Wednesday, February 27, 2008

Debt Rattle, February 27 2008

NOTE: Blogger and Blog*Spot will be unavailable Wednesday (2/27) at 6:00PM PST (9:00PM EST ) for about 10 minutes for maintenance.

Ilargi: I don't really want to keep hammering on this one, but I think I have no choice in the face of this insanity. We have posted a flood of articles on the AAA-for-monolines theme (a sort of Gamblers Anonymous for billionaires, in case you're new to this), and here's one more, from Bill Kass, not the least of voices. What can we do but keep hammering till the lies roll over and suffocate?

Look, the guys who caused this mess we're in, and have profited immensely from it, are still calling the shots. In Vegas, they would have been thrown out and jailed. Vegas still has laws and standards. The ever tighter ties that bind billions and billionaires to campaign donations have, in this case, so far kept the status quo in place.

The problem is, the gamblers are out of money, flat out, broke and then some, and they are now trying to keep on gambling with YOUR money. It is that simple, nothing complicated about it. Whether it's government funds covered by your taxes, or the bank deposits that you think sit safely in your accounts, they'll try and get their hands on it, and they are really really good at that.

For anyone who's ever had an alcoholic, a crack or heroin addict or a compulsive gambler in their circle of friends and family, this should sound eerily familiar. The people running the financial system, and that includes the politicians who depend for election on the donations that fall like scraps from the high-stakes crap table, are exactly like these compulsively addicted friends, brothers and sisters that break families apart, only on a much bigger scale. These guys will break not just families, but entire societies. They are what we call dysfunctional people.

And your role so far is that of the mother who keeps on giving another hundred bucks, telling everyone who wants to listen that her son is a sweet kid. While he walks out the back door with the TV and her life savings. Mom had better put her savings someplace where that sweet kid can't touch it, or mom will be dirt poor. Most mothers don't wake up to reality till everything's gone.

MBIA Gets Top Rating - Should I Laugh or Cry?

Recently, I was struck by the insincere AAA rating given by Moody's and Standard & Poor's to MBIA and the equally disingenuous commentary of MBIA's new CEO, Jay "Our Ratings Are Stable" Brown. For their part, the ratings agencies should be tarred, feathered and litigated against after maintaining their AAAs.

There was also little reality in what Jay Brown said in his CNBC interview with Michelle Caruso-Cabrera on Tuesday afternoon, but investors and the media (with the exception of CNBC's Charlie Gasparino) seem content to accept his views as gospel despite the fact that Mr. Brown had previously guided MBIA into its derivative insurance disaster years ago.

Importantly, AAA long-term debt ratings are intended to be reserved for only gilt-edged companies. (For a full explanation, click here.) AAA is the highest rating extant given to investment grade companies, so giving MBIA a AAA rating underscores the hoax being perpetrated by the ratings agencies. Some might call it conspiratorial.

Remember that, in only the last few days, MBIA has posted a $1.9 billion loss in its latest fiscal year, has eliminated its dividend, has temporarily stopped writing guarantees on asset-backed securities, its CEO "has questions" regarding the company's preliminary results reported in January and has refused to sign off on the company's 2007 financial statements, and the company was forced to raise $2.6 billion in capital. Also, I should mention that MBIA's common stock has dropped by 78% in the last 12 months.


Bill King's The King Report (a must read every morning) graphically depicts how ludicrous MBIA's AAA rating really is, quoting Mish's Global Economic Trend Analysis. Mish compares top-rated MBIA to Pfizer which recently had its Moody's rating downgraded from AAA.

AAA? Then, again, the International Securitisation Report named Ambac the Monoline Insurer of the Year in December.

You want AAA? Buy some batteries, don't buy MBIA's shares.

Ilargi: The same day Fannie Mae announces a $3.55 billion -quarterly!- loss, it gets a government license to party, and stock prices rise, since investors feel confirmed in state protection for Fannie and Freddie. All makes sense in some parallel universe, I’m sure.

Regulator Lifts Caps on Fannie, Freddie
Fannie Mae shares rallied Wednesday despite swinging to a much-worse-than-expected fourth-quarter loss, after a federal regulator lifted restrictions set in place amid the government-sponsored mortgage giant's accounting scandal.

The Office of Federal Housing Oversight said it would lift portfolio growth caps on retained mortgages imposed on Fannie and sister government-sponsored entity Freddie Mac, effective March 1. The caps were put in place in 2006, after the companies experienced multiyear periods without releasing timely audited financial statements. Related consent orders also required 30% capital cushions above statutory requirements.

"As each enterprise nears the lifting of its Consent Order, OFHEO will discuss with its management the gradual decreasing of the current 30% OFHEO-directed capital requirement," the agency said in a statement. "The approach and timing of this decrease will also include consideration of the financial condition of the company, its overall risk profile, and current market conditions. It will also include consideration of the importance of the enterprises remaining soundly capitalized to fulfill their important public purpose and the recent temporary expansion of their mission."

Fannie shares rallied on the news, despite reporting dismal fourth-quarter and full-year results earlier in the day. The stock, which dipped more than 6% following the earnings report and jumped more than 18% following the OFHEO news, more recently was trading up 3% to $27.79.

The Expanding Menu of Horrors
Over the last 20 years, municipal issuers and other investors have utilized auction rate securities (ARS) to meet their financing needs. During that period of time, seldom have these auction rate securities met with insufficient demand. That is, until the last few weeks when concerns about monoline insurer solvency have caused the market to place a huge premium on liquidity, in turn, causing many of the bidders at these auctions to pull out. The result: thousands of auctions have failed, or been priced at huge 20% reset type premiums.

Since late January, the ‘cap’ rates for a wide variety of ARS paper have expanded from 4% to as high as 20%, with most notes now at least 15%. The reason, with the monolines under a serious threat of being downgraded, a number of the large brokers who in the past offered a liquidity backstop, have now simply stopped bidding. Under the terms of the arrangements, the auction arrangers are not obligated to repurchase the securities much to the horror of investors who thought these securities were absolutely liquid instruments.

Chalk this up as one more instance of the unwinding of derivatives markets which, week in and week out, has continued unabated in 2008. In fact, last week, according to, UBS concluded that “mathematical models that traders use to calculate prices in the 2 trillion dollar market for collateralized debt obligations simply don’t work anymore.

