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Thursday, August 30, 2012

U.S. Regulators are Desperate and Pathetic

The second theme which has been persistent during our conference has been the financial sector. Governments try to enforce more regulation on both sides of the Atlantic. So far they have had little success, but they definitely are on a crusade. Each defeat the socialists suffer will allow capitalism to prosper and vice versa.

The FSA tries to force regulation onto the BBA, but has not succeeded to do so yet while the SEC suffered a bittersweet defeat after a four year campaign to regulate money market funds. Regulation in itself is not negative, but we need effective and simple regulation. The current framework is counter-productive as well as ineffective regulation which simply does not work. Regulators and socialists alike claim that more regulation is necessary in order to prevent a repeat of the Great Recession which resulted from the financial crisis.

For starters, the financial crisis is ongoing and only about 40% of its impact has been felt from the First Wave. The Second Wave is currently being fueled and will be ready to be released on the socialistic pest and its supporters in order to wipe more of them out and commit economic as well as fiscal homicide. You get what you deserve and constant strikes at free market capitalism will result in extreme hardship.

The financial crisis has been created by socialist bastards who lack common. It is hard to believe that the creation of a representative of the species homo sapiens sapiens can result in a retarded mutation of severe stupidity, overwhelming idiocy and stubborn ignorance wrapped up into an unshakable framework of illusion as well as misguided perception.

The Bank of England has decided to strike back against the imperial descendents who are still mad at London for welcoming the financial refugees which resulted from socialistic policies such as Sarbanes-Oxley and now Frank-Dodd. In a desperate attempt to shore up lost tax revenues several U.S. government agencies have launched a crack-down on U.S. units of British banks and slapped them with heavy fines which banks settled in order to avoid prosecution. The prosecution of those units is nothing more than a ridiculous witch-hunt.

The witch-hunt has expanded beyond the UK and has now caught Deutsche Bank as well as UniCredit's German unit HVB. The move is fueled by anger as well as frustration and desperation. The ship is sinking rather fast and regulators are aware that important players are getting on lifeboats and head East from New York. The prosecution is the last straw the U.S. government has to squeeze some money out of financial institutions before they will be gone for good and out of reach of socialistic inspired destruction.

Speaking of fines, U.S. regulators don't stop at U.S. units of foreign banks but also targets the unfortunate domestic players who have not decided to leave. Morgan Stanley was fined $450K for bets one of its traders executed. The next thing that will happen is that traders will simply stop trading or reduce their activity to the point where it drains more liquidity from the market and creates more problems which will be countered by more social retardation and the downward spiral will eventually cause the death of the system.

The two government controlled mortgage giants, Fannie Mae and Freddie Mac, have been front and center of the financial crisis. Those two enjoyed the most regulation and government control and where the two entities which initiated a firestorm which has never been extinguished. Besides being the source of the collapse those two socialist puppets have also pushed bad loans to over $84 billion since 2007 while they received over $190 billion of taxpayers money.

Wednesday, August 29, 2012

Iran hosts NAM Summit, Assad pledges victory

It is obvious that so far this conference has been dominated by two themes. The first theme is the Syrian civil war as well as the Iranian nuclear program. Syria reportedly carried out the biggest attack in a single day since the conflict started on August 25th and killed 440 rebels and rebel supporters. President Assad reassured his supporters that the regime will win the war no matter the cost and reiterated claims that a foreign plot was to blame for the rebel strength and armament.

Turkey has stopped over 6,000 refugees from entering the country while Lebanon informed its Palestinian refugees from Syria that they will need to leave the country in 15 days. The conflict left over 2,600 members of the Syrian Security Forces dead. Rebel forces did shoot down a fighter jet which was a clear indicator that there has been and is foreign intervention which can, is and will be viewed by the Assad regime, rightfully so, as an attack on its sovereignty.

Iran, Syria's biggest ally, has spun its propaganda machinery and continues to speed up its nuclear program as it moves closer and closer to the development of a nuclear warhead. Iran, proud member of the Non-Aligned Movement or NAM as it is called, took over the three year presidency of NAM and defies isolation from the West. NAM was founded in 1961 to counter Western domination on the international playground.

