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Otherwise, when the FED was willing to lend at meager 1.5%, why should the GS and GE pay up
10% to Mr. Buffet? Within hours of receiving $ 3 billions from Mr. Buffet, GE rushed to the
commercial paper market to raise further money for the payment of wages and salaries, and was glad
to see the FED chief Mr. Bernanke dressed up in Santa Clause, disbursing billions more at just 2%
(cut to 1.5% on following day). In short, $ 3 billions of Mr. Warren Buffet appear to have “gone with
the wind “within hours.
What Mr. Warren Buffer announced was misunderstood and misinterpreted by almost everyone on
Wall Street, Main Street, Capitol Hill, Fed, and entire community of journalists, analysts,
commentators and interviewers. He meant, but did not say it, that the real market rates were
extremely high, regardless of billions of dollars being printed in the backyard of Federal Reserve for
free distribution later, and that no one was willing to lend unless he was rewarded with the return
associated with the risk. (RRR)
Why lenders look for higher return when the risk increases?
Short Term Interest If the lender lends today $100 for just 3% (when the FED rates is only
Rates may spike to 1.5%), and that loan goes bad, he has to lend it 33 times (100/3) more just
to recover the old loan, and that too, provided no new loans going bad.
24%
It did happen in mid 80s’
If he had lent at say 24%, and if the loan goes bad, he has to lend only 4
times more to recover his old loans, presuming again all new loans remain
good. This is why the local governments have to raise the funds at 20% or
more in some cases. That is, there are lenders apart from Mr. Buffett.
When the risk profile of large banks have increased to the extent of bankruptcy running into hundreds
of billions of dollars, the money market does become very tight, and the lenders withdraw into
shelters when the market rates continue to be managed low by FED. The action of the FED to pump
the markets with over $900 billions a day before and cutting the rate by 0.5% does not help. The
money goes to bankrupt banks that merely set off the new funds against old losses. They do not lend
more.
Mere injection of liquidity is not enough. The FED has to make it conditional, that if $50 billions are
given to say, Citi group, it should deploy funds only for granting new loans or buying the new
Commercial papers issued by various corporate business with suitable sub limit so that the money is
distributed widely. Supposing, the sub limit is set to $ 500,000 for small businesses to $2 billions for
large businesses like General Motors, they can carry on business by paying their employees the
wages and salaries.
Float a New Bank or use smaller Regional Banks and fund them with $ 200 billions
Bush Administration may extend new loans through new bank or existing smaller banks to small
businesses, large corporate entities, and consumers, subject to real tangible security with first lien.
Limit the loans up to 25% of their annual sales, so that money rolls over every 3 months at least.
The banks that are almost bankrupt may be asked to transfer deposit and loan accounts (including
primary mortgaged loans with first lien (not the secondary derivative papers) to new banks, so that
normal business continues.
Old banks with billions of dollars of bad loans without security may be merged with each other so that
cross obligations are set off against each other. If after this adjustment, they are still unviable, let
them die the natural death or hold the talks with debtors to accept only 20% of the outstanding debts
repayable in next 5 years. Thus, the liability of the large banks will be reduced to 20% and liquidated
@ 4% over next 5 years.
The insurance companies receive free premium income from the insured. They found difficult to
invest in higher yield long term treasury or local government bonds or well rated corporate bonds.
Mr. Greenspan has effectively killed the market of long term treasury bonds (10 to 30 years) by
artificially lowering interest rates or even cancelling 30 years bonds altogether for 4 years (2003
onwards) so that interest servicing cost for the treasury remain artificially low on its massive public
debt.
When the insurance company found no alternative long term high yielding safe treasury investment
they started looking for exotic derivatives that used to give them higher yields, without realizing what
they were getting into. The companies like AIG finally started buying highly risk derivatives like CDO,
(Collateralized Debt Obligations) CDS (Credit Default Swaps) and CLN (Credit Linked Notes) without
realizing the financial risk and legal evaluation of the securities to backed.
If the insurance companies had option to invest into say, 6% 10 year bonds or 8% in 30 year bonds,
they would not have invested into derivative papers with fake back up securities.
The Money has been printed so much that the toy homes can be built by the American
children with real US dollars. If Paulson and Bernanke prints $1 trillions now, they
will have to print 100 Billion $10 Currency Notes with the logo of ex-Presidents. If
they are spread on the 8 lane high way in United States, it will cover 22,600 Miles
The economists like Greenspan and treasury secretaries like Rupert Rubin or Henry Paulson (from
Goldman Sachs) made the money worthless the moment they were issued or created. Their money
did not have material cost 1% to 2% for most of the times. Their theory was that low interest will boost
the stock market that will increase GDP, which will increase the value of their stocks held in Goldman
Sachs. This was a myth.
