China On The Verge Of First Corporate Bond Default Once More

While everyone was focusing on the threat of tumbling debt dominoes in China’s shadow banking sector, a new threat has re-emerged: regular, plain vanilla corporate bankruptcies, in the country with the $12 trillion corporate bond market (these are official numbers – the unofficial, and accurate, one is certainly far higher). And while anywhere else in the world this would be a non-event, in China, where corporate – as well as shadow banking – bankruptcies are taboo, a default would immediately reprice the entire bond market lower and have adverse follow through consequences to all other financial products. This explains is why in the past two months, China was forced to bail out not one but two Trusts with exposure to the coal industry as we reported previously in great detail. However, the Chinese Default Protection Team will have its hands full as soon as Friday, March 7, which is when the interest on a bond issued by Shanghai Chaori Solar Energy Science & Technology a Chinese maker of solar cells, falls due. That payment, as of this moment, will not be made, following an announcement made late on Tuesday that it will not be able to repay the CNY89.8 million interest on a CNY1 billion bond issued on March 7th 2012.

FT reports:

The company has until March 7th to repay the interest, charged at an annual 8.98 per cent, the company said in a statement. “Due to various uncontrollable factors, until now the company has only raised Rmb 4m to pay the interest,” it said in the statement.

 

Trading in the Chaori bond, given a CCC junk rating, was suspended last July because the company suffered two consecutive years of losses. The company had a further RMB1.37bn loss in 2013, according to the results it posted on the exchange.

Just pointing out the obvious here, but how bad must things be for the company to be on the verge of default not due to principal repayment but because two years after issuing a bond, it only has 4% in cash on hand for the intended coupon payment?

Furthermore, as noted previously, China has so far been able to kick the can on its defaults for nearly three decades. Which is why suddenly everyone is focusing on this tiny company: Chaori Solar’s default – if it transpires – would mark the first time a company has defaulted on publicly traded debt in China since the central bank began regulating the market in the late 1990s. Bloomberg adds, citing Liu Dongliang, Shenzhen-based senior analyst at China Merchants Bank, that such a default would be the “first of a string of further defaults in China.”  FT continues:

Though the bond is relatively small, a default could deliver a sharp shock to risk management strategies in China vast corporate debt market, estimated by Standard&Poor’s to be $12tn in size at the end of 2013.

 

Any default could also slow down new issuance. A Thomson Reuters analysis of 945 listed medium and large non-financial firms showed total debt soared by more than 260 per cent, from Rmb1.82tn to Rmb4.74tn, between December 2008 and September 2013.

 

In January, a Chinese fund company avoided a high-profile default, reaching a last-minute agreement to repay investors in a soured $500m high-yield investment trust, in a case that had sent tremors through global markets.

Then again, those who follow China’s bond market will know that Chaori’s failure to pay interest would not really be the true first Chinese corporate default: recall as we reported almost exactly a year ago:

For the first time, a mainland Chinese company has defaulted on its bonds. SunTech Power Holdings has been clinging on by its teeth but after failing to repay $541mm of notes due on March 15th – and following four consecutive quarters of losses through the first quarter of 2012 and since then having failed to report quarterly earnings – owed to Chinese domestic lenders, the firm is restructuring. As Bloomberg reports, Chinese solar companies are struggling after taking on debt to expand supply, leading to a glut that forced down prices and squeezed profits – and most notably were unable to renegotiate its liabilities and obtain “additional flexibility” from creditors. This is highly unusual and perhaps is the beginning of a trend for Chinese firms.

So yes: a prior default, and one by a solar company no less. However, going back down memory lane again, ultimately Suntech had the same fate as all other insolvent corporations in China do – it got a post-facto bailout:

Struggling Chinese solar panel maker Suntech Power Holdings Co Ltd is set for a $150 million local government bailout, a step towards tackling its $2.3 billion debt pile that is at odds with Beijing’s effort to wean the sector off state support. The lifeline comes from the municipal government of Wuxi, an eastern city where Suntech’s Chinese subsidiary is headquartered, and follows Shunfeng Photovoltaic International Ltd’s signing of a preliminary deal to buy its bankrupt Chinese unit.