NAM, which many discard as a dysfunctional body POS countries, does carry certain weight and importance among its members as 80 members dispatching diplomats at the level of minister or higher while 50 send their head of state. Iran, as well as all the other POS-NAM countries, will use this platform in order to complain about the rest of the world and swear a united front in the fight against whatever it is they claim to fight.

The conflict in Syria will dominate talks and Iran welcomes the newly elected Egyptian President Mursi to Tehran which marks the first visit by an Egyptian President since the Islamic revolution of 1979. There have been rumors that Tehran invited the leader of the terrorist group Hamas to join the NAM summit which caused further divide in the Middle East. Tehran denied those reports as usual.

Whenever one dysfunctional, powerless and unimportant body meets they love to invite the crème de la crop of useless international bodies, the United Nations, in order to create a sense of accomplishment and success. The UN happily send Secretary-General Ban ki-Moon to the NAM summit. He was asked to meet opposition leaders at a side conference.

NAM will have absolutely no impact on anything but will provide pathetic underachievers a platform to interact and it will give diplomats a reason to travel and waste tax payers money. Tehran has declared a five day public holiday as a result of the NAM summit in order to address potential traffic problems and security issues. The opposition has been warned not to use the NAM summit in order to restart the protests which where front and center during the last election in Iran in 2009.

Friday, August 24, 2012

Shapiro and the SEC are forced to swallow it

As we are on our late dinner break from the conference, the GNU agent joins me for dinner and engages into small talk about the events of the past ten hours. I return the favor and after a few brief exchanges which we used to ensure nobody really pays to attention to our corner of the conference room he looks at me and the only thing he says is XXJ followed by LMFS.

I examine his body language in order to determine if this is a serious proposal. He acknowledges my behavior and nods twice in order to confirm that my expertise is requested for those two projects. I feel honored that they thought of me. The GNU agent stands up and returns to his seat at the conference table as all of us do the same. Our meals are finished, small talk and deal making has been exhausted and we will focus back on the issues of this conference.

After we found out about Martin Wheatley, the FSA managing director charged with oversight into the LIBOR rigging scandal (UK regulator seeks BBA oversight; TheLastBear),and his push to implement oversight onto the BBA we are pleased to hear about Shapiro's defeat when it comes to her four year effort to force more regulation and oversight onto money market funds. The new are being delivered by the U.S. government representative present at the conference.

Money market funds are an alternative to bank savings accounts for individuals as well as companies. The $2.6 trillion industry lobbied heavily against more regulation and oversight as campaigned by the SEC's Shapiro. She had to drop her four year campaign as three fellow commissioners said they would not back her plan. The socialists immediately rallied and even called it a national disgrace. Others called on Mr. Barack Hussein Obama to pursue it through the newest social pest invention, the FSOC.

The FSOC was formed under the soon to be negative fallout from Dodd-Frank and is charged with oversight of the nations financial threats. A task they are neither qualified nor able to carry out. The Federal Reserve would love to have more power and the ability to seize those funds if they feel like doing so while others at the Fed said that banks could be penalized for drawing on those funds or that they need to back the funds with capital.

The FSOC lacks real power so far and the only thing they could claim is that money market funds are systematically important to the financial system. After they make use of their power the only thing they can do is to pressure the SEC into bigger oversight and more regulation which will result in the same thing defeat Shapiro suffered after wasting four years of her career on it.

Another option would be to categorize one fund family as systemically important and have the Fed regulate them. Either approach would eventually force the closure of the fund and eliminate liquidity from the system. Of course only a socialistic bastard would harm the system in such manner. First they applaud that their dog sniffed at the fund, then they label it systemically important and enact into policies which will close that systemically important part of the financial system.

In the end it was a nice victory for free market capitalism and a great blow to regulators with their idiotic proposals which result in nothing more but a dysfunctional system. Keep in mind that the financial crisis was initiated and evolved in the most tightly regulated sector of the financial world which was plagued by the greatest supervision.