In its commentary, UBS admitted that integral ‘correlation’ models which represent the odds of one default potentially infecting another, and the very fabric of pricing for many of these derivative securities, now show a nearly 100% chance of contagion. As a result, any number of quant funds are already in deep trouble in 2008, some down as much as 15 to 20%.

Across Wall Street and the Financial community, hedge funds are starting to crumble like DB Zwirn & Co., where investors have pulled out 2 billion in the last few weeks, and which on Thursday night sent out a letter to investors outlining plans to liquidate remaining assets, 60% of which were not easily tradable. Of concern here is not the fate of one particular fund, but the downside risk to all markets should the hedge fund industry begin to delever.

In our view, aside from the bursting of the bond market bubble, 2008 has an excellent chance of witnessing the bursting of the hedge fund bubble, which in the last decade has seen the industry grown from a small sub-section of speculative capital to perhaps THE dominant force in global finance.

Judge’s landmark ruling could slow foreclosures
A Suffolk Superior Court judge has issued a potential landmark order slowing down thousands of Massachusetts foreclosures and declaring whole classes of subprime mortgages “structurally unfair” under state law.

“It is both imprudent and unfair to approve mortgage loans that the borrowers cannot reasonably be expected to repay if housing prices were to fall,” Judge Ralph Gants wrote in a preliminary injunction against notorious subprime mortgage lender Fremont Investment and Loan. “Just because we as a society failed earlier to recognize that (many subprime loans) were generally unfair does not mean that we should ignore their tragic consequences and fail now to recognize that unfairness.”

Issuing a ruling in a lawsuit brought by Attorney General Martha Coakley, Gants ordered Fremont to work with state officials for up to 90 days to resolve late-mortgage cases before initiating foreclosure proceedings. If the two sides fail to settle, Fremont can then foreclose on a home, but must prove it took “reasonable steps” to avoid doing so. The ruling potentially covers some 3,000 Massachusetts mortgages issued or serviced by Fremont, one of the nation’s largest subprime lenders.

Greenspan tells Gulf to drop dollar
Alan Greenspan, the former chairman of the US central bank, or Fed, has said that inflation rates in Gulf states, which are reaching near record levels, would fall "significantly" if oil producers dropped their US dollar pegs.

Speaking at an investment conference on Monday in Jedda, Saudi Arabia, he said the pegs restrict the region's ability to control inflation by forcing them to duplicate US monetary policy at a time when the Fed is cutting rates to ward off an economic downturn.

Debate is rife in the Gulf on how to tackle inflation. Levels have hit seven per cent in Saudi Arabia, the highest in 27 years and a 19-year peak of 9.3 per cent in the United Arab Emirates in 2006. "In the short term free floating ... will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan said.

Saudi and UAE central bank chiefs are in favour of retaining dollar pegs, but Sheikh Hamad bin Jassim bin Jabr al-Thani, the prime minister of Qatar, is pushing for regional currency reform to avert possible unilateral revaluations designed to curb inflation. According to Hamad Saud al-Sayyari, governor of the Saudi central bank, floating the Saudi riyal would not be appropriate for an economy that relies on oil exports.

"Floating is beneficial when the economy and exports are diverse ... as for the kingdom it remains reliant on the export of a single commodity," he said. The dollar peg was also defended by Sultan Nasser al-Suweidi, the UAE central bank governor, at a conference in Abu Dhabi on Monday.He said the policy was helping Gulf states attract foreign investments. "They did very well for our economies because it has led to more capital flows," al-Suweidi said.
Qatar, has the region's highest inflation, and is considering the revaluing of the Qatari riyal to combat inflation currently at 13.74 per cent. The exchange rate contributes to about 40 per cent of inflation in Qatar, where the riyal is believed to be 30 per cent undervalued.

Ilargi: "A new regime for the dollar" is what an analyst calls it. Might as well widen that perspective. We're entering a new regime for the entire financial markets, and no bail-outs or rescues can do anything about it. No matter how fast the safe-the-whale plans are tabled, the bank failures and municipal bankruptcies will come down faster and more furious.

Moody's, S&P Say MBIA Is AAA; Debt Market Not So Sure
Moody's Investors Service and Standard & Poor's say MBIA Inc. has enough capital to withstand losses and justify its AAA rating. MBIA's debt investors aren't so convinced. Credit-default swaps indicating the risk that Armonk, New York-based MBIA's bond insurance unit won't be able to meet its obligations are trading at similar levels to companies such as homebuilder Pulte Homes Inc., which is rated 10 steps lower.

The discrepancy illustrates the skepticism debt investors have about the safety of MBIA's rating after the company posted $3.4 billion of losses on subprime mortgages last quarter. Moody's and S&P both said that while at least $4 billion of writedowns lie ahead, MBIA's management has made enough changes to warrant the top rating.

"Pardon me if I find this a little hard to believe," said Richard Larkin, director of research at municipal-bond brokerage Herbert J. Sims & Co. in Iselin, New Jersey. "This is basically the same management that put MBIA into this hole in the first place."

Moody's yesterday ended a five-week review of MBIA, the world's largest bond insurer, removing the threat of an imminent downgrade. S&P did the same a day earlier and also affirmed the top rating of New York-based Ambac Financial Group Inc., the second-biggest. Ambac is still under review from both S&P and Moody's.

Ilargi: If you don't mind me asking: what for G-d's sake is Fannie Mae doing losing $3.2 billion in the value of derivative contracts? This is an -alleged- government sponsored corporation, that will probably soon take on huge extra risks in real estate. And you tell me they're ordinary gamblers in derivatives?

Fannie Mae Has $3.55 Billion Fourth-Quarter Loss
Fannie Mae, the largest source of money for U.S. home loans, posted a $3.55 billion fourth-quarter loss and said the slump will continue through this year as rising foreclosures send credit costs soaring. The net loss was wider than analysts anticipated, sending the shares down 6 percent in early New York trading. The loss included a $3.2 billion drop in the value of derivative contracts and $2.9 billion in credit expenses, the Washington-based company said today in a Securities and Exchange Commission filing.

"We are working through the toughest housing and mortgage markets in a generation," Fannie Mae Chief Executive Officer Daniel Mudd said in an accompanying statement. Homeowners falling behind on their loan payments and an economy teetering near recession are reducing the value of the $2.3 trillion of mortgages the government-chartered company owns or guarantees. The slump may force Fannie Mae, which sold preferred stock in December to bolster capital, to raise more money, said Paul Miller, an analyst at Friedman Billings Ramsey & Co. in Arlington, Virginia.