Curious why China’s local government continues to balloon at an exponential pace, and has doubled in roughly two years to roughly CNY20 trillion (that’s the real number – the official, made up one is CNY17.9 trillion or $3 trillion)? Because just like the Fed and ECB are the ultimate toxic bad banks in the US and Eurozone, respectively, in China all the bad debt ultimately disappears under the comfortable carpet of the broad “local government debt” umbrella. However, things like these must never be discussed in polite public conversation. Which is why despite what Guan Qingyou, an economist with Minsheng Securities said in his Weibo account that the “first default might not be a bad thing even that means more defaults might happen, because it is ultimately good for the market reform”, the reality is that once the dam breaks, it may well be game over for a country that only knows one thing – how to kick the can ever further.

There are additional considerations: As the FT also notes, “given the squeeze on credit supply already seen in January this year, corporate debt defaults could further slow momentum in China’s fixed asset investments.” In other words, the just announced 7.5% GDP target revealed ahead of the National People’s Congress will be impossible to achieve, should China be unable to fund the Capex to build its burgeoning ghost cities, should rates spike.

Which is why this too default will ultimately be made to disappear.

And the next one, and the one after that, because “now” is never the right time to make the right, but difficult decision.

But how much longer can China avoid reality? Not much if one consider this just crossed headline on Bloomberg:

  • CHINA TO SHUT 50,000 COAL FURNACES THIS YEAR, LI SAYS

Recall coal is the industry that China’s near-bankrupt Trusts have most of their exposure to.

And then there are our four favorite charts confirming the dire situation in China’s credit market:

 

 

 

 

 

 

For those who need a refresh course on why the Chinese situation is rapidly going from bad to worse, read these several most recent comprehensive articles on the topic:


    



via Zero Hedge http://ift.tt/1hIoGGg Tyler Durden

China Composite PMI Slumps Into Contraction; 2nd Lowest On Record

This evening’s small rise in HSBC’s Services PMI (from 50.7 to 51.0) was not enough to revive the Composite (Services and Manufacturing) PMI into “growth” territory. At 49.65, this is the 2nd lowest print on record (beaten only by July 2013’s 49.5 print). HSBC’s Services data has consistently been lower than China’s “official” data but this print (almost 4 points below that of the government’s survey) is the biggest divergence in 14 months.

China’s HSBC Composite PMI drops into contraction…

 

As the government’s Services PMI is the most divergent from HSBC’s in 14 months…


    



via Zero Hedge http://ift.tt/1hIoFlZ Tyler Durden

Bitcoin Claims Its First “Real” Victim

[UPDATE: Tech in Asia has updated the article to emphasize that suicide is only suggested and not certain]

The last few weeks have been dismally littered with two things. The virtual losses of virtual wealth from virtual currency speculation and the very real losses of very real humans with very real senior financial services positions. Sadly, as NewsWatch reports, tonight sees the two trends converge as the 28-year-old CEO of Singapore-based Bitcoin exchange First Meta has been found dead. The exact reason that may have led to the suicide is not known, and whether the Police have concluded that the cause of death is suicide is also unofficial.

 

 

Via NewsWatch,

According to Tech in Asia, Singapore-based Bitcoin exchange platform First Meta’s 28 year old CEO Autumn Radtke committed suicide.

 

Reasons are currently unknown.

 

First Meta is a Singaporean start up company that runs a exchange platform for virtual currencies such as Bitcoin. The news of suicide of its CEO Autumn Radtke spread on Facebook and Twitter, drawing attention from the BItcoin industry.

 

The exact reason that may have led to the suicide is not known, and whether the Police have concluded that the cause of death is suicide is also unofficial. First Meta has stated that an official announcement will be given by the company soon.

 

Before joining First Meta, Radtke was the Director of Business Development at Xfire – a company that develops IM systems for gamers. Radtke was also the Co-founder, Business Development at Geodelic Systems, Inc.

 

There have been 9 senior financial services deaths in recent weeks:

1 – William Broeksmit, 58-year-old former senior executive at Deutsche Bank AG, was found dead in his home after an apparent suicide in South Kensington in central London, on January 26th.

 

2- Karl Slym, 51 year old Tata Motors managing director Karl Slym, was found dead on the fourth floor of the Shangri-La hotel in Bangkok on January 27th.

