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The credit crisis is spilling over into the grain industry as international buyers find themselves unable to come up with payment, forcing sellers to shoulder often substantial losses.

Before cargoes can be loaded at port, buyers typically must produce proof they are good for the money. But more deals are falling through as sellers decide they don’t trust the financial institution named in the buyer’s letter of credit, analysts said.

“There’s all kinds of stuff stacked up on docks right now that can’t be shipped because people can’t get letters of credit,” said Bill Gary, president of Commodity Information Systems in Oklahoma City. “The problem is not demand, and it’s not supply because we have plenty of supply. It’s finding anyone who can come up with the credit to buy.”

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- This is a very interesting read.   Andrew Lahde, who operated a hedge fund that made an 866% return this last year by predicting the sub-prime melt-down, has decided to shut the fund down and say a few candid things about the banking industry, the folks that run it and about how the U.S. itself is run.  Well worth a read!

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Dear Investor:

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success.  However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards.  Moreover, I will let others try to amass nine, ten or eleven figure net worths.  Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all.  Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate.  I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal.  First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government.  Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover.  Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,

Andrew Lahde

- hat tip to The Big Picture

- A friend of mine sent me a copy of Obama’s most recent speech on the economy which was given on October 13th in Toledo, Ohio.    It’s an excellent speech with a lot of good ideas and moving rhetoric in it.  I like Obama and I think he’s going to make a good president - maybe even a great one since, if there was ever an opportunity to be a great president, this is the time.   The problems requiring new thinking and new approaches are everywhere he’s going to be going.

- But, I scoured  his speech looking for some recognition, some acknowledgment of the role multinational corporations have had in America’s decline - and I found none.

- I find it plausible that ideologues cannot see the role corporations are playing in the world today, but I do expect more from real intellectuals and thinkers.   And, I have to believe Obama *is* one of these.    He’s jut too good at what he does for it to be reasonable that he’s running on ideological auto-pilot.

- But, he doesn’t acknowledge, that I’ve seen, that he understands the place corporations occupy in the mess that America’s in.   And this, to me, is the best indication of just how very powerful and intractable the power of multinational corporations are - even in the highest levels of political power in the world.

- I believe he knows and I believe that he cannot say.    It would be political suicide for him.

- So, when he talks about creating American jobs and about how hard-working American workers are, he’s ignoring the huge back-drop that colors and underlies all of this.   And that is the fact that corporations, for the benefit of their shareholders, have utterly no compunctions about sending American jobs overseas.

- America’s manufacturing has largely gone to foreign shores.   America’s intellectual work has largely gone to foreign shores.   As Globalism has become a major thread in the economies of the world and in the strategies employed by multinationals, America has gone from being a wealthy nation of hard working producers generating profit for the country to a nation of consumers who sate themselves on cheap throw-away goods from China and other countries while borrowing ever more and sending our wealth overseas at ever increasing rates.

- What I want to know is just what America is going to use to rebuild itself?

- All the politicians talk about us ‘buckling down to work‘ and recreating America the strong, the prosperous, the productive.   Just what are we going to use to do this?   We are becoming a cardboard store-front nation.   We look good, we talk some bad jive but behind the scenes, there isn’t a whole hell of a lot left.   And what’s left, our growing negative balance of trade and deep consumerist obsessions are combining to  spew into the coffers of other countries and multinationals.

- And Obama and the other politicians tell us that we can overcome all of this - if we all just pull together and work hard.   Yeah, right.   That’s  like tell the band on the Titanic that they can prevent the sinking if they just play louder.

- Take a look through his speech here: and see if you can see any acknowledgment in his remarks of the place corporations and globalism are playing in the downfall of America.

- Folks, there is a very large elephant in the room that all of the politicians are afraid to mention.   But, until we take a square look at it, our economies, our global environments and our futures are going to be evermore in doubt.

- Research Thanks to Hans D.

- The following is from the Stratfor Organization.

