It is a cruel thought that, when we feel ourselves standing on the firmest ground in every respect, the cursed arts of our secret enemies, combining with other causes, should effect, by depreciating our money, what the open arms of a powerful enemy could not.
–Thomas Jefferson

Nouriel Roubini Saturday:

Many in the gold family have their shorts in a knot concerning an article quoting Professor Roubini that unless we get extreme inflation or extreme deflation those like myself who say gold is going to $1224, $1650 and on to Alf’s numbers are wrong.

Professor Roubini admits that he has never favored gold which means he did not nor would he have owned it at any price.

Professor Roubini did not mention gold’s role as a currency nor its relationship to the US dollar.

Professor Roubini’s interview did not address the fact that extreme currency inflation has occurred in monetary history while debt was failing. That is the definition of hyperinflation, a currency event that will drive the gold price much higher than even I anticipate.

Jim Sinclair’s Commentary

New regulations concerning OTC derivatives did a lot, but did nothing to prevent a Lehman repeat.

The following excellent article is educational concerning present time conditions within our walking wounded zombie financial system that is still pumping out OTC derivatives at warp speed.

Snowball of Derivatives: The Specter of a Second Black Swan
Ricardo Lago | Oct 21, 2009

Banking sector consolidation  (via acquisition of failed banks) and the generalized bailout of bondholders, actions both promoted by governments, have aggravated the problems of “too big to fail” and  “moral hazard”. Hence incentives for reckless behavior have actually heightened.

So far there has been lots of talk within the G-20 and other forums but little action to tackle the problem at national and especially at transnational levels. As Nouriel Roubini and others have pointed out, one could argue that systemic risks have in fact increased relative to the pre-crisis period. A follow-up financial meltdown would be devastating.  Governments should not only hope for the best but act swiftly to forestall the worst .The arrival of a Taleb’s second black swan on stage would mean complete chaos.

Governments should urgently agree on binding disclosure, oversight and enforcement of tighter rules on derivatives at the national and supra-national level. If only for the simple reason that now their fiscal and monetary leeway for future financial rescues is much diminished. After the first round of bail outs, debt to GDP levels of developed countries already exceed 100% of GDP and nobody really knows what the ratios would be if all guarantees and unfunded liabilities were to be brought above the line.

Derivatives were the invisible 800-pound gorilla in the room. After accounting for them  – even abstracting from counterparty risks – leverage ratios were a multiple of those reported in the books .It was the failure of Lehman Bros that drew the attention to the ultimate implications of this huge snowball rolling down the hill .In the eve of the bankruptcy of Lehman, the International Swap and Derivatives Association (ISDA)[1][2], had to improvise an unprecedented trading session on Sunday, September 14th 2008 to enable market participants to carry out trades and offsets of derivatives; further, the effectiveness of the transactions was contingent on Lehman filing for bankruptcy by midnight.

This was the first large-scale real life   “Walrasian auctioneer” – a fictional textbook Deus ex Machina who does not allow actual trades to take place until all contracts of market players are mutually consistent. And it was precisely this exercise of contingent trading that shed light on the magnitude of AIG financial troubles. The largest supermarket of default insurance was carrying in its books Credit Default Swaps marked at up to twice the values used by Lehman. All the ingredients for the perfect storm were in place. In order to forestall collapse, AIG’s creditors  (including not only all major banks but also life insurance and retirement policy holders) had to be bailed out under the disguise of a de facto nationalization of AIG.

More…

President Obama declares H1N1 flu a national emergency
By Michael D. Shear and Rob Stein
Saturday, October 24, 2009; 12:58 PM

President Obama Saturday declared the H1N1 flu a national emergency, clearing the way for legal waivers to allow hospitals and doctors offices to better handle a surge of new patients.

The proclamation will grant Secretary of Health and Human Services Kathleen Sebelius the power to authorize the waivers as individual medical facilities request them, officials said.

It says that Obama does "hereby find and proclaim that, given that the rapid increase in illness across the Nation may overburden health care resources and that the temporary waiver of certain standard Federal requirements may be warranted in order to enable U.S. health care facilities to implement emergency operations plans, the 2009 H1N1 influenza pandemic in the United States constitutes a national emergency."

White House officials downplayed the dramatic-sounding language, saying the president’s action was not prompted by a new assessment of the dangers posed to the public by the flu.

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Jim Sinclair’s Commentary

The OTC derivative market is alive. The following excerpt says it all:

"Open, competitive markets mean lower prices. Rigged markets—what we have now—means someone makes out like a bandit. That someone continues to be Wall Street, which came very close to blowing itself and the rest of us up late last year and is now settling back into its old comfy profit margins. And that, at least, should be fairly easy to understand."

Too Hard to Understand
‘Too Big to Fail’ is one problem. But Barney Frank’s loophole-filled derivatives bill has created another.
Oct 16, 2009
Michael Hirsh

Of all the startling revelations to come out of the financial crash, perhaps the most astonishing was this: no CEO of a major Wall Street firm seemed to understand what his own traders were doing with derivatives. As we know, just about every Wall Street firm and bank had a derivatives time bomb ticking in an off-balance-sheet closet at the heart of the building. When these bombs all blew up one after another—credit default swaps! Liquidity puts! CDOs squared!—the top executives in their corner offices were as surprised as anyone.

Wall Street can’t govern itself. We know that now. So you might think that the authorities in Washington would tell the Wall Street lobby where to stick it and insist on a lot more clarity when it comes to trading in derivatives, which until now has been almost entirely unencumbered by government. That appeared to be what the Obama administration was asking for last June when it demanded that all standardized over-the-counter derivatives be traded on an open and supervised exchange, with the Securities and Exchange Commission and the Commodity Futures Trading Commission as the sole judges of what is standardized. That way authorities would know most of what was being traded and could make sure the major players weren’t getting in over their heads. But thanks to weeks of intense pressure from Wall Street banks and their customers in corporate America, the bill that was approved on Thursday by Rep. Barney Frank’s Financial Services Committee is riddled with exceptions and loopholes, many critics say. If it becomes law, Wall Street’s finest could be driving truckloads of new derivatives products through those loopholes for years to come.

Frank disputes that. "This isn’t finished yet, so it’s irresponsible to talk about loopholes," says his spokesman, Steve Adamske, who notes that the House Agriculture Committee will soon address some of these concerns with its own bill. But Frank is considered the key player, and it is significant that among the toughest critics of his committee’s bill is Gary Gensler, the chairman of the Commodity Futures Trading Commission. Gensler was a pro-deregulation guy in the ’90s who has gotten some serious religion this time around, and he’s turned out to be a far more aggressive advocate of derivatives regulation than even the Obama administration. Gensler pushed Frank’s committee to drop some exemptions that would have allowed pretty much anybody to avoid trading on exchanges if they could claim vaguely that they were hedging risk. "Gensler was very helpful," says Adamske.

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