 

3 – Gabriel Magee, a 39-year-old JP Morgan employee, died after falling from the roof of the JP Morgan European headquarters in London on January 27th.

 

4 – Mike Dueker, 50-year-old chief economist of a US investment bank was found dead close to the Tacoma Narrows Bridge in Washington State.

 

5 – Richard Talley, the 57 year old founder of American Title Services in Centennial, Colorado, was found dead earlier this month after apparently shooting himself with a nail gun.

 

6 -Tim Dickenson, a U.K.-based communications director at Swiss Re AG, also died last month, however the circumstances surrounding his death are still unknown.

 

7 – Ryan Henry Crane, a 37 year old executive at JP Morgan died in an alleged suicide just a few weeks ago.  No details have been released about his death aside from this small obituary announcement at the Stamford Daily Voice.

 

8 – Li Junjie, 33-year-old banker in Hong Kong jumped from the JP Morgan HQ in Hong Kong this week.

 

9 – James Stuart Jr., a "very successful banker" and Former National Bank of Commerce CEO found dead (with no details of what caused the death) in Scottsdale, Az.

and numerous Bitcoin-related losses – from today's Flexcoin "bank" losses to the infamous Mt.Gox debacle:

As Wired notes,

 

… But beneath it all, some say, Mt. Gox was a disaster in waiting. Last year, a Tokyo-based software developer sat down in Gox’s first-floor meeting room to talk about working for the company. “I thought it was going to be really awesome,” says the developer, who also spoke on condition of anonymity. Soon, however, there were some serious red flags. …

 

According to a leaked Mt. Gox document that hit the web last week, hackers had been skimming money from the company for years. The company now says that it’s out a total of 850,000 bitcoins, more than $460 million at Friday’s bitcoin exchange rates. When bitcoin enthusiast Jesse Powell heard this, he was reminded of June 2011.

 

read more here


    



via Zero Hedge http://ift.tt/1fYWuP9 Tyler Durden

A Respectful Disagreement With Warren Buffett

Submitted by Simon Black via Sovereign Man blog,

Warren Buffet sees a different America than I do. I would wager he sees a different America than untold millions of people do too.

And with due respect to the kind-hearted Mr. Buffet, who is undoubtedly an accomplished and savvy investor, the man has been a major beneficiary of the greatest monetary fraud ever pulled in the history of the world.

In his most recent annual report just released yesterday, Mr. Buffet lauds the United States of America, writing:

“Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. And the dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.”

Such language is typical for Mr. Buffett, he is one of America’s biggest cheerleaders. Again, with good reason.

For one, the unprecedented monetary expansion over the last decades has created a major boon for Mr. Buffet and his net worth.

His company Berkshire Hathaway has a balance sheet worth $485 billion. 25% of that is simply invested in the stock market with big chunks of Coca Cola and American Express.

These stock prices have boomed in an era of unprecedented money printing, adding billions to Mr. Buffett’s net worth.

Second, it’s important to note that over 75% of Berkshire’s revenue comes from highly regulated, absurdly profitable, tax advantageous businesses that are simply not accessible to the average guy.

For example, Mr. Buffett gleefully writes about the $77 billion ‘float’ from his insurance businesses.

This is money that is collected from insurance customers. And while he might have to pay out insurance claims someday, for now he gets to borrow from that kitty at 0% and generate higher returns elsewhere.

On top of this, Mr. Buffett has been able to defer a full $57 billion in tax, indefinitely kicking the can down the road on his IRS bill thanks to industry-specific tax rules.

Again, you and I couldn’t do this because we don’t have access to these special privileges. Warren Buffett does.

Warren Buffett also has special access to lawmakers in the US who clamor to be in his favor.

During the early days of the financial crisis in 2008, for example, Buffett was getting desperate phone calls from the Treasury begging him to make investments in the financial system.

And as a result, he was able to arrange sweetheart deals, brokered by the US government.

It also may just be a wild coincidence that the US government has rejected the Keystone XL pipeline… and Mr. Buffett’s railways just -happen- to be among the prime beneficiaries.

Yes, I think if we all had the special privilege, access, and benefit that Warren Buffett enjoys, we too would all be jumping for joy about America.

But Uncle Warren lives in a different America– the America of the past.