Tuesday, August 21, 2012

UK regulator seeks BBA oversight

The Israeli general takes his seat after expanding a brief thank you to all members for our time. The red emergency light in the middle of the roundtable starts to flash which indicates and urgent message for one of the 24 members in the room from outside. This has been installed since no mobile devices are allowed. As a matter of fact nothing is allowed inside the conference room. I appreciate the very tight security we have in place to prevent any leaks, moles, lobbying and corruption.

The conference room has been locked from inside as well as outside. The green light starts flash which indicates that the security personnel outside has cleared the messenger and unlocked the doors. As there are no objections we unlock the door from the insight and two guards escort the messenger into the conference room. Given that he has made it to the top floor where the conference room is located he must have vital information which could not wait to be delivered.

The message is for one of the three CEO's from the banking sector. After he received the message he asks the messenger to repeat what he was just told in front of all conference members. It has to do directly with the LIBOR rigging scandal. Barclays was the first bank which was caught in the LIBOR scandal which has expanded to include seven other banks. Martin Wheatley, managing director at the FSA, has been charged with the investigation of the scandal.

The following banks have received subpoenas, are under investigation or settled fines:

1. Barclays

2. HSBC

3. RBS

4. Citigroup

5. JP Morgan Chase

6. UBS

7. Deutsche Bank

Martin Wheatley is the problem right now which needs to be addressed rather fast before he pushes regulation and oversight onto the BBA. The BBA is charged with the creation and oversight of LIBOR. They hold bi-monthly meetings at undisclosed locations and no minutes are released to the public. The members of the BBA Foreign Exchange and Money Markets Committee are also a secret which eliminates lobbying of members.

The BBA bares sole responsibility for a $300 trillion global market and is secretive with no transparency as well as out of reach of politicians and regulators. This is exactly the way it needs to function which is why it was set-up this way. Now the FSA under Wheatley's direction wants to ruin another part of free market capitalism. Yes, there was one scandal which emerged which does not mean the entire structure needs to be overhauled as the socialistic pest favors.

Members of the BBA are very experienced as well as independent from the BBA, but at the same time represent their banks during those meetings. Wheatley protests the lack of openness and transparency of the committee as their decisions impact the public good. The left-wing idiocy will drool all over statements like that. He also insists there needs to be greater accountability for firms as well as markets in order to keep the integrity of the BBA.

LIBOR is set by a daily poll asking banks what they estimate the costs would be to borrow from each other for different durations and in different currencies. The FSA is unconvinced that recent reforms carried out by the BBA will include sanctions against banks which manipulated the rate by giving false submissions to the daily poll. The Bank for International Settlements raised concerns over LIBOR in 2008. The Bank of England denies involvement in the scandal.

The BBA has the right to suspend or remove banks from the committee if they are suspected of providing false or misleading information to the BBA, a right they have never exercised nor plan to exercise. Japan regulators have suspended trading desks for several weeks in relation the TIBOR scandals, a move other regulators have not followed yet. Either way, Wheatley's suggestions of oversight and regulation of the BBA would have a counter-productive effect and yield nothing more that a victory for regulators without any benefit to the public good as they claim they have the biggest interest in.

We thank the messenger for this developing story and he is being escorted out of the room by the two security guards. The doors are locked from both sides and we take our focus away from Iran and Syria for a few moments to discuss how to handle this new situation in our best interest. Oversight and regulation will be devastating to the industry and we would need to abandon the BBA altogether in order to create a new system. The hard part will be to get all the banks to flock to the new association which would replace a regulated BBA with oversight by the FSA.

We agree to take a one hour break from the meeting in order to consume a meal. All of us have been asked what we would like to eat prior to our entry into the conference room. The red light flashes again, followed by the green light. As we unlock the doors in this planned event, a dozen security guards usher in the caterers with our extremely late dinner. The catering staff had to undergo strict security proceedings and all the food has been screened as well as sampled in the kitchen where the catering staff has to prepare out food under strict supervision.