Fannie Mae "will continue to have trouble with both credit losses and capital levels," said Miller, who on Feb. 25 downgraded the stock to "underperform." Credit impairments will exceed company estimates and "the Street's expectations." The company, which accounts for at least one in five home loans, has lost more than half its market value in the past year as the housing slump deepened. Analysts at Goldman Sachs Group Inc. and Merrill Lynch & Co. cut their recommendations to "sell" in the past week on concern that falling home prices will restrict earnings.

Dollar Falls to Record Against Euro on Fed Rate-Cut Speculation
The dollar weakened below $1.50 per euro for the first time on speculation Federal Reserve Chairman Ben S. Bernanke will indicate the U.S. central bank is ready to cut interest rates from a three-year low. The dollar also dropped after German business confidence unexpectedly strengthened for a second month in February, prompting traders to reduce bets the European Central Bank will cut rates. The currency fell to an all-time low against the Swiss franc and to a 23-year low versus the New Zealand dollar.

"We're in a new regime for the dollar," said Bilal Hafeez, London-based global head of currency strategy at Deutsche Bank AG, the world's biggest foreign-exchange trader. "The proximate cause has been European data, which has indicated that Europe hasn't suffered on the growth side as the U.S. has."

Citi's Hits: 15 Times $100 Million
Talk about a bad day -- or 15. Citigroup Inc. disclosed that traders in its investment bank piled up daily losses of more than $100 million on 15 separate occasions last year.

Those 15 financially disastrous days, which Citigroup disclosed in its annual report filed late Friday but declined yesterday to describe in detail, added to worries the New York bank's problems are deeper than those that led to about $20 billion in mortgage-related write-downs last year, the ouster of its chief executive and a sinking stock price. "Ouch!" said David Hendler, an analyst at CreditSights Inc., about the trading losses.

By those standards, Citigroup's losing string is far from the most embarrassing. In August, when the mortgage mess first rocked financial markets, Morgan Stanley lost $390 million in one day's trading. The loss stemmed from a quantitative strategies group, which lost $480 million during that quarter. In its fiscal third quarter, Morgan had four days when it lost more than $125 million-and eight days where it made more than $125 million, according to the firm.

"I think that the managements of many of the financial institutions simply didn't have a clue of what was going on," James D. Wolfensohn, a former World Bank president who now holds the title of "senior adviser" at Citigroup, said Sunday evening at a public event in Manhattan. Mr. Wolfensohn said in an interview yesterday he was referring generally to Wall Street firms, not to Citigroup in particular.

Citigroup's latest disclosures come as analysts and investors are clamoring for Vikram Pandit, Citigroup's new chief executive, to unveil his widely anticipated turnaround plan. Mr. Pandit has been mum, but tonight he is hosting 15 to 20 Wall Street analysts in a private "meet and greet" cocktail hour at Citigroup headquarters. The gathering has irked some investors, who weren't invited and who note that Citigroup hasn't yet scheduled a public investor day since Mr. Pandit took over.

After sifting through the annual report, Oppenheimer analyst Meredith Whitney slashed her 2008 earnings estimate on Citigroup by more than 70% to 75 cents a share, cautioning that even the lowered projection "could still prove optimistic." She said the bank's suffering share price could fall below $16 -- or to about 70% of its book value. That level was last seen "during the last credit cycle of 1990-1991," she added.

Ilargi: When a study like this predicts that 20% of GDP will be spend on health care in 10 years, don't forget that the GDP numbers they use are far too optimistic (in this case, 4.8% growth). In reality, we could well be talking 30-40%. And that will not work. Which in turn means that health care will increasingly become unavailable for a growing part of the population. The study suggests a substantial shift towards government paid coverage, but that same government faces huge deficits and plummeting tax revenues. In other words, people will have to foot the bill themselves. But people will be a lot poorer soon. Not a good prospect.

Medicare Spending to Surge
Government spending on health care could nearly double by 2017 to more than $2 trillion, according to a new federal study, reflecting a surge that promises to complicate the campaign debate about health care. Driven by the aging of the baby-boom generation and rising costs of new drugs and medical technology, Medicare, the big federal health program for the elderly, will take up 20.7% of national health spending by 2017, according to the report.

Overall, the report projects health-care spending in the U.S. will hit $4.3 trillion by 2017, nearly double the 2007 amount. That would equate to nearly 20% of gross domestic product. In 2007, health-care spending accounted for 16.3% of GDP, according to the study. But more of that cost is expected to shift to government agencies -- even as the federal government struggles to shrink huge deficits.

"The impact of the population aging is expected ... to have a substantial influence on the public share of spending growth, as the leading edge of the baby-boom generation becomes eligible for Medicare," wrote Sean Keehan and his co-authors of the study, economists at the federal agency that runs Medicare and Medicaid.

The study expects aging baby boomers to account for a relatively small share of future health-care spending growth on a per enrollee basis.

Concerns about the bulging health-care budget aren't new, and the Congressional Budget Office recently warned about the federal budget gap as baby boomers retire and start tapping Medicare, Medicaid and Social Security. Health-care spending will grow on average 6.7% in the next decade, outpacing the general economy by 1.9 percentage points each year, the new federal study said.

Ilargi: Hospitals in severe financial trouble; that is worrisome. Because of the dying bond markets, we'll see thousands of towns unable to upkeep their road systems. But shouldn't health care be safe?

Issuers Ask SEC for Break Amid Auction-Rate Woes
Brokerage firms and a group of hospitals are urging federal securities regulators to allow those who issued debt to buy it in hopes of preventing failed auctions, an increasingly common experience that drives up the interest rates they must pay. In recent days, a group of 14 hospitals and the Securities Industry and Financial Markets Association, a Wall Street trade group, have sent letters to the Securities and Exchange Commission urging the agency to permit such a move with assurance that it wouldn't constitute market manipulation.

"The public finance market is attempting to develop longer term solutions, but we seek your assistance in connection with an immediate, short term 'fix' for this problem," wrote Anne Phillips Ogilby, a lawyer with Ropes & Gray LLP on behalf of 14 hospitals based in California and Massachusetts.

Auction-rate securities, a hitherto obscure corner of Wall Street financing, had offered borrowers a way to finance for the long term at short-term interest rates that reset every seven to 35 days. Investors have recently recoiled from this market due to concerns about bond insurers and a lack of liquidity. Many issuers of auction-rate securities have seen their interest costs soar after auctions for some of their debt failed.