With due deference to his investment acumen, Mr. Buffett should know that no nation in history has been able to -permanently- stand atop the world’s economic mountain.

Like human beings ourselves, nations also rise, peak, and decline. It is their own life cycle.

And the America that Mr. Buffett doesn’t acknowledge is the one that is in debt past its eyeballs.

  • It is the America that spies on its citizens and threatens people with imprisonment for victimless crimes and administrative transgressions.
  • It is the America that conjures trillions of paper dollars out of thin air in total desperation, sending the labor force participation rate to multi-decade lows.
  • It is the new America that exists for a tiny elite at the expense of everyone else.


    



via Zero Hedge http://ift.tt/1fFEt9X Tyler Durden

These Countries Are At Risk If The West Sanctions Russia, BofA Warns

While most attention has been focused on Nat Gas, BofA notes that Russia is unlikely to unilaterally curtail its oil exports. However, Russian oil does indeed flow in large quantities through the Black Sea, making the Russian Navy station of Sevastopol as well as the whole Crimean peninsula crucial strongholds to control commerce flows. While BofA remains confident that oil-related sanctions are unlikely (as Europe cannot really afford to relapse into a third recession in six years), Brent prices could easily jump $10 on any disruption increasing the risk of recession for a number of weak economies.

 

Via BofA,

As for oil, we see temporary modest upside pressure…

As for oil, the Ukraine consumes about 300 thousand b/d, of which 220 thousand b/d comes from Russia and 80 thousand b/d is produced domestically. Unlike in the case of gas, however, the Ukraine does not have significant shale oil resources and does not pose a competitive threat to Russian dominance.

Moreover, transit volumes of Russian oil circulating through the Ukraine are rather minor, with the latest Transneft figures estimating normal flows of 300 thousand b/d through the Druzhba pipeline. However, Russian oil does indeed flow in large quantities through the Black Sea, making the Russian Navy station of Sevastopol as well as the whole Crimean peninsula crucial strongholds to control both Azov and Black Sea commerce flows.

These routes are, for now, secure and diverse. Thus, while oil has risen in sympathy with other commodities, we believe the upside risks are rather modest from here unless the conflict escalates.

…unless Western powers get involved, which is unlikely

Moreover, we believe Russia is extremely unlikely to disrupt oil exports to the world, as it would destroy its reputation as a reliable and non-cartelized supplier to the world's largest energy market. Also, oil-related sanctions against Russia are unlikely to happen, as we believe Europe cannot really afford to relapse into a third recession in six years. As nothing meaningful in terms of sanctions came on the back of Russia's conflict in South Ossetia and Abkhazia in 2008, it is also unlikely that anything would happen now, in our view.

If the conflict in the Ukraine turned into a full-blown war and the 1 million b/d of Russian oil flowing through the Black Sea are temporarily disrupted, oil may briefly jump by $10/bbl or more.

With EM currencies weakening by the minute, however, a spike in Brent crude oil prices above $125/bbl would likely increase the risks of recession for a number of weak economies. Consequently, we believe prices would probably reverse back down rather quickly.


    



via Zero Hedge http://ift.tt/1fFEr1I Tyler Durden

Tonight on The Independents: Peter Suderman on Obamacare, Jim Epstein on Charter School Closures, Moynihan & McInnes on Ukraine & Weed, Plus the Trump vs. Nugent Game and Sexy After-Show!

Tonight’s live episode of The
Independents
(Fox Business Network 9 pm ET, 6 pm PT;
repeats three hours later) starts again with the latest from
Ukraine, this time with commentary from panelists Michael C. Moynihan of The
Daily Beast
(Reason archive
here
) and filmmaker/TakiMag
weirdo Gavin
McInnes
. Speaking of Ukraine, here’s a spot from last night
featuring Buck Sexton
of The Blaze:

The M&M boys are also slated to comment on President Barack
Obama’s shiny new
$3.9 trillion budget proposal
, Washington, D.C.’s decision
today to
decriminalize marijuana
, and the difference—if there is
any—between Ted Nugent and
Donald
Trump
.