After the catering staff is escorted out of the conference room and we start to enjoy our meal several small talks emerge and I am being approached by the GNU officer from earlier this evening.

Thursday, August 16, 2012

Israel moves closer to air strike against Iran

After the first general gave his assessment of the Syrian situation the second general delivers his prepared remarks. The first general belonged to the top brass from Sandhurst. A very well respected individual who has always been on our side and swore his loyalty to the monarch. The second general joined us from the ranks of the Israeli military which may be the world's overall most alert and best trained combat formation.

He opens his statement with a remark that shocked several of the members gathered at this conference. He issued a statement that Israel considers an attack on Iran's nuclear facilities before the U.S. elections and without notifying officials. Israel did so in 1981 when they launched an attack on Iraq's Osirak reactor. Israel carried out the attack without notifying the Reagen administration as they expected heavy opposition since the U.S. was leaning towards Iraq which was at war with Iran. Reagen delayed shipments of fighter jets to Israel after the attack.

Israel asked the U.S. to bomb a reactor in Syria under the first Bush administration, which the U.S. refused as they believed Syria is very far from being able to develop a nuclear warhead. Israel bombed a reactor under construction in 2007 and demonstrated that Israel is willing to act on its plans alone if necessary in order to protect the Israel. Iraq was never able to develop a nuclear program after the airstrike. Israel is militarily the strongest force in the Middle East and does not seek a green light from any country for its military operations.

Israel knows that a strike against all Iranian nuclear facilities may only delay Iran's nuclear program by several years, but in the Middle East a few years go a long way. As the Arab Spring showed, the situation in the Middle East can change drastically in a matter of months. Iran is a vital threat to the existence of Israel and will become a major global security risk once they have developed their first nuclear warhead. Iran continues to claim its reactor is for medical purposes.

The Israeli leadership has pressed the issue and said that the window for diplomacy is almost closed and started a SMS service to alert all citizens to missile attacks, increased distribution of gas masks and appointed a new Home Front Defense Minister. Israel has also held maneuvers in the Mediterranean Sea to prepare for an airstrike on Iran.

Israel may have to deal with the threat out of a destabilized Syria, home to the Middle East's largest chemical and biological warfare program. Israel would like to see the ouster of President Assad which would deal another blow to Iran. Assad has supplied Hamas as well as Hezbollah with thousands of rockets used to launch attacks against Israel. The threat of an Assad ouster would lay within the chemical as well as biological arsenal which may be either released in a Hail Mary attempt to stop his ouster or he may deliver them to the above mentioned terrorist organizations.

In the meantime, Iran speeds up his uranium enrichment program and moves key military as well as research facilities deep under ground and out of reach of airstrikes which makes a ground offensive not unlikely. An Iranian plot to kill the Saudi Arabian ambassador to the U.S. together with other diplomats has been foiled, but shows the seriousness and sensitivity of the situation. According to Mossad, Iran's Supreme Leader Ayatollah Ali Khameni does not consider military intervention as likely and orders his country to continue with their nuclear program at an accelerated pace.

Tuesday, August 14, 2012

Syrian civil war rages on

The last few members arrive in the conference room and we all take our assigned seats at the roundtable. It always reminds me of King Arthur's Roundtable as we think we all play an equal role and meet every so often to conduct high priority meetings in order to make decisions which will impact the world. Secrets, security and shadows everywhere we go. Nobody knows we exist, nobody knows what we do and everyone feels the impact one way or the other.

I sit across the table from my contractor as well as my handler at the agency. Two generals were seated next to me to my left while I have members of the royal family to my right. In total we count 24 people in the conference room. We are all highly disturbed about the attack on HQ and eagerly await the debriefing of the initial security sweep as well as analysis. The conference room is filled with royalty, diplomatic immunity, military intelligence and financial genius. It does feel as we do make the world go round.

One of the generals is given the first word. Introductions are not necessary, we all know and either respect or disrespect each other. He stands up and after a brief greeting issues an update on the Syrian situation. Syria has made it to the front and center of today's conference. I just noticed that the GNU officer who contacted me earlier is also present at this meeting which is a rather unexpected turn of events.

