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Larry Kudlow of CNBC Reporting of Emergency Federal Reserve Meeting Tonight
CNBC television | 7/23/2002 | Larry Kudlow

Posted on 07/23/2002 5:11:52 PM PDT by rumrunner

Larry Kudlow mentioned that the Federal Reserve may be meeting tonight to discuss the exposure of Citibank and JP Morgan Chase to derivatives and the stock market collapse.

Possible that both banks have billions of derivatives that need to be unwound. Would collapse the banking industry.


TOPICS: Breaking News; Business/Economy; Government
KEYWORDS: cnbc; democratsdream; federalreserve; larrykudlow
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1 posted on 07/23/2002 5:11:52 PM PDT by rumrunner
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To: rumrunner
The dominos are teetering. And all because of California's power problem last year.
2 posted on 07/23/2002 5:13:22 PM PDT by RightWhale
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To: rumrunner
Interesting stuff...
3 posted on 07/23/2002 5:14:37 PM PDT by RCW2001
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To: rumrunner
Would collapse the banking industry.

My thoughts, exactly when I heard this. (My deceased husband used to be an auditor for the Federal Home Loan Bank Board.) He could never tell me anything, but I thought "Oh, oh." when I heard this.

4 posted on 07/23/2002 5:17:24 PM PDT by Salvation
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To: rumrunner
There are many kinds of derivatives.  'Unwinding' them
in a very down market sounds like a euphemism for:
 

                        
          'Here, hold muh FDIC.'

5 posted on 07/23/2002 5:17:39 PM PDT by gcruse
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To: rumrunner
Kudlow also mentioned something about Treasury Secretary Paul O'Neil also in NY for some secrete meeting.

If anybody has any additional info PLEASE POST IT!!! Thanks!

6 posted on 07/23/2002 5:18:33 PM PDT by True Capitalist
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To: rumrunner
This was a rumor all day. I am skeptical. If it were true the stock market would have dropped 1000 points or more.
7 posted on 07/23/2002 5:19:06 PM PDT by shrinkermd
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To: Dog; Miss Marple; ken5050
ping
8 posted on 07/23/2002 5:19:51 PM PDT by kayak
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To: Senator Pardek
Ever read the book "The Death Of Ivan Illych"?
9 posted on 07/23/2002 5:20:15 PM PDT by Dales
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To: rumrunner
http://www.financialsense.com/Market/daily/monday.htm

"J.P. Morgan Chase, Citigroup, and Bank America are also the nation's largest writers of derivatives. These three banks have derivative portfolios totaling close to $40 trillion in notional value or roughly 87 percent of the derivative portfolio of the nation's top 354 banks. This is a high concentration in just a few players in what is a very risky business."


Danger in Derivatives
The media attention has been on the companies that have defaulted on their loans or have filed for bankruptcy protection. To a lesser extent, the attention has been on the banks. A credit bubble has two sides to the equation: the borrower (Enron, Global Crossing, Kmart WorldCom) and the lender (J.P. Morgan Chase, Citigroup, Bank America). Banks have not only been the lender and underwriters on much of this debt, they have also been the writer of derivatives that go hand-in-hand with the expansion of credit. In fact, bank derivative growth has been growing at double-digit rates over the last decade. During the first quarter of this year the notional value of derivatives in bank portfolios increased by $946 billion. Interest rate contracts increased by $972 billion to $39.3 trillion. So in addition to the debt debacle, you also have the danger of another derivative debacle such as we had with LTCM back in 1998. Many of the top banks such as J.P. Morgan Chase, Citigroup, and Bank America are also the nation's largest writers of derivatives. These three banks have derivative portfolios totaling close to $40 trillion in notional value or roughly 87 percent of the derivative portfolio of the nation's top 354 banks. This is a high concentration in just a few players in what is a very risky business.

