Financial crisis 2.0

Atrios linked a bit by Charles Pierce which linked Mary Williams Walsh in the NYT, with an uncharacteristically easy to understand article (based on a report by Benjamin Lawsky of NY Dept of Financial Services) on how life insurance companies are cooking their books.

Let’s suppose that you took the $100,000 mortgage on your house and sold it to your five-year old son for $1. Now you don’t have any liabilities! So you can buy that flat screen TV you always wanted.

But of course, when the bank comes around looking for their payment, your 5 year old son won’t have anything to give them.

This is what the life insurance companies have done, creating out of state shell companies to buy their liabilities in a phony “re-insurance” scheme. It looks to me to be exactly like the Enron scheme, turning a liability into an asset in an off-the-balance-sheet maneuver. According to Walsh, Lawsky says these deals were backed by “’hollow assets,’ ‘naked parental guarantees’ and ‘conditional letters of credit.’” And if the life insurers are doing this, what are other insurers doing?

These are publicly traded companies, so an investigation into whether or not this is fraud should be mounted. Walsh:

The separate analysis by SNL Financial, by contrast, was based on public regulatory filings. It did identify the life insurance companies that are the biggest users of the transactions, both in and out of New York. They include Transamerica, MetLife, Prudential, Hartford, Genworth, John Hancock, ReliaStar and Lincoln National, among others. Another insurer, Allstate, turned up in the sample even though its primary business is property and casualty, because it owns some life insurers.

Just incredible.

And it was all going so nicely! (Is Assad about to defeat the Syrian uprising?). Also: best wishes for recovery to Stirling

I don’t pretend to know whether this is correct, but the Agonist under Sean Paul Kelley was generally a place to go for international news. I am less taken with the current editor, Michael Collins, but it’s certainly a tonic to what we hear in our press:

The war in Syria went from a seeming quagmire to a conflict that may reach a dramatic climax with the coming battle for Aleppo, a city of nearly three million people that was once the commercial center of the nation.
…
The Syrian Army finished off final rebel resistance in the city of Qusayr last week fighting alongside the Lebanese group Hezbollah. As a result, the rebel supply line from Lebanon is shut down and the major road from Damascus to Aleppo via Qusayr is open. The road will serve the supply line for an attack to end rebel occupation of half of that city.

A victory by the Syrian military in Operation Northern Storm, its name for the Aleppo effort, will leave the rebels with very little in the way of major influence or meaningful territory.

Our press has been telling us that victory is certain for the rebels. Collins seems to believe the opposite. I have no opinion, just a vain hope that when it’s all over, the industrialized nations will not abandon a shattered Syria.

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Unrelated. Via the Agonist, this note dated 6/3:

To all Stirling [Newberry]’s friends; please know that he has had a stroke. He is in Mass. General Hospital and will get moved out of intensive care in the next couple of days. He has a long road to rehabilitation ahead of him. Please wish him well and visit with him if you can. (Stirling’s Facebook page is active for wishing him well)

A fast recovery to Mr. Newberry, one of the Internet’s most thoughtful iconoclasts.
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Update. Bill Clinton risks looking like a fool:

Former President Bill Clinton offered a stinging critique of President Barack Obama’s inaction in Syria during a closed-press event this week, Politico reported, arguing that Obama’s hesitance to get involved in the lengthy conflict could end up making him look like a “total fool” and a “wuss.”

While only 15 percent of Americans said they’d back military action in Syria, according to a recent poll

Ex-presidents are not supposed to grade sitting presidents, particularly with this sort of rhetoric.
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Update: And now with this background the White House announcement of lethal aid for the Syrian rebels looks very much like an admission that Assad has won and that the only way to impose the American will is through the CIA, which will presumably be filling the gap until the rebels can get armed and trained.

Cliff-diving, Japanese style

Down 5.7% (758 points) so far today, and 20% from its high. US futures scheduled to open down 0.75%, and roughly 4% (S&P) from its high.

Seems pretty clear that money is flooding out of international markets (Japan, Brazil, Turkey which is down roughly 20% from its high) and into the US. Which is not keeping the US from falling, just from tanking. The permabears are calling for a new crash as bad as 2008. I don’t see that, because the bubble inflation seems much smaller. But certainly a 10-20% correction would be normal after the enormous run we’ve seen.
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SPY trading at 50 day moving average. It’s likely to bounce, at least in the short-term. If it breaks below, the first strong support is at the 200 day MA which would be somewhere around 1500-1550.

So, excitement!

(But don’t watch the technicals. Watch the news. Things like the Turkish riots are real news, and real news is what really affects the market)