The fighting in Damascus as well as Aleppo has intensified. The rebels have down a fighter jet and captured its pilot in Deir Ezzor which was the first time the Free Army accomplished such a task and shows that the rebels received heavy weaponry from its supporters, mainly from the West. The rebels have begged for anti-aircraft weapons and this is the first confirmation that outsiders have interfered with the civil war.

China as well as Russia, both Syria allies, do their part to ensure limited interference and veto proposals dictated by the West when it comes on how to deal with Syria. Bouthaina Shabaan, an Assad aide, was dispatched to China where he met Foreign Minister Yang Jiechi and his team in order to discuss a cease fire. China said it will invite the opposition as well and hear them out.

The Organization of Islamic Cooperation, 57 nations strong, wants to suspend Syria. OIC is meeting in Mecca, Saudi Arabia to discuss such a move which faces strong opposition from Iran, Syria's closest ally. The Syrian National Council which operates out of Turkey and supports the rebels continues to dig its knees in the sand and begs the West to implement and enforce a no-fly zone in the same manner it did in Libya last year.

Damascus, which many compare to the Libyan rebel stronghold of Benghazi, enters its fourth day without communications and experiences a shortfall in food, energy as well as medication. Government forces conduct security sweeps and the latest such sweep ended in the arrest of 22 rebels. The Syrian war left over 21,000 people dead, 1.5 million displaced and 150K refugees in Turkey, Jordan, Lebanon and Iraq.

The Assad regime has suffered a range of setbacks including its Prime Minister who claimed that Assad faces intense internal pressure from loyalists who want to flee as well as the constant scrimmages with rebels. A total of 27 generals have deserted and joined the Free Army, but not a single battalion has switched sides which shows that the Assad regime has enough military brass left to control the military and potentially crush the rebellion which held the country in a gridlock for the past 17 months.

Assad can count on the loyalty of the Republican Guard as well as the Fourth Armored Division, an elite combat group, and the 27 Brigadier Generals are nothing in comparison to the 1,200 they have among their ranks. There are roughly 100 senior ranking generals all of whom remain loyal to Assad.

As the general finishes his quick overview of the Syrian situation the main question remains which side to support. Whose victory would be more beneficial to our cause. There will be a vote and I can already tell that it will be a split decision. The rebels get a lot of direct support from outside forces, maybe it is time to offer support to the Assad regime in order to end the violence and get Syria back on track. The general thanks us for our time and takes his seat.

Thursday, August 9, 2012

Egyptian Security Forces conduct Sinai sweep

The elevator speeds up to the top floor where the conference room is located. The doors open and there is another security checkpoint, the final one. After the attack this ensured that only senior personnel and security will be present. It appears that the agency put HQ on total lock-down with maximum security. Reinforcements arrived in Singapore rather fast as I notice several strike teams who were deployed here. At least we have a sense of security.

I pass through the final checkpoint and make my way to the conference room. As I walk by the vault I notice the two different assault teams guarding the corridor leading to the vault. I am pleased to see that. One of my colleagues comes around the corner and joins me on our way to the conference room. The meeting is scheduled to start in seven minutes. A junior aid approaches as in order to find out what we would like to eat during the conference which means we will be here for a while.

The meeting with my potential new contractor is still on my mind. I liked the way our initial meeting went and there is a huge amount of potential. The project had something which intrigued me and flamed up an inner interest to work on yet another top secret government contract. I am ripped out of my thoughts as my colleague engages into quick small talk about the Egyptian security sweep in the Sinai region in order to clear it from militants.

President Mursi fired the regional governor of Sinai as well as his intelligence chief and deployed ground forces as well as helicopter gunships to the region after militants attacked a border post on August 5th which killed 16 soldiers. President Mursi order the military as well as police forces to take complete control of Sinai. Sinai offers a great platform for radicals as well as terrorists to prosper as the sovereign state lacks control and a permanent heavy military presence.

