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“How I can be wrong and still be right” by Matthias Chang

November 5, 2007

 

Former political secretary and advisor to Tun Dr Mahathir, Matthias Chang has been writing on world financial issues on a continuous basis. According to him, these fallouts will one day ripple-reach our shores to bite Malaysians in a big, bad way.

 

His predictions may have been slightly off the mark but his underlying message does make frightening sense of the impending global financial collapse.

 

Whether one agrees or disagrees with him, one has to take one’s hat off to the man for his conviction and stamina despite the constant diatribes that come flying fast and furious every time his article appears.

 

Matthias had been called numerous unsavory names – a fraud and doomsayer, no less – and i would reluctantly name him the blog contributor that commenters love to hate.

Love him or hate him, i personally think his latest contribution here, whose title i have borrowed for this blog, may finally see Matthias having his way back at his harsh critics. See if you’d agree … the article still makes an interesting read nevertheless.

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Heck, ill reproduce here verbatim (emphasis mine) the article by Matthias Chang since it is hands-down chilling and spellbinding …

– start –

How I can be wrong and still be right

WHY WALL STREET IS SO SCARED NOW, MORE THAN EVER AND WILL GO FOR BROKE IN THE COMING MONTHS

This was what I wrote on the 28th October 2007:

“Bernanke to the rescue again. Rates will drop by at least 25 basis points to stimulate another Dow Rally. Dow will rise beyond 14,000 for a week or so followed by a massive collapse.”

A critic jumped at the fact that Dow did not surpass the 14,000 points, after the Fed reduced rates on 31.10.2007 and screamed, “Matthias, you are wrong. You’re Bullshit!”

This particular critic (I have a feeling he is one of those bloggers that never cease to abuse me with profanities, always avoiding rational arguments whenever my article appears in the internet) can never see the big picture. He is what I called a real asshole, a man in perpetual state of denial.

A Blessing In Disguise

Hence, my title to this article: “How I Can Be Wrong And Still Be Right.”

I was wrong on account of Dow shooting past the 14,000 points after the Fed reduced both the Discount Rate and the Fund Rate by 25 basis points on 31.10.2007. In fact the Dow rallied to 13,930.01, just 70 points shy of the magical 14,000. So there was a rally but it ran out of steam sooner than I thought. I surmised that Wall Street and the Plunge Protection Team would keep the momentum going for at least a week. They were pumping additional billions into the system. But it did not work. They ran out of gas!

The next day, 1.11.2007, the Dow plunged 362.14 points, bringing the Dow back to reality at 13,567.87.

We should in fact be happy that people have not bought into this con game perpetrated by the Fed and Wall Street, tried as hard as they could. This is a most significant event as we enter the final 4th quarter of 2007. The first quarter of 2008 will be a nightmare!

This means that the “blood transfusion” (i.e. pumping money into the system by the financial doctors – the central banks) is not working. Up to 30th October 2007, the Fed and European central banks have pumped an estimated US$1 trillion into the system and yet the banks and other financial institutions are still bleeding. The blood bank may be soon running dry.

There is but one conclusion to the recent rescue efforts to shore up the global stock markets – a stock market rally grounded on a reduction of interest rates by the Fed cannot and will not be an effective tool to address the underlying financial mess that has gripped the world’s financial markets. The reduction of interest rates will also not resolve the banking crisis triggered by the collapse of the CDOs and the commercial paper markets.

More Con Games Exposed

As stated in my previous Alert, Merrill Lynch has written off US$8 billion for the third quarter of 2007. It is now expected to write off a further US$4 billion in the next quarter. Its CEO, Stan O’Neal has been sacked!

Citigroup, the global banking giant and the biggest bank in the US, has announced that its CEO, Mr. Prince would resign from the bank after an emergency meeting in the wake of a $5.9 billion write-down and sharp drop in profits. The fourth quarter for the bank will also be gloomy.

How big will the write offs be in the 4th quarter for Citigroup? And who will be next to fall, Goldman Sachs? JP Morgan Chase?

The Economist observed the unfolding of the above events and commented:

“The most striking (and overlooked) aspect of this was that it involved mostly securities that only a few months ago had been considered platinum-plated: collateralised debt obligations (CDOs), or tranched pools of mortgage-backed securities, that were not only rated triple-A, the highest level, but had also received extra credit enhancement, making them “super senior”. Until recently it was assumed that such well-protected paper could not lose its value. No longer. Worryingly, hundreds of banks, insurers and hedge funds around the world hold such securities. Fooled by false alchemy, they face a trouble reckoning.”