On top of making bad loans, the banks also have exposure as the largest underwriters in the derivative business. J.P. Morgan Chase is leveraged over 700-1 when you look at the bank's exposure to derivatives. The net equity of JPM has to back those derivatives. If you look at J.P. Morgan Chase’s derivative book, the bank looks and acts more like a hedge fund then it does a pillar of stability of the financial establishment. The credit problems are only one side of the problem. No one knows what the bank's derivative risks are other than that they have $23.4 trillion in derivatives against equity of around $40 billion.

This isn’t the only problem the bank has at the moment. J.P. Morgan Chase and Citigroup made $5 billion in cash loans using complex transactions that were disguised as energy trades. This made the loans hidden from Enron’s balance sheet. Investigators found out that J.P. Morgan and Citigroup were Enron’s main source of prepay funding. The Senate Governmental Affairs subcommittee is now looking into the extent to what these banks knew and the role they may have played in aiding Enron’s accounting deceptions. J.P. Morgan promoted prepay loans to customers in the 90’s because of their “balance sheet friendly” nature. In addition to the Senate, the Manhattan’ district attorney’s office is looking into the role J.P. Morgan Chase played in making offshore loans to companies in an effort to keep the debt off the balance sheet. Insurance companies, which issued surety bonds as guarantees that Enron would repay its offshore loans, are now suing the banks because they claim the banks kept knowledge of the company’s perilous financial condition from them."
10 posted on 07/23/2002 5:22:41 PM PDT by BillyJack
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To: True Capitalist
"Kudlow also mentioned something about Treasury Secretary Paul O'Neil also in NY for some secrete meeting."

You mean he is not still on vacation with BONO!

11 posted on 07/23/2002 5:23:26 PM PDT by Voltage
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To: RightWhale
The tip of the iceberg might go back to the LTCM hedge fund bailout of 1998. Looks like another bailout in the works. I believe the Bush administration has to plant this stuff squarley where it belongs...on the Clinton years, or it WILL come back to bite them.
12 posted on 07/23/2002 5:24:05 PM PDT by stylin19a
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To: rumrunner
And they'll decide to crank interest rates at the same time ..... shades of '29-32 here.
13 posted on 07/23/2002 5:26:15 PM PDT by Centurion2000
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To: steveegg
Ping
14 posted on 07/23/2002 5:27:05 PM PDT by Dog
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To: Dales
No, but frankly - it still frightens me.
15 posted on 07/23/2002 5:28:44 PM PDT by Senator Pardek
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To: Dales
What about that book???
16 posted on 07/23/2002 5:29:38 PM PDT by Dog
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To: rumrunner
bump
17 posted on 07/23/2002 5:31:02 PM PDT by Red Jones
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To: Centurion2000
And they'll decide to crank interest rates at the same time ..... shades of '29-32 here.

If anything, they'll crank interest rates down another quarter or half-point.

18 posted on 07/23/2002 5:31:12 PM PDT by sinkspur
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To: Dales
How did it end?
19 posted on 07/23/2002 5:31:24 PM PDT by Aliska
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To: rumrunner
And the feces will hit the fan in

5...

4...

3...

2...

20 posted on 07/23/2002 5:31:59 PM PDT by Thane_Banquo
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To: BillyJack
$23.4 trillion ain't chicken feed.
21 posted on 07/23/2002 5:32:09 PM PDT by crypt2k
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To: stylin19a
I believe the Bush administration has to plant this stuff squarley where it belongs...on the Clinton years, or it WILL come back to bite them.

It would be awfully hard for the media to keep Rubin's name out of the story now, won't it? Especially if he's partly responsible for the potential collapse of the entire banking industry!

-PJ

22 posted on 07/23/2002 5:33:20 PM PDT by Political Junkie Too
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To: rumrunner
Possible that both banks have billions of derivatives that need to be unwound. Would collapse the banking industry.

This will never happen. Both Citibank and Chase fall into the "too big to fail" category. The feds will bail them out 100% if that's what it takes to keep them from going under. Of course, in such a case, everyone at both banks of middle management rank or higher should expect to be fired, and had better find a good attorney and put him on retainer.

23 posted on 07/23/2002 5:33:52 PM PDT by Timesink
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To: Senator Pardek
Look at how much Citigroup and Morgan have lost...