The situation in Sinai has spiraled out of control after former Egyptian President Mubarak was ousted last year and President Mursi was allowed to run the show. Mursi pledged to maintain the peasce agreement between Egypt and Israel, but at the same time maintains a healthy relationship with the terrorist group Hamas which controls the Gaza Strip.

On August 7th unidentified militants attacked a checkpoint in al-Arish. Helicopter gunships pursued militants which attacked the helicopters using heavy machine guns as well as artillery. Tanks supported ground forces and the sweep allegedly left 20 militants dead and three security forces injured. Egyptian security forces have intercepted numerous shipments of heavy weapons smuggled in from Libya which include surface-to-air missiles.

Israel killed six militants on August 5th which crossed the border. Hamas condemned the attack on the border post in support of President Mursi who seems to shown a greater interest in relations with Hamas then with Israel. Sinai, most popular for its Red Sea resorts and a very popular tourist destination has been declared a state of emergency by its governor who order buses to travel in groups under armed escorts while he alos order the closure of the route which connect northern and southern Sinai.

President Mursi struggles to handle the situation as he was handed leadership by the Egyptian Army in order to restore order. Egypt has suffered for the last 18 months amid unrest and a deterioration of the security as well as economic situation. He also needs to sooth fear of secularist parties that his Muslim Brotherhood party will not follow policies at the expense of the country.

Mursi's move to focus more on the relationship with Hamas rather than Israel will harm him in the long-run. The peace treaty between Egypt and Israel limits the amount of troops Egypt is allowed to maintain in Sinai. Mursi eased restrictions on Gazans as he met with top Hamas officials and allows more cross-border transactions. A positive development is the the security sweep also closed tunnels used to smuggle weapons and fuel as well as food and medication. The military said that the attacks were supported from groups within the Gaza Strip and the closure of tunnels will cripple operations enacted by Hamas.

We approach the conference room, guarded by six security members. A small line of our colleagues as well as contractors is patiently waiting for the security procedures to be completed so they are allowed into the conference room. No devices are allowed inside and briefcases are stored in a secure safe which is guarded. We are not taking any chances during high level conferences such as this one, especially after te events which unfolded over the past eight hours.

Tuesday, August 7, 2012

Standard Chartered gets hammered over Iran

Security is very tight as we arrive to HQ. The attack has been less then six hours ago and they already conducted an initial security sweep and analysis of the most recent events. HQ has been on lock-down and the entire security system has been revamped in record time. My security detail and I arrive at the first check-point and endure the procedure to gain access to the ground floor.

One of my colleagues already inside HQ rushes over as I relieve my security detail of their duties while inside the building. I command them to get some much needed and well deserved rest. My colleague asks me if I was briefed on the Standard Chartered situation on my way to HQ to which I simply shake my head. I did not get any information and ask him for the short version as we are headed to the elevator check-point which was set up after that attack. Only senior members with top security clearance are allowed past this point.

Standard Chartered may face losses in excess of $5.5 billion to to its transactions with Iranian financial institutions which face sanctions by the U.S. Standard Chartered is being accused of violating U.S. anti-money laundering laws. Iran booked transaction worth over $250 billion with Iranian banks over the past seven years. The bank has pocketed hundreds of millions of dollars in fees associated with those transactions.

Here is a quick overview of what Standard Chartered may face in its very near future:

1. $1.0 billion in lost revenues from its Iranian business transactions.

2. $1.5 billion in fines from U.S. regulators.

3. $3.0 billion in lost valuations due to the resignation of senior management.

4. The banks U.S. unit will be expelled from the U.S. and banned from doing business in the country.

The last point will have a very limited impact on Standard Chartered as the bank earns over 90% of its revenues from Asia, Africa and the Middle East. The bank saw its share price drop as much as 24% today and Standard Chartered strongly rejects the accusations of the U.S. regulator. One executive said what needed to be said when asking who the U.S. was to tell the bank as well as the rest of the world who to do business with.

Standard Chartered had a total of $14 million which were not in compliance with regulations while the rest was in compliance. The charges brought forward by the U.S. regulator are ridiculous and a desperate attempt to shore up much needed revenues for the U.S. which struggles with its budget situation.