The Economist also warned that those insurance companies that insured corporate bonds and structured products such as MBIA will be the next to fall. MBIA the largest of these has just reported its first ever quarterly loss after it had downgraded the value of its own mortgage holdings and setting aside money to pay clients who had wisely taken out cover on these toxic CDOs. If such insurers are to set aside massive amounts of monies to pay their clients, they will lose their triple-A ratings, and these will in turn affect the ratings of the securities which they have guaranteed – as securities cannot have a rating higher that the company insuring them. When these insurers collapse, the guarantees would be worthless, and investors who purchased such “covers” will be stark naked, holding on the toilet papers. They gambled and lost. Period.

Paulson’s Scam – “Master Liquidity Enhancement Conduit”

You will recall that I had mentioned that the crook Paulson in collusion of some leading US banks have set up a US$100 billion fund – called the “Super-SIV” to buy securities from failing Structured Investment Vehicles (SIVs) which are off-balance sheet entities (many of which are owned by banks) that are stuck with “marked to model” securities.

Some of these securities have been estimated to be worth only between 20-50% of their par value i.e. 20 – 50 cents to a dollar. So if they are unloaded at their true market value, there will be a huge write off. So Paulson and his accomplices came up with their so called bright idea. If the “Super SIV” with a fund of US$100 billion “purchased” these securities, say at 90% of par value (90 cents to a dollar), then maybe the market will accept this “market price”. Pure magic – a worthless paper is now worth 90 cents to a dollar because Paulson has decided to buy such papers from his accomplices at the pre-determined rigged price!

The fact that they are not willing to purchase at the full par value (dollar for dollar) have exposed their modus operandi. Therefore, these scum bags have absolutely no faith in their own securities, yet by this scam, they hope to seduce some unwary investors from the third world to buy into these worthless securities, now priced artificially at 90 cents to the dollar or whatever price they deemed fit.

Paulson is really insulting the intelligence of the investors. How can he possibly get away with an artificial “market price” created between his gang of looters and the failing SIVs (accomplices) and then tell the investors that these securities are no longer “marked to model” but are now “marked to market” albeit a false market. What a scam.

To lend credence to this scam, the Fed has given its full support to this con. In a statement of 2nd November 2007, the Fed has even given a special exemption. I quote:

“The credit conversion factor that would apply to the notional amount of the MLEC (Master Liquidity Enhancement Conduit) would have a capital treatment that is ten times more favourable than if the assets were placed on the bank’s balance sheet.”

In simple language, what this means is that banks that are part of this scam (MLEC fund) and purchase risky mortgaged related assets from failing SIVs will need only one tenth of the capital they would need if they were to take their assets on to their own balance sheet. The Fed by this exemption is but of this scam. Paulson, Bernanke and the CEOs of the leading banks participating in this scam must be indicted and hang out to dry for fraud, money laundering and racketing and whatever other offences that can be slapped on them.

This is a global scam to try to pass off toilet papers as having some residual value, such value being established by the purchase price (previously rigged by Paulson and his co-conspirators) as being reflective of their market value. Why are they so desperate and blatant?

Just pause and think about the problem.

Hundreds of banks and institutions around the world were conned by the scum bags to invest in CDOs, ABCPs etc. allegedly worth a global value of US$20 trillion (marked to model, and triple-A rated and as explained by the Economist). Some analysts have given a higher figure in – in hundreds of US$ trillions. Whatever is the figure, your average Joe six-packs will not be able to visualize or fathom the meaning of all these zeros! It is obscene that when half a billion people are surviving on less than US$2 a day, the looters are gambling and plundering in the US$ trillions.

When Bear Stearns’ two Hedge Funds collapsed after these “securities” were shown to be worthless in June/July 2007, those banks and financial institutions that were left holding papers (supposedly worth in the US$ trillions) whose values are now debatable or of zero value, had a massive heart attack! These banks are all in the financial ICUs and receiving massive amount of blood transfusions.

If these banks were to right off these “investments” they would be insolvent, there will be runs on these banks. This is the nightmare scenario and that is why the scum bags are trying to cover up this global fraud – the biggest fraud in history.

We are talking about banks such as JP Morgan Chase, Goldman Sachs, Citi Group, Merrill Lynch, Lehman Bros, Wachovia, etc. Then there are the big European Banks, such as Barclays, UBS, Deustche, HSBC, etc.

Yet, back home in Malaysia, our Bank Negara Governor is still saying Malaysia will not be affected by this global financial meltdown and that inflation is under control and other nonsensical statements.