The SEC is weighing the requests and hasn't come to any decision, according to people familiar with the matter. The agency is evaluating concerns about whether a borrower's participation in setting the clearing bid in an auction for its own debt would be market manipulation. Issuers of debt would have a strong incentive to support the market price to avoid triggering higher interest rates.

In 2006, the SEC reached a settlement with 15 brokerage firms and three auction agents alleging that the brokers prevented the auctions from resetting at fair market interest rates by bidding without disclosing their involvement. Following the settlement, the industry drew up a list of best practices.

Municipalities, student-loan providers, schools and other institutions have been facing unusually high borrowing costs in recent weeks. Many are running into timing and legal speed bumps in their efforts to refinance their auction debt into other types of debt. Brokerage firms, already saddled with large inventories, aren't stepping in to bid on the securities. And securities offering documents often don't address whether the municipality could participate in the auction.

Many issuers of this type of debt would welcome the opportunity to buy back their own auction-rate securities. They could quickly remove the debt from the auction process and hold it until the auction rate market settles down or buyers return. At the moment, virtually no issuers or borrowers are buying back their debt in auction.

Auction-Rate Bonds Force 'Predatory' Yields on Cities
U.S. municipal borrowers from Camden, New Jersey, to Sacramento, California, might face a third week of higher interest costs as failures in the auction- rate bond market persist. Auctions run by banks to determine the rate on more than $45 billion of bonds didn't attract enough buyers last week, according to JPMorgan Chase & Co. At successful auctions, investors who submitted bids demanded higher yields, sending a seven-day index of the securities to a record 6.89 percent.

"The market right now is very predatory," said Marcia Maurer, chief financial officer of the Sacramento Regional County Sanitation District. The agency's weekly expense on $250 million of debt more than doubled to $343,000 from last month. Investors enticed by rates that jumped as high as 20 percent are seeking opportunities in the $330 billion market no longer supported by dealers from Goldman Sachs Group Inc. to Citigroup Inc. and UBS AG that for years committed their capital to prevent failures.

Thousands of unsuccessful auctions have driven up debt costs for taxpayers and other borrowers, and left investors in the securities unable to get their money. "Aggressive institutional investors have moved in to pick up auction-rate issues at short-term rates ranging from 5 percent to as much as 15 percent or more," George Friedlander, a municipal strategist at Citigroup in New York, said in a report at the end of last week.

States Seek Congress's Aid as Subprime Boosts Costs
U.S. governors including New Jersey's Jon Corzine and New York's Eliot Spitzer may ask Congress to help reverse rising municipal debt costs stemming from the subprime mortgage market's collapse, Washington Governor Christine Gregoire said.

Gregoire, Corzine and Spitzer joined other governors Feb. 24 in forming a group that will "produce something that gets us out of the problem, but most importantly produce something for Congress" to deter a future borrowing squeeze, Gregoire, a Democrat, said during a National Governors Association meeting in Washington yesterday. Interest on insured bonds, including debt with rates set at periodic auctions, rose to as high as 20 percent because investors shunned the securities or demanded higher yields on waning confidence in the companies guaranteeing repayment.

The jump in borrowing costs is another consequence of a credit pinch tied to the subprime collapse that led to $163 billion in Wall Street writedowns. "A lot of governors really hadn't anticipated that," Gregoire told reporters in Washington. The group, which plans to meet soon, hasn't discussed specific solutions, she said. Seattle, Washington's biggest city, faces $80 million in additional costs on existing debt due to the recent turmoil in the credit markets, Gregoire said.

House Financial Services Committee Chairman Barney Frank said his panel at a March 5 hearing will examine how state and local governments are being affected by the reduction in credit created by rising mortgage defaults and bond insurer downgrades. The $330 billion auction-rate securities market has been hardest hit, leaving borrowers paying rates of more than 10 percent and saddling investors with bonds they can't sell.

The committee will review the effect of the "credit crisis" on municipal borrowers, Frank, a Massachusetts Democrat, said in a Feb. 15 statement. "I don't know that any of us has a specific right now," said Gregoire, a former attorney general elected governor in 2004. "We will be working on how we will do an adjustment" to higher borrowing costs for states, local governments and agencies.

Germany to Raise Tax Evasion With EU as Probe Spreads
German Finance Minister Peer Steinbrueck plans to discuss how to crack down on tax evaders with his European Union counterparts, as a German-led probe into Liechtenstein bank accounts spreads around the globe."You can be certain that the subject of tax evasion will play a role" at a meeting of finance ministers from the 27- member EU in Brussels March 4, Ulrike Abratis, a German Finance Ministry spokeswoman, said today in an interview in Berlin. "It is clear that Minister Steinbrueck will make a statement."

German authorities said yesterday that at least 195 people confessed to tax evasion since their probe of Liechtenstein bank accounts began two weeks ago. The Czech Republic, Spain, Italy and Finland today confirmed their own probes into possible tax avoiders with Liechtenstein bank accounts, joining nations including the U.S., U.K. and Australia that are involved in the worldwide investigation. Of the 15 countries so far planning probes, 10 are EU members.

"What really irritates is that Liechtenstein gets all the benefits of being embedded in the European Union without showing any responsibility to play by the rules in this urgent matter," Elmar Brok, a German member of the European Parliament, said in an interview. "It's early days and it will be difficult, but Germany will push in Europe for change to dry up tax havens."

German Chancellor Angela Merkel will press Prince Albert of Monaco during a meeting in Berlin today over her concerns that Germans may be hiding money in the principality. The European territories of Monaco, Liechtenstein and Andorra are on a list of "uncooperative tax havens" published by the Paris-based Organization for Economic Cooperation and Development. "The principality has endeavored for many years to make sure our banks conform to international standards," Albert said in an interview with Germany's Frankfurter Allgemeine Zeitung published today. "Our financial market must be exemplary."

Monaco's 40 banks and 44 other financial organizations, which manage 90 billion euros ($135 billion) and account for a third of the principality's economy, are regulated by France's central bank, Etienne Franzi, president of Monaco's banking association told reporters in Berlin today. The principality's banks are "secure, clean, professional," Franzi said. "We don't want to have anything to do with money that isn't clean."