The loss if its U.S. banking license in New York, the bank's headquarters for its U.S. operations, will have an impact on its ability to process U.S. Dollar transactions which the bank will solve faster than the Department of Financial Services, the U.S. Department of Justice, the U.S. Treasury Department, the Federal Reserve Bank of New York and the New York District Attorney can finish their case against the bank.

Let's face it; the U.S. is pissed that London became the financial capital of the world after the U.S. imposed new laws and regulations and a decade later they go after U.S. units of British banks. This will have severe consequences for the U.S. before the decade will turn. Barclays, Lloyds and HSBC were fined already over similar accusations and unfortunately all have settled. Eventually the leftovers of the U.S. units will flee the country and take their tax revenues with them.

I thank my colleague for the short brief. He is not allowed on the upper floors do to lower security clearance and I make may way through the security check-point into the elevators. Armed guards are stationed everywhere and the rest of chain of command is already in the conference room to discuss our future steps. I enter the elevator and I am on my way to the conference room.

Friday, August 3, 2012

Knight Capital on the Brink of Extinction

I take the platinum card and put it in my jacket. The elevator doors close and my phone rings again. It is HQ to update me on the unexpected developments out of Knight Capital and the problems they face due to a proclaimed software problem which caused the company to lose $440 million. That loss has spiraled into bigger problems and may force Knight Capital into total collapse.

On Wednesday morning Knight Capital reported a software glitch which temporary impacted 140 stocks. In general the market ignored the disruption unharmed, but Knight Capital ended up with a $440 million trading loss and now seeks emergency funding. They have approached JPM, but they have refused to comment. Knight Capital claimed they are still within capital requirements and open for business as usual. That has not stopped firms like TD Ameritrade, Vanguard as well as Fidelity to stop routing orders through Knight Capital out of fear that the firm would collapse.

This software glitch will most likely result in the sale of Knight Capital or into bankruptcy. The most probable outcome of this situation is that the entity which will provide emergency funding for Knight Capital will end up with a full purchase once the storm calms down. Due to that potential bidders are quiet and evaluate their options. The only thing certain is that Knight Capital will cease to exist in its current form.

Besides JPM, Knight Capital is also in talks with Virtu Financial which in turn is backed by Silver Lake Partners. The firm has hired Goldman Sachs as well as Sandler O'Neill to advise them on their strategic options. A data room was established in order for potential bidders to evaluate their books and have the necessary information in order to make an offer.

The biggest problem is that Knight Capital does not have the luxury of time and needs to act fast as the firms collapse is imminent. This event has caused uninformed idiocy to take center stage and blame HFT for the root cause of the issue. When uninformed idiocy takes a break misguided stupidity takes over and scream for more regulation. Markets are over-regulated and offer a counter-productive environment. The problem is that current regulation is ineffective and needs to be replaced with less but effective regulation.

The competition of Knight Capital currently enjoys the short boost in business as companies avoid the firm until they receive a clear message that they are not in danger of shutting its doors for business especially after MF Global PFG. Confidence is shattered amongst the industry and this has certainly not helped bigger picture. Knight has this weekend to hammer out a solution or a rather dark Monday will follow. Knight saw its share plunge over 60% yesterday on very heavy volume which points to great problems for the company as investors sell out at a record pace.

The elevator reaches the ground level and we exit the building. My driver stands ready and the security team and I disappear into the night as we are headed back to HQ for a conference to discuss the attack and initial results of the security investigation. At least I will get access to my secure flash drive which is locked down in the vault.

Wednesday, August 1, 2012

Are the problems of the F-22 Raptor resolved?

The restaurant is dark as we arrive after hours. Dark and quiet with a great view overlooking the Singapore skyline. The only light which illuminates the darkness of the Si Chuan Dou Hua is the light around one of the round tables where four men are waiting for my arrival. My security detail surveys the area carefully and is on high alert as this is a very sensitive meeting and we already had several attacks over the past four hours.