Investors took fright at the potential damage to the banks from their role in the energy trader's collapse, which has already brought down its auditor Andersen. Citigroup shares fell nearly 16 per cent on Tuesday with JP Morgan down 18 per cent, a combined loss of market value of over $34bn. Citigroup has lost a quarter of its value in two days.

Stunning!

24 posted on 07/23/2002 5:33:55 PM PDT by Dog
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To: rumrunner
This is a rather hysterical headline. If this was an issue, one would think we would have had some wind of it. Is the fact that these two banks are the ones that have Enron exposure just a coincidence? Maybe Kudlow has his wires crossed and that is the source of the exposure, not "derivatives."
25 posted on 07/23/2002 5:34:01 PM PDT by Torie
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To: Senator Pardek
lol A book you have never read still frightens you?

It's a book about this guy who has a slight fall. Unbeknownst to him, the fall injured him enough so that he slowly dies. The book just follows his life as slowly things start to fall apart for him as one thing after another goes wrong with his body.

There are times lately where I just wonder if we are watching something similar happen to us. I hate that pessimistic feeling.

26 posted on 07/23/2002 5:34:09 PM PDT by Dales
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Comment #27 Removed by Moderator

To: BillyJack
Please be gentle here, I rarely even balance my checking account.

My first reaction upon reading your post was that there must be a few greedy people in deal making positions in Morgan and Citibank that made these loans because they'd have to know that these were not only shady, but also that Enron had no real way to pay them back.

But, after I read through the thing, I'm left wondering, given the banks' other money-lending policies,if the whole darn lot of them weren't in cahoots on the whole thing - they were willingly running their companies into the ground solely because of their own personal greed (just like the Enron execs). Is that the correct read?
28 posted on 07/23/2002 5:34:54 PM PDT by Endeavor
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To: sinkspur
Agree with the quarter point, anything more would freak out the street.
29 posted on 07/23/2002 5:36:27 PM PDT by Crusader21stCentury
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To: crypt2k
$23.4 trillion ain't chicken feed.

Yeah. $23.4 trillion here, $23.4 trillion there ... pretty soon you're talking about real money!

30 posted on 07/23/2002 5:36:41 PM PDT by Timesink
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To: rumrunner
Another bailout of his buddies....much as he did when Long Term Capital collapsed. Dirtbags all! Bring on the jail cells.
31 posted on 07/23/2002 5:37:27 PM PDT by OldFriend
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To: Timesink
The feds will bail them out 100% if that's what it takes to keep them from going under.

My brother's theory: if you pull out of stocks to avoid a crash watch out for the increased taxes to cover the bailouts.

32 posted on 07/23/2002 5:37:33 PM PDT by crypt2k
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To: BillyJack
The source for this appears rather thin. Just who is Jim Puplava?
33 posted on 07/23/2002 5:37:50 PM PDT by Torie
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To: Aliska
lol He died. Hence the title.
34 posted on 07/23/2002 5:38:02 PM PDT by Dales
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To: Political Junkie Too
Unless the media figures a way to move Bush and Cheney from being oil men to being bank owners........the dems are going to be damned sorry they wanted to ride this scandal to the mid term elections.
35 posted on 07/23/2002 5:39:17 PM PDT by OldFriend
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To: Political Junkie Too
It would be awfully hard for the media to keep Rubin's name out of the story now, won't it? Especially if he's partly responsible for the potential collapse of the entire banking industry!

Not out of the financial press, no ... but the regular liberal media is quite expert at covering the asses of their favorite, well, asses, until the story becomes literally too big to ignore. Rubin still has some breathing room here, at least for now.

36 posted on 07/23/2002 5:39:24 PM PDT by Timesink
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To: rumrunner
This should clear the air.
37 posted on 07/23/2002 5:42:49 PM PDT by dalebert
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To: Timesink
No doubt..I was watching a bit of CBS and blather was on talking about Worldcom..It was Cousin of Republican (didn't catch the name), and nephew of Ronald Reagan..yada, yada, yada...I stood there awaiting my six pack stunned (why I dunno) that they (CBS and blather) can speak like they are not biased.