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The finance ministers of the G-7 countries are meeting in Washington. The first announcements on the meetings will come this weekend. It is not too extreme to say that the outcome of these meetings could redefine how the financial markets work, certainly for months and perhaps for a generation. The Americans are arguing that the regime of intervention and bailouts be allowed to continue. Others, like the British, are arguing for what in effect would be the nationalization of financial markets on a global scale. It is not clear what will be decided, but it is clear that this meeting matters.

The meetings will extend through the weekend to include members of the G-20 countries, which together account for about 90 percent of the global economy. This meeting was called because previous steps have not freed up lending between financial institutions, and the financial problem has increasingly become an economic one, affecting production and consumption in the global economy. The political leadership of these countries is under extreme pressure from the public to do something to solve — or at least alleviate — the problem.

Underlying this political pressure is a sense that the financial class, people who run global financial institutions, have failed to behave responsibly and effectively, and have therefore lost their legitimacy. The expectation, reasonable or not, is that the political system will now supplant these managers and impose at least a temporary solution. The finance ministers therefore have a political mandate, almost global in scope, to act decisively. The question is what they will do?

That question then divides further into two parts. The first is whether they will try to craft a single, global, integrated solution. The second is the degree to which they will take control of the financial system — and inter-financial institution lending in particular. (A primary reason for the credit crunch is that banks are currently afraid to lend — even to each other.) Thus far, attempts at solutions on the whole have been national rather than international. In addition, they have been built around incentivizing certain action and increasing the available money in the system.

So far, this hasn’t worked. The first problem is that financial institutions have not increased interbank lending significantly because they are concerned about the unknowns in the borrower’s balance sheet, and about the borrowers’ ability to repay the loans. With even large institutions failing, the fear is that other institutions will fail, but since the identity of the ones that will fail is unknown, lending on any terms — with or without government money — is imprudent. There is more lending to non-financial corporations than to financial ones because fewer unknowns are involved. Therefore, in the United States, infusions and promises of infusion of funds have not solved the basic problem: the uncertain solvency of the borrower.

The second problem is the international character of the crisis. An example from the Icelandic meltdown is relevant. The government of Iceland promised to repay Icelandic depositors in the island country’s failed banks. They did not extend the guarantee to non-Icelandic depositors. Partly they simply didn’t have the cash, but partly the view has been that taking care of one’s own takes priority. Countries do not want to bail out foreigners, and different governments do not want to assume the liabilities of other nations. The nature of political solutions is always that politicians respond to their own constituencies, not to people who can’t vote for them.

This weekend some basic decisions have to be made. The first is whether to give the bailouts time to work, to increase the packages or to accept that they have failed and move to the next step. The next step is for governments and central banks to take over decision making from financial institutions, and cause them to lend. This can be done in one of two ways. The first is to guarantee the loans made between financial institutions so that solvency is not an issue and risk is eliminated. The second is to directly take over the lending process, with the state dictating how much is lent to whom. In a real sense, the distinction between the two is not as significant as it appears. The market is abolished and wealth is distributed through mechanisms created by the state, with risk eliminated from the system, or more precisely, transferred from the lender to the taxing authority of the state.

The more complex issue is how to manage this on an international scale. For example, American banks lend to European banks. If the United States comes up with a plan which guarantees loans to U.S. banks but not European banks, and Europeans lend to Europe and not the United States, the integration of the global economy will very quickly shatter, leading to significant limitations on international trade, currency convertibility and so on. You will nationalize economies that can’t stand being purely national.

At the same time, there is no global mechanism for managing radical solutions. In taking over lending or guarantees, the administrative structure is everything. Managing the interbank-lending of the global economy is something for which there is no institution. And even with coordination, finance ministries and central banks would find it difficult to bear the burden — not to mention managing the system’s Herculean size and labyrinthine complexity. But if the G-7 in effect nationalize global financial systems and do it without international understandings and coordination, the consequences will be immediate and serious.