Beloved Reason Senior Editor Peter Suderman
will be on to discuss the latest
anticipated delay in Obamacare
, and the law’s
stubborn unpopularity
among the very people it was intended to
help most. Beloved Reason.tv Producer Jim Epstein will describe
today’s rally against New York Mayor Bill De Blasio’s policy of

shutting down charter schools
. And Reason-comments heartthrob
Kmele Foster will break
down Apple CEO Tim Cook telling investors who do not believe that
humankind is warming the planet to “get
out of this stock
.”

The online-only after-show tonight can theoretically be seen at
this
link
, and is sure to be at least PG-13. As per usual, tweet out
to @IndependentsFBN, use
the hashtag #indFBN, and some of your
snark may be used live.

from Hit & Run http://ift.tt/1doA8FB
via IFTTT

GaveKal Answers “How Low Can The Renminbi Go”

From Chen Long of Evergreen GaveKal

Renminbi Limbo: How Low Can It Go?

As we argued last week, the recent depreciation of the Chinese currency was engineered by the central bank—not as a competitive devaluation, but rather to rout speculators making one-way bets on renminbi appreciation. The People’s Bank of China (PBC) acted after January saw roughly US$73bn in net capital inflows, the biggest deluge of inward flows in 12 months. The question now, after a 1.4%fall in the renminbi in 10 trading days (a bigger fall, admittedly, than we anticipated), is just how far will the PBC go to prove its point? In our view, not much farther, because Beijing recognizes the risk of sparking a broader loss of confidence.

First, a quick reminder of how Chinese currency management works. Since 2005, the PBC has been managing the renminbi (RMB) gradually upward against the US dollar, at an annual rate of about 5% a year through the end of 2011 (except for a hiatus during the global financial crisis), and a slower pace of around 2-3% since 2012. The RMB is allowed to trade 1% below or above a “central parity rate” which the PBC sets daily. From September 2012 until a week ago, the spot RMB rate continuously traded above the parity rate— usually, quite close to the 1% limit. This limit-up trading reflected the view that the RMB was a one-way appreciation bet.

Two weeks ago, the PBC made an unusually large downward adjustment in its parity rate, and this triggered an even steeper selloff in the spot market. The cumulative weakening in PBC’s central parity has been 183 pips (from 6.1053 to 6.126), while the spot market adjustment has been 850 pips (from 6.0645 to 6.1495, a decline of 1.4%). In 10 trading days the RMB has erased all its gains since last May, and the spot rate has started to trade below parity for the first time in almost 18 months (see chart on page two).

How much farther will the RMB fall? At the outer limit, perhaps as low as 6.24, but probably much less. The reasoning is as follows. Right now the spot market is trading 0.4% weaker than the central parity. So without any further move by PBC to weaken the parity, the limit is 6.18. A move below that would require PBC to adjust the parity further downward. The biggest-ever downward adjustment in the parity was 685 pips, in May 2012. If the PBC matches that move (by adjusting the current parity down another 500 pips), the RMB could fall to 6.24.

But we doubt the parity will move anywhere near that far. First, the PBC has already achieved its goal of punishing speculators, as shown by the spot rate trading below parity. Second, more aggressive depreciation risks a backlash from China’s trading partners who will complain about beggar-thy-neighbor tactics. Third, the depreciation drive carries costs. Beijing’s already massive foreign exchange reserves are building up as state banks have been ordered to purchase dollars. This creates unwanted liquidity in the domestic financial market, at a time when PBC wants to keep liquidity from growing too fast.

The final reason is the risk that a controlled depreciation could morph into uncontrolled capital outflows. Most emerging markets have experienced significant outflows since Ben Bernanke’s tapering hint last May, and China has not proven itself immune: it had outflows in the first three quarters of 2012 (between QE2 and 3) and then again briefly last summer. China’s economic fundamentals are weaker now than in 2012. While it is true that Chinese authorities have enough ammunition to prevent a Turkeystyle meltdown (capital controls and US$3.7 trillion in reserves), sustained outflows can make management of domestic liquidity much more difficult (see [China] Who’s Afraid Of Capital Outflows). At the end of the day, the currency moves are about giving the PBC more room to maneuver in the domestic market, and that aim has been largely achieved.