Liechtenstein prosecutors meanwhile said they are seeking Germany's assistance in an investigation of the former LGT Group employee who triggered the international tax evasion probe after he allegedly passed stolen data to German agents. The requests for legal assistance have been sent to prosecutors in Munich and Bochum and are part of Liechtenstein's investigation into Heinrich Kieber, the former employee of LGT Group, the bank owned by the principality's ruling family, the Liechtenstein prosecutor's office said in an e-mailed statement.

U.S. Among Countries Investigating Tax Evasion
Following the lead of Germany and Britain, at least eight other countries, including the United States, said Tuesday that they were investigating whether some of their citizens were using banks in Liechtenstein to evade taxes. The countries involved in the investigations also threw their combined weight behind efforts to change banking secrecy rules in Liechtenstein, a principality nestled between Austria and Switzerland that has a thriving business in managing outsiders’ money.

The Internal Revenue Service said Tuesday that it was beginning enforcement action against “more than 100 U.S. taxpayers” on suspicion of evading taxes through investments in Liechtenstein. The I.R.S. was approached last year by an informant with data from the LGT Group, said Barry Shott, deputy commissioner for international affairs in the agency’s large and medium-size business division.

“We get information from a lot of people in a lot of different ways all the time,” said Mr. Shott, who did not identify the informant. “We came into possession of the information and it seemed to be interesting.” He stressed that the United States did not pay for the information upfront. But he noted that under federal law, a person who gives the I.R.S. useful information can file a claim to receive a percentage of the money that is collected based on the data.

Audits in the United States have gotten under way, and the I.R.S. is already experiencing “a range of cooperation” with the taxpayers involved, Mr. Shott said. He stressed that the I.R.S. would look favorably on people who report themselves, but that the agency would go to them if necessary.
“We know who they are,” he said.

Tax evasion probe spreads to Canada
Heinrich Kieber is an unlikely whistle-blower, given his criminal past and his alleged theft of information about 1,400 clients at LGT Group, the biggest bank in Liechtenstein, a country that prides itself on bank secrecy rules that have made it a tax haven for the superrich. But when Mr. Kieber, once a lowly document scanner at the bank, sold that information to the German intelligence service for €5-million ($7.5-million U.S.), he sparked a tax-evasion probe that has spread across Europe and into Canada.

Yesterday, the Canada Revenue Agency (CRA) said it is investigating 100 Canadians on the list of account holders to see whether they owe tax on the money. "If we get to them before they get to us, then we would take the appropriate measures, unless they want to go through the voluntary disclosure program before we actually can identify them," CRA spokeswoman Jacqueline Couture said. She declined to say how much money is at stake.

Revenue Canada investigating 100 Canadians in Liechtenstein probe
Revenue Canada confirmed on Tuesday it has launched investigations into 100 wealthy Canadians whose names appear on a controversial list of account holders at a tax haven bank in Liechtenstein. "We are examining to see that they properly reported their income," said Jacqueline Couture, a Revenue Canada spokeswoman. "This is early stages yet. We just want to see they have properly reported their income, [and] are they are paying [the taxes] they are supposed to be paying."

So far, Canada, Germany, Australia, the United Kingdom, New Zealand and the United States have begun investigations into citizens whose names appear on the list. This week the U.K. confirmed it paid about £100,000 for the information. The U.S. government said it is looking into the records of 100 Americans with Liechtenstein bank accounts.

Ms. Couture said the Canadian government acquired the documents without payment through its membership in the OECD's Aggressive Tax Planning Working Group. She said the list was provided to the group by Germany and that Canada does not pay for such information as a matter of principle.

Ilargi: The death of NAFTA would hurt the US a lot more than Canada these days. Don't want our oil anymore? What a pity, we'll have to sell it to China then.

U.S. Democratic hopefuls target NAFTA
Hillary Clinton and Barack Obama on Tuesday night both threatened to take the United States out of the North American Free Trade Agreement if elected president, warning Canada and Mexico the deal is dead unless America wins concessions to strengthen labour and environmental standards.

During a nationally televised debate in Cleveland, the two Democratic presidential candidates suggested Canada and Mexico would be given just six months to make compromises on the deal in order to satisfy the U.S. government.

"I will say we will opt out of NAFTA unless we renegotiate," Clinton said. "I have said we will renegotiate NAFTA [and] you would have to say to Canada and Mexico, ‘That's what we are going to do.'" Said Obama: "We should use the hammer of a potential opt-out" to force Canada and Mexico to reopen trade talks.

The heated rhetoric over NAFTA -- a signature achievement during Bill Clinton's administration -- came as both Democratic candidates fought for votes in economically troubled Ohio, which has lost tens of thousands of manufacturing jobs in the last decade. The trade deal has become the central point of contention between Clinton and Obama over the past week, with the former first lady accusing her rival of falsely claiming she has been a supporter of the deal.

When confronted about past statements praising the deal, Clinton acknowledged NAFTA has helped boost the economy in other parts of the U.S. But Clinton maintained that, if she is elected U.S. president, her administration would "immediately have a trade time-out" to write new, enforceable labour and environment standards into the deal.

UBS head asks shareholders to ok cap injection
UBS chairman Marcel Ospel, braving investor fury over huge subprime losses, said it was "absolutely necessary" for shareholders to back a 13 billion Swiss franc ($11.94 billion) capital injection from Singapore and an unidentified Middle East investor. "Today we need your backing for a massive strengthening of our capital base," Ospel told an extraordinary shareholders' meeting. "We believe that this measure is absolutely necessary."

Ospel has survived at the helm of the giant Swiss bank after culling top managers over the past year as UBS chalked up $18 billion in charges following disastrous investments in U.S. subprime mortgages. The writedowns, which led the bank to unveil its first full-year loss in 2007 in more than a decade, have forced UBS to seek the emergency injection to repair its severely depleted capital ratios. Despite facing calls for his resignation, Ospel said he would not "thoughtlessly relinquish" his responsibilities. "I intend to ensure that UBS gets back on the road to success."

He also said UBS would redouble efforts to cuts it exposures to mortgage-backed securities and derivatives. The bank had misjudged market trends in subprime and had then failed to react adequately, said Ospel. "We judged certain markets wrongly. We subsequently noticed this error, but due to the rapid evolution of events were unable to react in time."


UBS Shareholders OK $12B Investment
UBS AG shareholders overwhelmingly approved a $12 billion capital infusion from foreign, government-owned funds on Wednesday aimed at shoring up Switzerland's largest bank in the face of massive losses linked to the U.S. subprime mortgage crisis. At an extraordinary meeting of shareholders, UBS Chairman Marcel Ospel pushed through the recapitalization deal reached with so-called sovereign wealth funds based in Singapore and an unidentified Middle East country.

