muses of the moment

March 4, 2014


Filed under: Credit Derivatives, Economic Crisis, Taxes, The Banking Crisis, The Financial Crisis — totallygroovygirlfriday @ 10:14 am

Click here for a very good article describing why city, county, and state pensions could be in trouble. derivative bets. Although this article about PIMCO and the recent departure of Mohamed El-Erianas, this article goes into detail about how derivative bets are putting pressure local and state balance sheets. The first thing to be “restructured” is pensions. When cities, counties, and states are in trouble, taxes go up and services go down, and maintenance items are put on the back burner.

This paragraph from the article was very interesting. Clearly shows what will implode PIMCO:

According to the publication of Morningstar Top Holdings snapshot, about three quarters of PIMCO derivatives were
bets on European currency financial futures and the balance was on U.S.
dollar futures. Some of PIMCO holdings have a “negative cash position”
that usually represents short selling — short sale being a speculative investment that profits when prices fall. The Total Fund portfolio looks similar to leveraged hedge fund portfolio. PIMCO
derivatives seem all about “maximum return” and not very much about
“preservation of capital and prudent investment management.”

Groovygirl believes that the combination of derivative bets (balance sheet problem now coming due) and lower tax revenue from falling property values (the housing market decline) and falling sales taxes from lower economic activity coupled with long-term maintenance aged-related expenses (income sheet problem) has brought these issues to the fore-front. Every city is in involved derivatives, it is how cities kept pension funds in the black at least on paper that they raided long ago. Cities can’t print money.

You can hide a balance sheet problem with more revenue. But when revenue falls or expenses increase your balance sheet problem becomes unavoidable. This is accounting 101, but no one in government seems care. Juggling accounting, not prudent governing, seems to be just doing business. “Hiding a poor balance sheet” is not a long term business plan.


  1. Hi GG,
    I would like to believe that El-Erian is one of the good guys, but who knows. If he is, hopefully he will continue to warn Main Street of the pending danger.

    With the derivative charges now in place, it looks like the insiders are cleaning up loose ends (forced suicides) and heading for the exits. They may have planned for a Building 7 style controlled demolition but things have gotten so unstable just about anything could set them off. No, for the banksters and their friends, it’s time to sit back and wait for the Grand Finale from the safety of their well-fortified hideaways. Once the shock and awe is over and the smoke has cleared, they’ll return with the other vultures for the fire sale.

    In other news, Mike Maloney has posted an interesting video answering the question – Is money the root of all evil? He reads an excerpt from Ayn Rand’s book “Atlas Shrugged” –

    Comment by sw — March 6, 2014 @ 1:09 pm

  2. Yes, SW. Saw that video from Mike. Good one.

    Regarding derivitives, I also noticed that the EU is trying to pass rules to make it illegal/impossible to unwind or cash in bad derivative bets. Their soltuion to no printing. In gg’s mind this will have the same effect as the last time: no credit, no cash, no capital. It was the credit freeze in the last meltdown that took down the system. If your capital and credit is all tied up in bad derivative bets that you can’t sell or count as a loss, you are pretty much reduced to, at best, treading water. I suspect bail-ins are designed to help with “cashflow” problem of big banks, but that just makes sure that every day commerce can continue, it will not create more credit or growth.

    This second meltdown is not going to be pretty…October 2015 🙂


    Comment by totallygroovygirlfriday — March 7, 2014 @ 10:37 am

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