    



via Zero Hedge http://ift.tt/1doxgIY Tyler Durden

“More Bloodletting” As Citi/JPM See Plunge In Trading Volumes

Jefferies, Deutsche Bank, and now Citi and JPMorgan are all facing a collapse in trading volumes as Bloomberg reports the two banks brace for a fourth straight drop in first-quarter trading revenues – a period of the year when the largest investment banks typically earn the most from that business. “It sounds like more bloodletting on Wall Street,” warns one analyst, as Citi expects trading revenue to drop by a “high mid-teens” percentage.

 

Via Bloomberg,

Citigroup finance chief John Gerspach said yesterday his firm expects trading revenue to drop by a “high mid-teens” percentage, less than a week after JPMorgan Chief Executive Officer Jamie Dimon said revenue from equities and fixed income was down about 15 percent.

 

If trading at the nine largest firms slumps that much, it would extend the slide from 2010’s first quarter to 36 percent.

 

“It sounds like more bloodletting on Wall Street,” said Jeff Davis, a managing director for the financial-institutions group at advisory firm Mercer Capital in Nashville, Tennessee.

 

 

Trading results have been hurt by a slowdown in the fixed-income business, which accounts for an average 80 percent of markets revenue at Citigroup, Chief Financial Officer Gerspach, 60, said yesterday at a presentation in Orlando, Florida.

 

 

Lower levels of client activity in a similar business pressured JPMorgan’s results, said Dimon, 57.

 

 

Jefferies Group LLC, the Wall Street firm owned by Leucadia National Corp., said today that trading revenue for the three months ended Feb. 28 was $450 million. That was 11 percent less than what it reported a year earlier.

 

 

In the past four years, those firms have generated an average 37 percent of their annual trading revenue during the first three months.

So who is buying this market up at new highs? Well, if CNBC is to be believed, the retail investor is back… Howard Marks warns:

“When things are rollicking and the market is permitting low-quality issuers to issue debt, that’s when you need a lot of caution,” Marks said in a telephone interview. “You have to apply a lot of discernment.”
 


    



via Zero Hedge http://ift.tt/1eTxCZ8 Tyler Durden

State Department Announces New Stance on Encryption and Surveillance

Today, a
representative from the State Department announced a change in the
federal government’s stance on surveillance and encryption at
RightsCon, a human rights conference in San Francisco.

Deputy Assistant Secretary Scott Busby acknowledged “support for
encryption protocols,” which are “critical for an Internet that
that is truly open to all.” According to Busby, the U.S. government
will gather and use data based on six principles: “rule of law,
legitimate purpose, non-arbitrariness, competent authority,
oversight, and transparency and democratic accountability.”

When questioned on its support, Busby explained that the
principles were approved government-wide, including Office of the
Director of National Intelligence, which is headed by James
Clapper. Clapper has been
criticized
for giving deceptive testimony before congress about
the National Security Agency’s (NSA) practices.

His statements were not without immediate criticism. A
legislator from Hong Kong responded that the U.S. government
actively “undermin[es] exactly the kind of things [Busby] talked
about,” and that his government was “attacked and criticized” by
the U.S. after NSA whistleblower Edward Snowden fled to Hong
Kong.

Nevertheless, a representative from the human rights
organization Access, which hosts RightsCon, explained at a press
conference that the statement from the government is significant,
because it is not only “a strong statement on support for
cybersecurity and encryption,” but an affirmation of “human rights
law which historically they’ve been loath to acknowledge,” and “the
first time they recognize international norms and laws as they
apply when conducting surveillance.”

As Jon Brodkin of ArsTechnica
highlighted
last year, the National Security Agency has
previously worked to actively undermine encryption.

Busby’s statement is essentially an affirmation of a speech and
policy directive made by President Barack Obama in January.
Reason’s J.D. Tuccille at the time
described
Obama’s approach as a “lukewarm embrace… of the
very modest reforms to NSA snooping practices recommended by his
hand-picked Review Group on Intelligence and Communication
Technologies.”

from Hit & Run http://ift.tt/1domt1l
via IFTTT

Bernanke Finally Reveals, In One Word, Why The Financial System Crashed

Now that Ben Bernanke is no longer the head of the Fed, he can finally tell the truth about what caused the financial crash. At least that’s what a packed auditorium of over 1000 people as part of the financial conference staged by National Bank of Abu Dhabi, the UAE’s largest bank, was hoping for earlier today when they paid an unknown amount of money to hear the former chairman talk.