You know what's gonna happen, Rubin's ties will be broken on the lamestream across the weekend...dead story by Monday; at least they will try. But I don't think it's gonna work. Too much money is gonna be (already has been?) lost here. Ctigroup has already lost 1/4 of it's value.

38 posted on 07/23/2002 5:43:47 PM PDT by Michael Barnes
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To: Fracas; PhiKapMom; Mo1; Howlin; Miss Marple; rintense; kcvl; Utah Girl; gov_bean_ counter
Ping
39 posted on 07/23/2002 5:43:49 PM PDT by terilyn
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To: Dog
Investors took fright at the potential damage to the banks from their role in the energy trader's collapse, which has already brought down its auditor Andersen. Citigroup shares fell nearly 16 per cent on Tuesday with JP Morgan down 18 per cent, a combined loss of market value of over $34bn. Citigroup has lost a quarter of its value in two days.

I would be perfectly happy to see the Federal Reserve, or even the FDIC, take over both banks, chop them into little pieces, and sell them off to a multitude of other banks. As an ex-NYCer, I have had checking accounts with both banks, and can assure you they treat their little customers like absolute crap. I believe they'd both love to get out of serving the "little people" altogether, but are too afraid of the majorly bad PR they'd get from such a move.

They're greedy, they're snobby, they're apparantly acting illegally. I say take them out with extreme prejudice.

40 posted on 07/23/2002 5:44:12 PM PDT by Timesink
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To: Dales
lol. I read it years ago and couldn't remember anything about it. Had to look it up on google, then couldn't see how it related to this thread. You saved me asking another dumb question :-).

found here

"Screenplay. Nobody ever loved life, feared death, or described them better than Tolstoy. In this famous novella, the archetypal story of a man who "has it all", Ivan is stricken by cancer in middle age, rages against the idea of death, and is finally reconciled to its inevitability. Tolstoy satirizes nineteenth-century Russian society, the bureaucracy, the medical profession, and marriage. This screenplay contains an animated sequence describing a failing marriage through the use of "Mamushka" dolls; music by Tchaikovsky. Approx. running time: 120 minutes."

41 posted on 07/23/2002 5:45:23 PM PDT by Aliska
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To: unix
No doubt..I was watching a bit of CBS and blather was on talking about Worldcom..It was Cousin of Republican (didn't catch the name), and nephew of Ronald Reagan..yada, yada, yada...I stood there awaiting my six pack stunned (why I dunno) that they (CBS and blather) can speak like they are not biased.

You really ought to pick up a copy of "At Any Cost: How Al Gore Tried to Steal the Election." After reading that book, you'll never trust any network on anything they ever say ever again ... not even Fox.

42 posted on 07/23/2002 5:46:41 PM PDT by Timesink
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To: Timesink
The FDIC would chop them quickly too. Prior to Y2K, there were some banks that did not make the cut (23 of them if memory serves). FDIC stepped in and doled out the remmenants of hte 23 to the top ten banks to take over.
43 posted on 07/23/2002 5:47:26 PM PDT by Michael Barnes
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To: rumrunner
Citigroup, J.P. Morgan Marketed Enron-Type Deals to Other Firms

Tue Jul 23

Citigroup Inc. (NYSE: C - News) and J.P. Morgan (NYSE: JPM - News) Chase & Co . , already facing scrutiny for devising allegedly deceptive transactions for Enron Corp., marketed similarly structured deals to a slew of other companies, Tuesday's Wall Street Journal reported, citing testimony that a senior congressional investigator will give at hearings that start today.

The names of the other companies weren't disclosed.

The hearings, part of a Senate investigation into the role banks played in Enron's troubled finances, are the latest in a series of investigations into the two banks regarding their ties to Enron, which filed for bankruptcy-court protection late last year. The investigations include separate probes conducted by the Securities and Exchange Commission ( news - web sites) and the office of Manhattan District Attorney Robert Morgenthau.