As we arrive at the round table the four men rise to their feet and one approaches me. His greeting is interrupted by my request to not mention names at the moment and that I would like to know what this meeting is about. I am informed that there is a great deal of admiration for the work we are able to perform with guided precision. Furthermore, my research and work has shown that we are close to the dawn of a new financial world, a new financial system which eliminates debt.

I am pleased to know that even the GRU has interest in a future project. I demand to know the details of what they seek, the parameters and objective. Right down to business, I have no time to waste especially after the security incident at HQ which left me unconsciousness for a brief moment and caused a full lock-down of the building with heightened security.

A phone rings, the young aid answers and thanks the other person shortly after. She leans over to the person I presume to be in charge of this meeting, the one who orchestrated this after hours conference and who pulled the strings on the past events. He nods after the aid is done with her update. 

Before we discuss the potential future project, let us briefly discuss the F-22 program. A rather odd suggestion from GRU members, but then again maybe I am on the wrong track and this is something completely different. I brainstorm what this could be all about. Nobody goes through all this trouble for a secret meeting to simply impress their admiration for my research and work.

The F-22 Raptor is the most expensive and most advanced stealth fighter in the history of the U.S. Air Force. The cost of the program was over $80 billion which some claim has been nothing more than wasteful spending. The Raptor's main objective is to be an air superiority fighter and own the skies which it does, but only in modern long range combat. 

During the Red Flag Alaska International exercise the F-22 demonstrated its long range superiority as it was able to target multiple bogeys simultaneously, like the F-14 Tomcat with its AIM 54 Phoenix arsenal which allows the Tomcat to engage up to six bogeys, before it was in enemy radar and weapons range. The Tomcat together with the Phoenix have been retired and the only global operator of the Phoenix is Iran. One should expect domination when shelling out $80 billion for a program.

Before you get to excited there is a huge flaw. The F-22 is equally matched when it comes to good ol' dog-fighting. older and cheaper fighters evenly match the Raptor. This may sound bad, but the worst news is that the entire F-22 has been grounded for over four years due to a potentially fatal oxygen problem. Pilots as well as ground crew members have suffered from hypoxia. 

After four years the Air Force is confident that they have found the problem. Apparently it is a four part problem which all has to do with the air filter which is meant to protect pilots from chemical and biological agents. The report listed the following as the cause of hypoxia:

1.The upper pressure garment on the outdated vests pilots have to deal with.

2. The oxygen delivery hoses.

3. The valve in the quick connection point of the oxygen delivery hoses

4.The air filter on the oxygen delivery hoses which are meant to filter out chemical as well as biological agents.

$80 billion for a jet fighter program and the inability to have functioning vests, pathetic!

There are more controversial discussion which surround the Raptor, but having the entire fleet grounded is never a good sign. Partner countries consider if it will be worth to acquire the Raptor which is currently banned from exports unlike the F-35 Lightning II.

The cost for the Raptor at roughly $420 million is not worth the final product. Allied countries prefer the Eurofighter Typhoon which costs about $200 million per jet and is evenly matched with the Raptor except in long range combat. After cost-reward is taken into consideration it is easy to spot why the Typhoon is the premier choice.

Yes, the Raptor is an amazing aerial weapons platform but the cost is not worth the one added benefit in comparison to the Typhoon. Three months ago an undisclosed number of F-22 Raptors were stationed at an allied Air Force Base in the UAE or 200 miles away from Iran. Another squadron was deployed 800 miles away from North Korea at the Kadena Air Base in southern Japan.

The problems of the Raptor have been very unfortunate and our little round table of secrecy agrees with that fact. Let us talk about the Sukhoi PAK FA is what I hear next. GRU after-all is what crosses my mind. I assume there are some issues in the financing department as the PAK FA is supposed to enter mass production in less than 15 months.

My phone rings and it is HQ. I need to be on my way and suggest we arrange another meeting tomorrow to discuss the specifics of this project as well as our compensation should we agree on terms. I stand up, which is followed by the rest of the round table. My security detail and I rush to the elevators as the young aid catches up with me and hands me a platinum card.