Ospel also scored a victory when shareholders rejected a special audit of the bank's massive losses. Dominique Biedermann of the Ethos investment foundation, one of UBS' chief critics, said the independent audit was necessary because UBS has failed in its responsibility to investors. Ospel, however, said the bank was already cooperating with Switzerland's federal banking commission on a thorough probe.

Ospel urged shareholders to back the board's plan to raise 11 billion francs ($10.1 billion) from the Singapore government fund and 2 billion francs ($1.8 billion) from a Middle East investor. "We believe that this measure is absolutely necessary," Ospel said, calling the current financial crisis possibly the most difficult since the stock market crash of 1929.

Who is Blowing Bubbles in the Commodity Markets?
“Too much money chasing too few commodities,” might be the best way to explain the historic rally that is underway in the global commodities markets. Central bankers in 18 of the top 20 economies in the world have been expanding their money supplies at double digit rates for the past several years, trying to prevent their currencies from rising too quickly against the sickly US dollar.

Nowadays, fund managers are pouring billions of dollars into commodities across the board, as a hedge against the explosive growth of the world’s money supply, competitive currency devaluations, and the negative interest rates engineered by central banks. To the chagrin of central bankers, much of new money pumped into the global markets is also going into commodities, instead of the stock market.

The remarkable run-up in prices of wheat, corn, soybeans, cocoa, rice, silver, platinum, gold, copper, iron ore, and crude oil have been blamed on supply shortfalls, strong demand for bio-fuels, and an inflow of $150 billion from investment funds. There are big shifts in demand from the emerging economies, where incomes are rising, and folks are changing dietary patterns. The surging ethanol industry has put a squeeze on the corn market, and bio-diesel demand is fueling soybeans.

“I think it is something that the Fed has to watch, but I am not alarmed,” said retiring St Louis Fed chief William Poole, in reaction to news that the US consumer price index hit 4.3%, a 17-year high in January. “We can conclude that the current situation is one of substantial stability of inflation expectations. Recent relatively small increases in inflation are apparently due to transitory factors, and not to changes in inflation expectations."

But the charts don’t lie, and sophisticated traders are not easily duped by the Fed’s smokescreens and brainwashing techniques. The Fed is slashing the federal funds rate at a frenzied pace, to arrest a year long slide in US home prices, which if left unchecked, threatens to topple the US economy into a severe recession. The slide in US home prices accelerated in the fourth quarter of 2007, with prices tumbling 8.9% last year, according to the S&P/Case-Shiller US National Home Price Index.

In trying to put a floor under the housing and stock markets, the Bernanke Fed has cranked up the growth of the MZM money supply to an explosive 15.4% annual rate, which is also depressing the US dollar and pumping up the commodities markets to astronomical heights. The Fed has unleashed a speculative frenzy in commodities, and traders have lost faith in the central bank’s credibility.

House Prices Falling - And Worries Rising
On Tuesday we received updates on U.S. house prices from two different sources. The OFHEO national house price index recorded a 1.3% decline in the price of a typical U.S. home during the fourth quarter of 2007, while the S&P/Case-Shiller home price index registered a 5.7% decline during the last three months of 2007. Here in San Diego, the respective numbers showed a 2.6% decline according to OFHEO and 9.1% decline from Case-Shiller during the quarter. For the year as a whole, Case-Shiller calculates that home prices fell 9.8% nationally and 15% locally.

Home price index for San Diego as reported by OFHEO and S&P/Case-Shiller, each normalized so that August 2005 = $545,000.

This tendency for the Case-Shiller index to record a stronger drop in home prices than OFHEO was also observed during the 1991 housing downturn. The two indexes apply the same basic methodology to different data sets. OFHEO is based on mortgages handled by Fannie Mae and Freddie Mac, while Case-Shiller uses publicly recorded data on all home sales in selected communities. It appears to be the case that the nonconforming mortgages that don't get to the GSEs were characterized by a bigger run-up in the boom, and should experience a bigger decline now, since nonconforming mortgages will be more affected by the breakdown of the private mortgage securitization process.

The 9.1% fourth-quarter drop for San Diego recorded by Case-Shiller is similar to the 7.4% decline in the median asking price of homes for sale reported by Housing Tracker. Although the latter is a much less satisfactory measure conceptually, it has the benefit of being more up-to-date than Case-Shiller. The San Diego median asking price has fallen an additional 5.9% since December, the most recent value for the Case-Shiller index.

Home prices for San Diego as reported by OFHEO and S&P/Case-Shiller, and median asking price of homes for sale in San Diego (from Housing Tracker).

The reason to be concerned about this is that the farther house prices fall, the greater the number of homeowners who move into the category of negative net equity, that is, owe more on their mortgage than the home is worth. And the farther into the red a household becomes, the greater the incentive and propensity for the homeowner to default on the loan. More defaults mean more losses and greater risk of insolvency for large financial institutions.

And if you think the economy can continue to hum along without those institutions continuing to extend credit, well, we may get some interesting additional data relevant for your hypothesis in a rather short while.

EU opens in-depth probe into aid for German banks
The European Commission opened in-depth investigations on Wednesday to determine if German government assistance to two banks, hit by the U.S. sub-prime market crisis, amounted to illegal state aid.

The European Union's executive arm will decide whether state loans and guarantees granted to corporate lender IKB and state-backed regional bank SachsenLB were made under normal capital market conditions. If not, the aid would be considered illegal and must be paid back to the German government. IKB, which has lent to many of Germany's top firms, is on its third bailout after its state owners hammered out another rescue earlier this month.

The Commission said state-owned bank Kreditanstalt für Wiederaufbau provided a risk shield of around 9 billion euros ($13.5 billion) to IKB and the government of the German state of Saxony and state-owned banks clubbed together to grant liquidity assistance of around 17 billion euros to SachsenLB. "Without these and several subsequent measures the banks would not have been able to continue their business," the Commission said in a statement.

"The Commission has to assess whether these measures constitute state aid and, if so, whether they can be found compatible with EU rules for rescuing and restructuring firms in difficulties," it said. Sachsen LB racked up about 30 billion euros of shaky investments in subprime mortgages and other structured debt. It has been sold to rival LBBW. Under EU rules, public support can be provided to prevent companies from going bust in some circumstances, but state aid that distorts competition is prohibited.

