the third China-US Strategic Economic Dialogue; and Singapore's PM Lee Hsien-Long who's a keen observer of China. It's good stuff worth watching. Fortunately, most of Rose's interviews are available online for viewing. I look forward to watching more informative clips...

Chinese Plants to Welcome US Inspectors

It's a shame this news story hasn't received much if any coverage while the third Strategic Economic Dialogue is underway in Beijing: Given rising doubts over the safety of Chinese food and drug exports (and much else besides), PRC authorities have made moves to allow US inspectors to come over. In return, American immigration authorities will make it easier for Chinese tour groups to visit America. It sounds like a fair bargain to me. Likely, this story has escaped attention for regular news media is more interested in sensationalizing the dangers of Chinese products and less in relaying efforts to reduce potential dangers. Oh well. The US and China have been locked in a prolonged tit-for-tat over product safety that has become increasingly contentious. Allowing inspectors into China is strategically sensible on the part of the Party faithful: If American inspectors are given the opportunity to assess the quality of Chinese exports, there is less room to bicker if things go awry ex post facto. Address problems at the source the source. From the Financial Times:

US inspectors will be allowed into China to monitor the quality standards of Chinese food and drugs exports under the terms of agreements negotiated in the wake of the product safety scandals that have damaged China’s “national image”.

In return, under a series of bilateral agreements, the US will allow Chinese tour groups easier access to the US. Tourism visas to the US are, at present, difficult to obtain for Chinese and the move is likely to lead to a sharp jump in the number of tourists to the US.

The ministerial-level negotiations in Beijing on Tuesday got off to a testy start, with Wu Yi, a vice-premier, complaining that exaggerated US reports about shoddy and unsafe Chinese products had tarnished China. “The US media hyped about the ­quality of Chinese exports, causing serious damage to China’s national image,” she said.

In spite of its annoyance, China acceded to Washington’s demands to allow US officials to go to factories in China to check whether goods for export meet US quality standards.

The talks in Beijing, part of a regular exchange on trade disputes, will be followed by a two-day meeting of ministers, led by Ms Wu and Hank Paulson, the US Treasury secretary, who will also press the product safety issue...

Mike Leavitt, the US secretary of health and human services, said the agreements on standards for drugs, medical devices, food and animal feed showed the two sides were trying to “bridge” different regulatory systems. But he said Washington would enforce its standards, exacting “higher penalties” on exporters who breached US standards. “The most severe penalty, and the swiftest penalty, is to be eliminated from access to American consumers,” he said.

The talks, initiated by Mr Paulson, are designed to take a more strategic view ­of the relationship, freed of the often tense haggling that characterises trade discussions. Sino-US relations remain bedevilled by numerous issues, most recently the issue of product safety but, more fundamentally, by Washington’s complaints that Beijing uses a range of policies to favour local industries and exporters.

Beware Islamist Plants In Debates

Election '08: Muslim activists are in a full-court press to influence the presidential debates — and war policy. No matter what they say, they don't represent ordinary Muslim citizens.

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What they really represent are the interests of the radical Muslim Brotherhood, which are decidedly anti-American. Groups tied to the Brotherhood are planting questioners at the debates, and CNN and other hosts aren't the wiser.

In the past three presidential debates, Muslims were picked to challenge candidates about homeland-security and war policy as it relates to Muslims. Despite prescreening, the questioners were presented to the public as moderate Muslims concerned about alleged anti-Islamic excesses in the war.

Yet they are associated with two Muslim groups that U.S. prosecutors have linked to the Brotherhood, a worldwide jihadist movement that, according to recent court documents, has secretly plotted to take over America from within. They plan to do that precisely by using our political freedoms against us.

Islamists are stealthily injecting into the political debates their militant agenda, which includes: withdrawing from both and Iraq and Afghanistan, ending airport terrorist profiling, killing the Patriot Act and giving special rights to Muslims.

They're influencing the national security dialogue in a way that drums up sympathy for the enemy while lowering our collective guard in the middle of a war on Islamic terrorists.

The terror-tied Council on American-Islamic Relations managed to plant a questioner in each of the past two debates. We know this because CAIR bragged about its coup on its Web site in both cases.

During the Democrat debate in Des Moines, Iowa, the head of CAIR's Chicago chapter complained that U.S. Muslims face "abuses and prejudices and discriminations on a regular basis."

Ahmed Rehab asked Sen. John Edwards if he would help them fight the "culture of fear-mongering" since 9/11, to which Edwards replied, "We've got to stop this racial profiling that's going on."

For good measure, Edwards also vowed to "close Guantanamo, which I think is a national embarrassment," and end "illegal spying" on terrorist suspects.

Rehab flashed him a thumbs-up sign, and his coterie of Muslim activists broke into applause and cheers.

At last month's GOP debate in St. Petersburg, Fla., a former CAIR intern was selected by host CNN to ply White House hopefuls. Appearing in a video, veiled in a hijab, Yasmin Elhady made a stink about both the U.S. invasion of Iraq and Afghanistan, from where Osama bin Laden safely ordered the attacks on New York and Washington.

"My question has to do with both the current crisis in Iraq, as well as the U.S. efforts in Afghanistan," said Elhady, identified only as "Yasmin from Huntsville, Ala."

"After living abroad personally in the Middle East for a year, I realized just how much damage the Iraq War and perception of invasion has done to the image of America," Elhady added. "What would you do as president to repair the image of America in the eyes of the Muslim world?"

Hey, Yasmin, what would you do to repair the violent, intolerant image of Islam in the eyes of the rest of the world? Oh, that's right, intern with CAIR, which according to the Justice Department is not only a member of the Muslim Brotherhood, but an unindicted co-conspirator in a scheme to funnel $12 million to Hamas suicide bombers and their families.

More than a dozen CAIR officials — including its founder and its current executive director — have been named or prosecuted in terrorism investigations. Several have been convicted of felonies.

The same group that claims to be the moderate voice of Muslims in America still refuses to condemn the terrorist groups Hamas and Hezbollah. CAIR is even suing the Department of Homeland Security to forego complete FBI background checks on thousands of Muslim men from the Middle East and Pakistan who have applied for U.S. citizenship.

A sister organization of CAIR is the Muslim Student Association. A former leader of MSA, who now runs the largest mosque in Nevada, stood up at last month's Democrat debate in Las Vegas.

Again, CNN introduced Khalid Khan as an ordinary Muslim who happened to have a grievance. "I am an American citizen and have been profiled all the time at the airport," he griped. "Since 9/11, hundreds of thousands of Americans have been profiled. And, you know it is like harassment."

But Khan, an immigrant from Pakistan, is no ordinary American citizen. He's president of the Islamic Society of Nevada, formed from the MSA. He also hired a "radical" imam for the mosque, according to terror expert Steve Emerson.

Imam Aslam Abdullah has likened Marines in Iraq to the 9/11 terrorists, and publicly questioned whether videotapes showing Osama bin Laden gloating over the attacks were authentic. According to the Las Vegas Review-Journal, Khan, who frequently travels on business, had his security access badge revoked by local airport officials in 2004.

CNN and these other debate sponsors must do a better job weeding out these Islamist activists. Or perhaps they don't want to exclude them. Perhaps that's why no anti-jihad hawks are picked to ask questions.