Crude is reaching US$100 and other commodities and metals have risen in tandem, with Gold having hit the US$800 mark, the last time it happened was in 1980. The dollar has plunged to all time lows. Our dollar reserves’ purchasing power must likewise be reduced by the equivalent in the depreciation of the dollar. But we are told, we need not worry and that we will be able to weather the coming storm.

To my critics, let me say this. Thank God that Dow did not shoot past 14,000 after the Fed rate reduction as that would have lulled people further into believing that the worst is over. I hope that after having lived through the Fed’s September rate reduction and its failure to stimulate an artificial rally, and now in October, having experienced the Fed’s second attempt to get us back into the Ponzi scheme, you will be wiser and be able to take stock of the rapid unfolding of events and start to make preparations (if you have not already done so) to survive the inevitable wipe out.

I have been spot on since 2006, way ahead of the crowd and unlike others writing with hindsight (some wiser after the event), I have been giving you analysis always one step ahead of the unfolding events. I have been exposing their lies and deceit.

If they can lie so readily about the economy and do not give two hoots about our economic survival, do you really think they will ever be truthful about their war agendas?

Paulson, Bernanke and the bankers are no different from Bush, Cheney and the neocons. They are the two sides of the same coin. The former are masterminds of the economic wars, while the latter are the masterminds of the hot wars. This is a global war and it engulfs every segment of our society. No one will be spared.

Matthias Chang

– end –

 

From → Malaysia Upclose

7 Comments
  1. I’m with you, ewoon.. MC sure has an interesting take on global financial markets. And I admit, the guy has often been close to being right. Assuming that the financial tsunami will hit our shores, the question is, what are we going to do about it? If he can envisage such a disaster, surely he can provide a solution too? He claims “no one will be spared”. I’m sure there’s a lot of people who will ride this out. I agree that the financial markets seems headed for a shake-up and there will be a major correction, but at most, the repercussions will be like ’97 across Asia, or the failed S & L’s disaster in US of the 80’s. Not a total wipe-out, as I’m sure new behemoths like China and trillion savings’ Japs won’t be standing idly by…

    – Bro, i am numbed to the bones of what may be in store for us all. God help us.

  2. I am impressed with Matthias’ prediction. The economic signs aren’t good. Would a crisis erupt soon?

    – Maverick, you and i know it’s only a matter of days, weeks or months. The time bomb is fast ticking away.

  3. Hahahaha! Ewoon, you hadda reproduce MC’s article in full here, just in case RPK’s newsportal gets hacked again and nobody here could get through with your link.

    With the forthcoming November 10th assembly organised by Bersih, I guess blogs getting ‘blackouted’ will increase. Either that or the more insidious, certain people getting picked up and having a real ‘up close and personal’ experience in a cold jail cell. Woooo..scary.

    Just like MC’s doomsday prediction for the financial markets. Look at it on the bright side, everything will be ‘cheaper’ coz nobody got the money to buy anything. And why ah? MC did not offer practical solutions for the Malaysian public, at least.

    Hmmm..better start durian planting soon.

    – You’re right about MT getting hacked … hey bro, durian trees take 7 years to bear fruits – how about papaya farms?

  4. wengerkhairy permalink

    Matthias has yet to compute a potential default on Gurantees by Fannie and Freedie. Consider that they gurrantee more than US 7 trillion worth of loans with about US 80 billion worth of capital. The Gurantee is for timely payment of interest and principal, so if those loans default, F&F still has to pay the holders of their agency paper.

    What Citi and friends have now on their b-sheet is Private Label Issuances, backed by *superb, well solvent, never-going-to-and-never-will-be-bankrupt* bond insurers as well as overcollateralization structures. Lets look at the Bond Insurers, namely MBIA, AMBAC and the like. These companies can’t earn a dime now, in fact, their revenues were down 99% for the last quarter, i.e. they are “bangkai mati hidup”. The 2nd, or the O/C, no not the chick laden movie but Over Collateralization or the 6 pack Senior Subordinate Structure may not be all that useful because consider this –

    “If I pool all my loans from a particular neighbourhood e.g. Brickfields, and suddenly 1 by 1 some loans start to go into default. Does this not increase the likely hood of default on the other loans as the NPL’s depress the value of the collateral I.E. The risk of default is NOT INDEPEDENT.”

    Most are OCed or 6 packed with a 6% of Subordinates. 6% of lossess, ha ha ho ho he he , I think you don’t need C4 explosives to blow this up

    “Berkhidmat Untuk KJ”

  5. PIPe PIPer permalink

    Matthias is right…

  6. mynalee johnstone permalink

    I would like to hear some future scenarios, for those who are just regular workers with no investments.

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