The G-7 is looking hard for a solution that will not require this level of intrusion, both because they don’t want to abolish markets even temporarily, and more important, because they have no idea how to manage this on a global scale. They very much want to have the problem solved with liquidity injections and bailouts. Their inclination is to give the current regime some more time. The problem is that the global equity markets are destroying value at extremely high rates and declines are approaching historic levels.

In other words, a crisis in the financial system is becoming an economic problem — and that means public pressure will surge, not decline. Therefore, it is plausible that they might choose to ask for what FDR did in 1933, a bank holiday, which in this case would be the suspension of trading on equity markets globally for several days while administrative solutions are reached. We have no information whatsoever that they are thinking of this, but in starting to grapple with a problem of this magnitude — and searching for solutions on this scale — it is totally understandable that they might like to buy some time.

It is not clear what they will decide. Fundamental issues to watch for are whether they move from manipulating markets through government intrusions that leave the markets fundamentally free, or do they abandon free markets at least temporarily.

Another such issue is whether they can find a way to do this globally or whether it will be done nationally. If they do go international and suspending markets, the question is how they will unwind this situation. It will be easier to start this than to end it and state-controlled markets are usually not very attractive in the long run. But then again, neither is where we are now.

France’s notoriously divided and ideologically marooned Socialist opposition has long struggled to find a leader capable of selling a modern leftist vision that voters will embrace. Right now, though, conservative President Nicolas Sarkozy may be doing that job for the Socialists. Following his Tuesday address to the United Nations in which he characterized international financial markets as “insane,” Sarkozy Thursday sounded like an indignant leftist when he called for sweeping regulation and “moralization” of international finance, and declared that the era “of the market always being right is over.”

“A certain conception of globalization has closed out: [one that] imposed its own logic on the entire economy and helped pervert it,” Sarkozy said during a speech in Toulon, attacking those who had created the unfolding financial crisis. “Self-regulation as a way of solving all problems is finished. Laissez-faire is finished. The all-powerful market that always knows best is finished.”

That’s pinko talk for a man who came to power promising to liberalize the French economy, free up its markets, and roll back the 35-hour work week imposed by the Socialists. Sarkozy’s new views may be similarly surprising to some of his closest friends, who include several billionaire businessmen and stock market titans — an elite to whom critics have accused Sarkozy of tailoring his policies.

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- I’m really surprised that anyone who calls themselves a Republican dares to even show their face out of doors after this mess.   ‘The party of Deregulation’, ‘the party of free markets’.   Yow, the party that finally destroyed the country be removing all the bars to greedy behavior.

- There are a couple of posts out there today that I want to reference.  They catch the flavor of where we are right now, in my opinion.

- First , here’s a bit from James Kunstler’s Cluster Fuck Nation Blog.  I always love his analysis and his ability to scathe the ground down to bedrock.

The big effort of Mr. Paulson and his working group has been to ram through legislation that at all costs avoids any attempt to place a reality-based value on this bad debt. He managed it by holding a gun to Congress’s collective head, telling them in plain English that a genuine “work-out” of these “toxic” investments would set in motion a fatal cascade of credit default swaps which would leave the entire banking landscape a smoldering wasteland — with the result that virtually every retirement account and pension fund would go up in a vapor, the Federal Reserve and the FDIC would melt away to twin piles of goo, scores of millions of lives would be ruined, and the USA would be left a basket case among nations, making us envy even the fate of Haiti and Zimbabwe. Talk like that might prompt a congress-person to do any fool thing.

- More of this…

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- And then there’s what I might call “The school of the other shoe dropping“.  

- Oh, there have been many dire predictions and a lot of scoffing.    Followed, at some point later, by a glowing crater where the issue in question used to be.  

- Remember, just a few weeks ago the statements coming out of WaMu about how healthy they were and how there was no doubt that they could weather the storm?   Right.

- So here’s a story I’ve been watching for a week or more now.   Little murmurings about the slight (oh, really - just very small) possibility that the Hedge Funds might be the next part of the market to crater.  