Now, a person familiar with the matter says, the Justice Department ( news - web sites)'s Enron Task Force also is looking into the roles that financial institutions, including Citigroup, J.P. Morgan , Merrill Lynch & Co . and National Westminster Bank, now a unit of Royal Bank of Scotland PLC, may have played in Enron's demise.

Citigroup and J.P. Morgan declined to comment on the hearings or the investigations. Merrill and Royal Bank of Scotland couldn't be reached for a comment.

The deals under congressional scrutiny include arrangements known as Yosemite, devised by Citigroup, and Mahonia, devised by J.P. Morgan , both of which were designed to make Enron's public disclosures more appealing to investors, according to the testimony.

An official familiar with the investigation will testify at today's hearings before that panel that Yosemite, Mahonia and other deals allowed Enron to understate its debt by 40% while overstating cash flow by as much as 50%, according to a draft of his statement. Cash flow is a crucial measure of financial health for energy companies such as Enron.

"The evidence indicates that Enron would not have been able to engage in the extent of the accounting deception it did, involving billions of dollars, were it not for the active participation of major financial institutions," says a copy of the testimony.

Banks such as J.P. Morgan and Citigroup were "willing to go along with and even expand upon Enron's activities."

J.P. Morgan , in fact, had a "pitch book" to sell other companies on similar financing vehicles, according to a copy of the testimony. J.P. Morgan entered into similar transactions with seven other companies, while Citigroup shopped such deals around to as many as 14, with at least three entering into such relationships, the testimony says.

The hearings will focus on a commodity-trading vehicle known as a prepay, in which a financier gives money in exchange for future delivery of a commodity such as gas, gold or oil. Such arrangements are common, but in the hands of Citigroup and J.P. Morgan , they became the building blocks for extremely complex transactions that Enron used to disguise debt as trades and create the appearance the company was generating cash, people familiar with the matter said.

Wall Street Journal Staff Reporters Jathon Sapsford and Paul Beckett contributed to this report.

44 posted on 07/23/2002 5:47:28 PM PDT by USA21
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To: terilyn
I was just reading this. If Kudlow said it I believe it.

I still haven't heard ONE WORD about Robert Rubin in a negative light from the "news' reporters". If he were "friends" of Republicans or Bush it would be breaking news yesterday, today, tomorrow...

45 posted on 07/23/2002 5:49:34 PM PDT by kcvl
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To: USA21
The names of the other companies weren't disclosed.

Give the WSJ guys a few days. They live for company-destroying scandals like this, and have so many sources they WILL find out those names pretty soon.

And when they do, how much do you want to bet that the vast majority have very strong ties to Clinton Administration cabinet member, Al Gore, or The Big Unit himself?

46 posted on 07/23/2002 5:50:46 PM PDT by Timesink
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To: Political Junkie Too
It would be awfully hard for the media to keep Rubin's name out of the story now, won't it?

Not at all.

He'll be on vacation at some VERY secluded spot, with no cel phone. Oh, and he'll be with his family, so we MUST respect his privacy.

Next, scream Halliburton and Harkin, and the paper goes to bed.

47 posted on 07/23/2002 5:51:39 PM PDT by NativeNewYorker
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To: terilyn
Well, well, well.

I still have my dream: that Robert Rubin sits before a Congressional Committee and is forced to plead the Fifth Amendment. On television, so that the tape can be run in 1000 campaign commercials for the GOP.

48 posted on 07/23/2002 5:53:11 PM PDT by Miss Marple
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To: stylin19a
I believe the Bush administration has to plant this stuff squarley where it belongs...on the Clinton years, or it WILL come back to bite them.

TOOOO LATE! This was a viable plan in January `01. But NOOOOooo! Jorge had to go the "bipartisan" route. Now, it would look like Jorge has come completely unglued and is desperately fishing for scapegoats.

Like it or not, this will go down in the history books as the Great Bush Depression.

49 posted on 07/23/2002 5:53:44 PM PDT by Arleigh
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To: rumrunner
See THIS...
50 posted on 07/23/2002 5:53:53 PM PDT by Vidalia
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