Copyright © Kalidas 2008
from the Mind of Kalidas Defrausting Liquidity Freeze Page 4 of 7
Reasonable high Long term rates do encourage savings and increase GDP in real terms
Example,
In country like India, the growth is robust because long term interest rates for Provident fund etc are
over 10%. This encourages savings from where the people spend without seeing their savings
depleted. The PF amount is invested into long term high yielding Government bonds that assures
steady decent income.
Look at the signs at large stores selling Car to furniture. No interest for 6 months, no payment for 12
months….etc. This is what happens when the money is free and does not have cost. The people just
become spendthrifts and go bankrupt. If they find difficult to pay – file for bankruptcy – that’s all. It is
more like “Payable when able”
Goddamn idiot. Food and energy constitute over 40% of household budget. Every family has at least
2 or 3 children, one of two college going young adults, 2 to 4 cars depending on the number of adult
members in the family. How could you exclude the cost of Energy and Food from inflation and adjust
your interest rate policy.
When I left stock broking field, the CRB index was 191 – it rose to over 430 recently, that is gain of
240 pts in less than 7 years. This index covers over 17 elements of daily use – from Orange juice to
Oil to dairy products and commodities of daily use. In other words, the inflation rose by 31% per year
(240 divide by 7). The United States was having “negative interest rates” by at least 25% for over 7
years in a row.
Those rates are now catching up and there is nothing the government can do. The creative
management of inflationary numbers (called manipulations in layman’s terms) can not last for ever.
You have to pay for it. The pay time has finally come in October 2008.
The interest rates in United States have to rise to 24% minimum to weed out all excesses in the
system that was built under the lousy regime of Alan Greenspan. May be high interest rates may
Copyright © Kalidas 2008
from the Mind of Kalidas Defrausting Liquidity Freeze Page 5 of 7
remain for only 6 months, but that will force everyone to start respecting their own dollar.. The lesson
that United States will learn is that “Money is not Free” and do not take it for a free ride.
7. Personal Tax Cut may be extended by reducing the initial tax slabs
substantially.
The initial tax slab be drastically reduced so as to benefit the low wage and middle
income wage earners.
a. While Interest rate may have some negative effect on the market (in fact it will
have none, because slightly more interest rate is more desirable than
wholesale collapse of financial system),
b. the lowering of Corporate Tax and Personal Tax will have significant positive
effect on the entire range of capital markets throughout the United States.
My Letter to the President Bush was ignored and they blew up over $ 3.5 trillions in
15 days
In my book, I have designed full range of tables of Income Tax for the corporate sector
and also Individuals. The plan is so comprehensive that it will be liked by Individuals and
corporate alike. Not only that, I have given most valuable suggestions to increase the
revenue from other sources, so what is lost in taxation, is more than compensated from
the other revenue stream.
I only regret that the no one in the White House paid any attention to my 4 page letter
which contained the summary of 18 chapters of blue print for the recovery of United
States of Americal. I had also warned that if the immediate actions were not taken, worse
consequences would follow. That was my letter recceived by White House on 25 Aug
2008 and the situation started worsening 15 days later. And you know what happened
from second week of September. I had also sent a copy of that letter to the Consul
General of Hong Kong for his information and also for proper identifcation purpose.
By not paying any attention to such important letter, at a time when the solution
was eluding the nation, the Bush Administration blew up over $ 2.5 trillions in loss
of market capitalization and also over $1 trillions in so called "bail out" plans.
I would release the letter shortly on this blog site within a few days.
Who is Kalidas?
Hi, everybody. Kalidas is the screen name of Anil Selarka from Hong Kong, one of the most vibrant city in
the world, be it as an entertainer; business, money or free wheeling
center or an ambassador of China, call it what you like. Hong Kong is a
Rainbow of all cities – colorful, musical or soulful. Make it a point to visit
this city.
Kalidas has also invented a special theory on numbers, known as Mystical Numbers, that apply incredibly to
every market with great accuracy – be they stocks, bonds, currencies, commodities, properties, retail stores,
fish and vegetable markets, and in every form of business or personal life. The ordinary people are unable to
follow chart or its technical jargons like MACD, Head & shoulders, Moving Averages, Support, resistance etc.
However, they can understand simple numbers any where, every where. This is where Kalidas excels. He is
currently writing a book on this subject that may be published in April 2009.
If you happen to read Kalidas book or his blog, please send your comments to kalidasji@gmail.com . He will
endeavor to improve quality of his work day by day with your valuable feedback. –Kalidas’ blog link is
http://anilselarka.wordpress.com/