Strapped Americans Turn To Retirement Accounts
Economic security is a hot topic on the campaign trail this year. But while the candidates posture and promise, we're witnessing a quiet run on the nest eggs of millions of Americans. It's a run that will make any retirement fix even more painful and expensive than it already is. Rather unfortunately, it is also likely to cast dispersion on the private market solutions to the Social Security mess.

The problem is that debt-strapped Americans are starting to tap into their 401(k) retirement plans as never before. Several of the biggest administrators of the popular retirement plans report double digit increases in so-called hardship withdrawals in recent months. At industry leader Fidelity Investments, withdrawals from 401(k)s surged 17 percent surge in December - the biggest jump on record, and a surge the company calls "dramatic."

It's a logical, though ill-advised, next step for consumers who have already tapped out the equity in their homes and the limits on their credit cards. Millions are turning on the 401(k) spigot, despite the fact that such withdrawals often require fees and additional tax payments. For the rest of us, this 401(k) roulette puts unwelcome pressure on an already rocky stock market. Remember the so-called "January effect," a phenomenon in which stocks typically began the year with a bang, as investors, especially those with employer-matched 401(k) dollars barreled into the market at the start of the year?

Well, not in 2008. Not only did the Dow Jones industrial average drop 4.5 percent last month - its worst showing since 2000 - over the past five weeks Trim Tabs estimates that $21.5 billion has been taken out of stock equity funds. That's not hedge fund money, but small-fry investors young and old.

Now, it's impossible to know exactly how much of those outflows are coming out of the retirement nest eggs of over-stretched consumers, but it's a fair bet it's a lot. And for those "borrowing" from their golden years it is a slippery slope. That's because with the loan, typically comes the decision not to keep funding one's 401(k) on a monthly basis. For many Americans using their long-term investments to pay for today's consumption is going to come at a heavy price.

Toll Brothers posts loss after writedowns
Toll Brothers Inc, the largest U.S. luxury home builder, on Wednesday reported a quarterly loss after recording heavy writedowns during its fiscal first quarter. Toll posted a first-quarter loss of $96 million, or 61 cents per share, for the quarter ended January 31, including $245.5 million in pretax writedowns relating to land and other assets. A year earlier, it posted a profit of $54.3 million, or 33 cents per share. Total revenues for the first quarter dropped 23 percent to $842.9 million.

Toll signed a total of 904 contracts for new homes in the quarter, down about 38 percent from a year earlier. The value of the contracts fell 46 percent to $573.1 million. The average price of a home under contract was $634,000 compared with $646,000 in the prior quarter. In the first quarter, signed contracts after cancellations totaled 647 homes, or $375.1 million, a decline of 37 percent in units and 50 percent in dollars.

Ambac Rescue Involves Others Besides Exposed Banks
The group of banks working to bail out Ambac Financial Group includes private equity and other financial firms that have no exposure to the troubled bond insurer, signaling optimism that Ambac will be able to make money in the future, CNBC has learned.

As reported, the group of banks--which includes Citigroup and Wachovia--has worked out a framework to inject up to $3 billion in capital into Ambac. The bond insurer is in danger of losing its crucial triple A debt because of its exposure to risky subprime-related debt. The banks are trying to save Ambac, as well as other bond insurers, because a ratings downgrade could force the banks themselves to write down billions more of their own debt that is backed by Ambac's insurance and current Triple A rating.

Though it's unclear the extent of the involvement by private equity and unexposed banks, the development is significant because it shows they expect to gain from investing in Ambac, not merely protect themselves from further losses. The consortium of banks is now trying to sell the bailout plan to the rating agencies to save Ambac's triple-A rating. Rating agency approval is crucial because  bankers want to make sure that Ambac isn't downgraded after they put money into the  bond insurer.

Though Standard & Poor's reaffirmed Ambac's rating on Monday, the insurer is still under review and could be downgraded in the coming days until details of the proposed recapitalization are presented and approved.

FDIC insured banks quarterly earnings hit 16-year low
FDIC insured commercial banks and savings institutions reported net income of $105.5 billion in 2007, a decline of $39.8 billion or 27.4 percent from the $145.2 billion earned in 2006, thanks in part to higher loan loss provisions tied to bad mortgages. The FDIC also said fourth-quarter earnings dropped to just $5.8 billion, compared to profit of $35.2 billion a year ago, the lowest level since the fourth quarter of 1991.

“It’s no surprise to anyone that the second half of 2007 was a very tough period for the banking industry. Fourth quarter results were heavily influenced by a number of well-publicized write-downs by large banks,” said FDIC Chairman Sheila C. Bair. “Weakness in the housing sector and the credit squeeze in financial markets made it a very challenging time for many institutions. And we can expect these problems to continue in 2008.”

Despite the record decline, nearly half of all insured institutions reported increased net income in 2007, with six large institutions accounting for more than half of the year-over-year decline in quarterly net income. At the same time, one out of every four institutions with assets greater than $10 billion reported a net loss during the quarter.

Total loan loss provisions were $68.2 billion, more than double the $29.5 billion set aside a year earlier, while trading revenue fell 78.4 percent to $4.1 billion from $14.9 billion in 2006. A whopping 1.39 percent of industry’s loans were noncurrent (90 days or more past due or in nonaccrual status) at the end of the quarter, the highest percentage since the third quarter of 2002, and the largest quarterly increase in the 24 years data has been reported.

No Country for Old Maids
There’s a parlor card game most boomers know as “Old Maid.” It could’ve just as easily been labeled “Crotchety Old Bachelor” I suppose, but then we all know why it wasn’t – men owned the playing card companies and still do. But it was a fun game for Eisenhower generation kids to play and unlike “War,” involved a surprising amount of skill and human interaction. If you had the “Maid” the object was to dump it on someone else, but doing that involved numerous deceptions not totally unlike today’s shenanigans involving our capital markets and their imploding financial conduits.
Old Maid now has a second life mimicking our financial markets, and at PIMCO we’ve played it frequently in our Investment Committee over the past several months. “Who’s got the ‘Old Maid’?” we ask over and over again – not to make us feel good that we don’t – but to make sure we won’t draw it when its holder tries to pass it on.