- See what you think.  Here’s Kevin Drum, who is now with Mother Jones:

HEDGE FUND WATCH….The end of the third quarter is nearly upon us, and hedge fund managers are feeling nervous:

Even as Washington reached a tentative agreement on Sunday over what may become the largest financial bailout in American history, new worries were building inside the nearly $2 trillion world of hedge funds. After years of explosive growth, losses are mounting — and so are concerns that some investors will head for the exits.

….The big worry is that a spate of hurried sales could unleash a vicious circle within the hedge fund industry, with the sales leading to more losses, and those losses leading to more withdrawals, and so on. A big test will come on Tuesday, when many funds are scheduled to accept withdrawal requests for the end of the year.

“Everybody’s watching for redemptions,” said James McKee, director of hedge fund research at Callan Associates, a consulting firm in San Francisco. “And there could be a cascading effect, where redemptions cause other redemptions.”

The article says optimistically that “No one expects a wholesale flight from hedge funds.” But no one ever does, do they?

- To the original…

- Yep.  I don’t think we’ve seen the end of this yet.   And I say that after the worst one-day drop the Dow has ever seen.

- I wonder what the odds are of the Republicans getting the White House again?   One would hope that the odds are slim after this fiasco.  But then this country seems to be populated with a very large number of mostly clueless people who disdain intellectualism, science, reason, and common sense.  So, who knows?

- An excellent and sharp edged bit of writing from The Sietch Blog:

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Thats right, the unthinkable (if you are a free market republican) has happened. The REPUBLICANS after years of steadily chopping away regulation after regulation seem to be super surprised that in a market that has no laws, or rules, or even guide lines….crazy greed induced meltdown has occurred. Let me be the first to say…DUH!

It doesn’t take a mental giant to realize that people will get away with what they can. Because the Bush administration has been so lax in it’s oversight of financial markets (I will lump in the republican congress that went along with him for most of the last 8 years, and even sprinkle a little blame on the Democrats who have only been in power for the last 2) that the fox left to guard the hen house has long since eaten all the chickens.

Here is a two minute history lesson. After the great depression, FDR and a bunch of other “liberals” put into place a bunch of laws to make it impossible for the banking world, and the finacial markets to get too cozy. As soon as the gavel struck on the supreme courts desk giving Bush the win in 2000 those rules began to be attacked (to be fair Regan and Bush 1 did their best to kill as many of them as they could as well). 8 years later, we have no rules, and an economic shit storm.

So in essence, every single splinter of the conservative plank has fallen apart. Economically, ecologically, diplomatically, constitutionally, socially, every single thing they stand for has been proven WRONG by the events on the ground.

More… (and well worth reading)

- This is a great read from Time Magazine - highly recommended.

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If you’re having a little trouble coping with what seems to be the complete unraveling of the world’s financial system, you needn’t feel bad about yourself. It’s horribly confusing, not to say terrifying; even people like us, with a combined 65 years of writing about business, have never seen anything like what’s going on. Some of the smartest, savviest people we know — like the folks running the U.S. Treasury and the Federal Reserve Board — find themselves reacting to problems rather than getting ahead of them. It’s terra incognita, a place no one expected to visit.

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-research thanks to John P.

- I really like Barry Ritholtz’s commentary on financial matters on his Big Picture Blog.

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The collection of ne’er do wells, clueless dolts, political hacks, and oh, let’s just be blunt and call them what they are — total Idiots — expands into an ever larger circle.

While the Republic burns due to the unsavory combination of incompetence, ideological rigidity, and crony capitalism, the fools and assclowns seem ever more determined to avoid any personal responsibility for the damages they have wrought. Instead, they flail about blindly, blaming everything and everyone — except their own horrific negligence.

This is financial incompetence writ on a scale far grander than anything seen for centuries.

As a nation, our institutions have failed us: Under Alan Greenspan, the Federal Reserve slept through the most reckless and irresponsible expansion of bank lending in history for reasons of ideological purity. His opposition to the Fed’s regulatory role reached the point of malfeasance long ago.  History is unlikely to be kind to the Maestro.