Bernanke confirmed as much when he said he could now speak more freely about the crisis than he could while at the Fed – “I can say whatever I want.”

So what was the reason, according to the man who was easily the most powerful person in the world for nearly a decade?

Ready?

“Overconfidence.”


Yup. That’s it.

The United States became “overconfident”, he said of the period before the September 2008 collapse of U.S. investment bank Lehman Brothers. That triggered a crash from which parts of the world, including the U.S. economy, have not fully recovered.

 

“This is going to sound very obvious but the first thing we learned is that the U.S. is not invulnerable to financial crises,” Bernanke said.

Actually what is going to sound even more obvious, is that subprime was not contained.

But going back to Bernanke’s explanation, brought to us by Reuters, we wonder: did he perhaps get into the reason for the overconfidence? Maybe such as the Fed’s endless hubris in believing it knew what it was doing, when time after time and especially over the past 30 years, the US central bank has shown that all it now does is lead the nation from bubble to bubble, from crisis to crisis, and replaces one asset bubble, first the dot com, then the housing, with another, even bigger one, until we get to the biggest bubble of all time – the stock market as you see it currently, where the S&P 500 soars to all time highs and when news of an ICBM launch can barely cause a dent in a ridiculous upward ramp driven by, you guessed it, overconfidence.

Only this time it’s different, because the Fed really know what it is doing. Or maybe this time is no different than any other market mania unwinding before our eyes, with the careful nurturing of the the Fed and its chairmanwoman, be it Greenspan, Bernanke or Yellen.

But has Bernanke at least learned something? After all he is supposedly a very smart man from Princeton? Why yes:

He also said he found it hard to find the right way to communicate with investors when every word was closely scrutinised. “That was actually very hard for me to get adjusted to that situation where your words have such effect. I came from the academic background and I was used to making hypothetical examples and … I learned I can’t do that because the markets do not understand hypotheticals.

 

He concluded that he should “try to simplify the message, but not simplify too much”.

Oh you mean something like this, uttered literally moments ago:

  • LACKER SAYS UNEMPLOYMENT THRESHOLD CLOSE TO OBSOLETE

Thank you Fed for admitting the whole premise behind the injection of over $1 trillion in the capital markets, the Fed’s “target” of 6.5% unemployment, was really a bizarro bullshit joke perpetrated on the common man, when in reality the threshold was 1900 on the S&P. Or 2000. Or 3000. Or pick some arbitrary nominal number, where people confuse paper assets inflation with real wealth.

But don’t worry, it’s the “overconfidence” that did us in…

And then, on to regrets – because Bernanke has a few:

We could have done some things on the margin to mitigate somewhat the crisis.”

 

“Although we have been very aggressive, I think on the monetary policy front we could have been even more aggressive.”

You heard that, the $4.1 trillion balance sheet is nowhere near enough. The Fed could have blown up the final bubble even more! Because that’s what you are taught on Clown Keynesian school.

But wait, because the punchline beckons:

My natural inclinations, even if it weren’t for the legal mandate, would be to try to help the average person,” Bernanke said today in his first public remarks since leaving the Fed in January, referring to the central bank’s mandate from Congress to ensure full employment and stable prices. “The complexity though arises because in order to help the average person, you have to do things — very distasteful things — like try to prevent some large financial companies from collapsing.”

 

“The result was there are still many people after the crisis who still feel that it was unfair that some companies got helped and small banks and small business and average families didn’t get direct help,” Bernanke said. “It’s a hard perception to break.”

So there it is: the system crashed because we were “overconfident” – nothing to do with system merely having gorged on the reactionary excess to the popping of the dot com bubble – but Bernanke is 100% certain he could have done more to help the average person, because the Fed’s balance sheet trickle down eventually works. And let’s not forget the “overconfidence” about containing inflation in 15 minutes or less. That one will be hilarious to watch unwind.

* * *

So how much does such profound brilliance cost?

Bernanke received at least $250,000 for his appearance.

Or, in other words, more than he was paid for one full year as Fed chairman.

And that, ladies and gentlemen, is a wrap.


    



via Zero Hedge http://ift.tt/1i5QWB1 Tyler Durden