This shunned lady in asset form was originally identified as a subprime mortgage, aggregated into levered financial conduits which in turn were guaranteed to be AAA hotties either via their securitized structures or the solemn pledge of monoline insurance firms. No Old Maids in those hands, investors were assured; they were Babes with a stacked deck. Ah, but Father Time has a way of exposing plastic surgery and there have been implants aplenty in recent years. Most of the silicone to be sure involved mortgage-related assets – first the subprimes, then the Alt As, and now perhaps even levered primes.

Yet those that claim that the Old Maid necessarily resides in a deck composed of mortgage loans are missing the larger point. This parlor game is best defined by leverage and not the assets that have been dealt out to more than willing players over the past decade. That subprimes have garnered the headlines is only because they were the asset class that failed first.

Ilargi: Mish has a hard time understanding that Bill Gross is not out for a fair game; he wants a deck of cards stacked in his favor, just like everybody else.

Old Maid: Bill Gross Has Right Game, Wrong Solution
I continue to be amazed at the ability of Bill Gross to identify problems but come up with precisely the wrong solution. Please consider: No Country for Old Maids. Following is the key excerpt.
If capitalism is a going enterprise – and we think it is – then investors will eventually return to play similar, perhaps more conservative games – much as they have in the past. And if Washington gets off its high “moral hazard” horse and moves to support housing prices, investors will return in a rush. PIMCO wants to sit at this more attractive return table – to provide an attractive return on your money (no matter what the asset class) as well as a return of your money. No Old Maids. No silicone AAA ratings. And ladies – no crotchety old bachelors either. The game, as well as the name of the game, is changing. It’s no country for Old Maids anymore.

Good Lord! Listen to that nonsense.

Since when are government price supports capitalism? Clearly, Bill Gross, manager of the world's largest group of bond funds does not know what capitalism is. Price supports and price fixing are part of failed Soviet and Chinese central planning. And as China and Russia embrace capitalism, Bill Gross embraces failed central planning. If this was the first time, one might conclude that Gross was writing in a drunken stupor. But it's not the first time.

Please consider Bond Guru Bill Gross on the Housing Crisis.
Bill Gross, founder and chief investment officer of PIMCO, the world's largest family of bond funds with $746 billion in assets under management, believes that without government intervention, home prices could drop as much as 20 percent over the next two years. U.S. News spoke with Gross about what he thinks the government should do to prevent such losses.

U.S. News: So it's necessary for the government to essentially subsidize mortgages?
Gross: Yes, I think so. You need an interest rate below existing interest rates. I think they need to subsidize it. Let's not get ridiculous, but with a 4.5 or 4 percent interest rate and 0 percent down for people who have demonstrated good credit and a willingness to pay on time. Let's get it over with and move forward. Otherwise, nobody knows for sure, but the futures market is projecting another close-to-10-percent decline in housing prices. If that's correct, we're really in trouble. We need to do something.

U.S. News: It seems that you’re saying a stimulus package alone won’t solve the housing problem.
Gross: Definitely not. .... It's OK as an emergency stopgap thing, but the real problem is in the housing market, and that's where Washington should be really focused. I get the sense they're beginning to get it.

It is sickening to see someone like Bill Gross and PIMCO who are only where they are today because of opportunities provided by capitalism, openly embrace failed central planning policies. The ultimate irony is that Gross is embracing failed central planning just as China is rushing like mad to embrace capitalism.


Bigelow said...

Mish must be blinded by faith. Free markets are Friedmanite dogma extensively promoted since the 1980’s. Someone always sets the market framework, be they 19th century robber barons or national security interests.

“Markets, by contrast, descend from fairs of late medieval Europe, church-permitted safety valves for gambling, money-lending, and other forms of license. The idea that they have turned into a vehicle for human governance lacks any base beyond the occasional financial publication.” —Kevin Phillips, Wealth and Democracy

Anonymous said...

It's like that old pearl of wisdom about the 'Free' press: it's only 'free' if you own one.

This goes in spades for the 'Free" markets.

In any successful casino, the House always wins.

The "Free Market" is a contrivance for mass consumption. The Big Boyz play for real only amongst themselves, like backroom illegal high stakes poker, not in the 'Free" market.

We are at the part in the melodrama where the rogue "Oceans Eleven" guys have managed to steal the cookie jar out the backdoor, after staging a daring, diversionary masked robbery of the high stakes game.

The Big Guys haven't noticed that the vault was the real target, the poker game was chump change and there is Nothing to fall back on to maintain their grotesque lifestyles, no plan B, C or even D.

How sad.

Being the arrogant pricks they are by constitution, they are still strutting about the media outlets like the 'Cock of the Walk'.

In reality, they are the 'Dead Men Walking'.

Anonymous said...

“Financial collapse, as we are are currently observing it, consists of two parts. One is that a part of the general population is forced to move, no longer able to afford the house they bought based on inflated assessments, forged income numbers, and foolish expectations of endless asset inflation. Since, technically, they should never have been allowed to buy these houses, and were only able to do so because of financial and political malfeasance, this is actually a healthy development. The second part consists of men in expensive suits tossing bundles of suddenly worthless paper up in the air, ripping out their remaining hair, and (some of us might uncharitably hope) setting themselves on fire on the steps of the Federal Reserve. They, to express it in their own vernacular, "fucked up," and so this is also just as it should be.”
The Five Stages of Collapse Cluborlov

Anonymous said...

I also enjoyed the next paragraph in Orlov's article:

"The government response to this could be to offer some helpful homilies about "the wages of sin" and to open a few soup kitchens and flop houses in a variety of locations including Wall Street. The message would be: "You former debt addicts and gamblers, as you say, 'fucked up,' and so this will really hurt for a long time. We will never let you anywhere near big money again. Get yourselves over to the soup kitchen, and bring your own bowl, because we don't do dishes." This would result in a stable Stage 1 collapse - the Second Great Depression.

However, this is unlikely, because in the US the government happens to be debt addict and gambler number one."

He see's five stages of collapse:


He argues that the more you try to keep Stages 1 and 2 from collapsing, the worse things get. You've got to draw the line, though, at Social collapse because after that you face extinction.

Anonymous said...

From the article above:

"UBS concluded that “mathematical models that traders use to calculate prices in the 2 trillion dollar market for collateralized debt obligations simply don’t work anymore.

...UBS admitted that integral ‘correlation’ models which represent the odds of one default potentially infecting another, and the very fabric of pricing for many of these derivative securities, now show a nearly 100% chance of contagion."

Maybe the Models are working!

Maybe all we need to get out of this mess is new models that show every little thing, is gonna be alright.

-Forrest D