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- I have great friends.   I guess maybe that comes with age.  But many of these folks have risen to positions in their careers which give them great views that not many of the rest of us are privileged to share.  

- Occasionally, they share the view from where they are with me.   And in this world of endless spin, I find this highly valuable.   

- Below, are a few paragraphs that a friend of mine, who works in a large international organization in Europe, wrote me.  

- I trust his intelligence, his candor and his proximity to the things he discusses.   In short, it’s a relatively clear view of something we would normally only see through a fog of spin and ideology.

- My friend shall remain nameless.  Enjoy.

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It is very interesting in Europe.  First, the European Union for the most part has control of the currency (the Euro) not all old member states are under the Euro, (Denmark, Sweden, UK), and the newer member states are not all in the Euro (Romania, Hungary, Bulgaria, Poland, Slovakia, Czech Republic, Estonia, Latvia, Lithuania).  So I think it is 13 European countries which are laboring under the Euro which includes France, Spain, Germany, Italy, Greece, Portugal, Belgium, Netherlands, Luxembourg, Cyprus, Finland, Slovenia, Ireland.  But, these for the most part are the economic dynamos.  I might not have the Euro members exactly correct, but it is close and off the top of my head.  Anyway, the main point is that the European Central Bank (ECB) does not act like our Federal Reserve.  The ECB is charged with keeping Inflation at or below 3% across the board.  It might be 2% but I think its 3.  So, when someplace like Spain gets a head of inflationary  steam, then the ECB would screw with interest rates and other controls to curb  this villain. This was a solution looking for a problem. This has been disruptive in some cases because if a smaller nation causes the ECB to react, it could really affect larger nations, like Germany, to enter an economic downturn where things were otherwise OK.

Overall this has more or less worked OK, but it really has not had to deal with a major economic problem like that which is coming.  If you will notice, the dollar is slowly strengthening against the Euro. This is because the European economy follows the US lead but it traditionally lags by 9 months to a year.  The UK seems to have a much shorter lag, and they are feeling the crunch now. Real Estate in Spain and France is in dire straights. Europe is beginning to head south at this time.  The ECB now has to make a decision about broadening its mandate. All bets are that it will reduce interest rates to stimulate the EU economy even though inflation is not where they want it. That in part is why the dollar is strengthening.  High interest rates attract capital which causes the currency to strengthen.  So if the ECB reduces or indicates lower interest rates, then the currency depreciates.

There are other problems also, no real wage growth for years, very high social programs which drain investment capital. None of this can hold because the Asian tigers are gobbling up everything in sight.  So what we have is a massive drain of capital (National Wealth) towards Asia.  Also, Asia is stealing all the intellectual capital. To me all of this means that at some point in time Europe and the US become has-been nations.

This issue with Russia is very interesting. It has revealed the real weakness in Europe’s ability to defend itself.  For years they have lived under the US umbrella which as you know can’t extend this far due to world wide commitments. The amount they (Europe at large) spend on national defense is very low.  They are not equipped to defend themselves at all. Our (USA) equipment is wearing out, our troops are tired, and our national will is spent.  Russia knows this and is taking full advantage. For some reason the Europeans are deluded into thinking it is really not a big deal.  Shades of Pre-WW II wishfull thinking.  They are also extremely dependent upon Russia for energy.  By taking Georgia, they [ Russia] have severely tightened the screws.

My overall assessment is that economically Europe is headed South.  This very well could cause a huge social upheaval.  We will just have to wait and see how deep this thing gets.

By the way I saw something yesterday about the number of Americans now in trouble with mortgages. It is about 10%.  The Fed is going to intervene in Fannie Mae and Freddie Mac.  I am afraid that I do not see any leadership coming that will deal with these issues.  Reminds me of the old Chinese curse “May you live in interesting times”. OR, can we say depression???