Well, the results of the "Stress Tests" on major American financial institutions are in, and unbridled optimism runs wild in corporate media. Only $75 billion required to guarantee solvency! No more desperate pleas to the Federal Reserve or the Treasury for more money coupled with those annoying "restrictions" on salary or bonus pay! The unemployment rate "stabilizes" at 8.9%! Beyond the hoopla many economists and financial professionals still have some very pointed questions concerning the validity of the tests and the ongoing health of the economy in general. Economist's View's Mark Thoma wonders about the validity of the stress test "mean":
Depending on the "questions" they ask the balance sheets, and how the answers are scored, they can get whatever mean they desire (e.g. how are assets that cannot be valued in the marketplace are "scored' makes a crucial difference in the outcome) ... A big part of the problem with bank balance sheets is the things we cannot see, do not know about, and cannot predict. How were those things accounted for in the stress tests?
Think Progress's Fazid Shakir, citing an item in The Wall Street Journal, reveals the "accounting" procedure; they fudged it:
The Federal reserve significantly scaled back the size of the capital hole facing some of the nation's biggest banks, shortly before concluding its' stress tests, following two weeks of intensive bargaining. .... (T)he Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital defecits.
Not content to merely fudge capital defecits, the Fed in its' infinite wisdom also increased taxpayer risk. Wonk Room's Pat Garafolo describes a new "financial instrument" custom-made to transfer preferred stock to common-stock equity:
While the banks will presumably do their best to go out and raise capital from private investors ... they will have the option of converting the shares that the government bought with the initail round of TARP into a new financial instrument ... a "mandatory convertible preferred" share gives the banks the ability to create common equity as needed. The preferred shares convert to common shares when a bank or its regulator decides they should. ... (A)s Robert Reich points out "by this sleight-of-hand the public takes on more risk", moviing from a preferred creditor to a common shareholder.
Given the "Geithner paradigm" (throw trillions of taxpayer dollars at financial institutions judged "too big to fail" while alleviating risk to said institutions whenever possible) both the stress tests and the conversion of preferred stock to common equity constitue more of a public relations makeover than any tangible measure of financial solvency. For a big-picture look at the varieties of insolvency that continue to plague us we turn to an amazing overview pithily entitled Why We Are Absolutely Screwed by Karl Denninger:
1) There are 19 million empty homes in America and the builders are still building.
2)Prices were cranked far too high and still have not come down to historical norms in terms of price-to-income ratios. Until they do, a normal market cannot be restored.
3) Everyone in government has been attempting to prevent (the decline to normal p-t-i ratios) for the last 3 years, and have blown hundreds of billions attempting it. They have and will fail.
4) The boomers will not be needing all those extra homes. They're starting to retire. ... (A) 1 or 2-bedroom condo is just fine when all the kids are gone and you've retired.
5) There are only about 44 million " Gen-Xers" and they're stuffed to the gills with college loans. ... They can't afford the 4 and 5-bedroom houses.
... Steve Liesman gave us the "money" quote this morning (May 7th) on CNBC. None of these banks would survive on 11 or 12% unemployment. ... (T)he actual unemployment rate in the country - it includes those who are "discouraged" (they've given up) along with those who are working part-time because they can't find full-time work.
It is well over 12% right now!
Saturday, May 9, 2009
Tuesday, May 5, 2009
Sen. Schumer's "Compromise" - Killing The "Public Option"?
Echoing last week's "cramdown" mortgage reduction debate, where 11 Democratic senators crossed the partisan divide to vote gainst a bankruptcy reform bill that would have allowed judges to reduce the mortgage payments of homeowners facing foreclosure to 31% of their monthly income, today Sen. Charles Schumer of New York introduced a health care reform "compromise" to protect the "vulnerable" health insurance industry. To preserve private insurers' market share in the coming "reform" environment, Sen. Schumer's proposal would compel any government-run program to comply with all the rules and standards that private insurance companies must follow. Said rules include:
The public plan must be funded by premiums and co-payments ONLY. No tax revenue or government appropriations.
The public plan should pay doctors and hospitals MORE than Medicare pays. Medicare usually pays less than private insurers.
The government cannot coerce doctors and hospitals to participate in a public plan just because they accept Medicare reinbursement.
Officials who manage a public plan will have no stake in regulating the private insurance market.
Seems as if Sen. Schumer is bound and determined to create a public plan that is as unpalatable as the privatized insurance market. Way to go, Chuck!
For some background on what's at stake here let's turn to a recently published report by the Center For American Progress entitled The Erosion of Employer-Sponsored Health Insurance. After detailing how Chrysler retirees could lose their health benefits depending on how the current Chapter 11 proceedings shake out, the report goes on to note how since the start of the recession 2.4 million laid-off Americans have lost their health insurance coverage. In March 2009 alone 320,000 workers lost coverage, numbers that don't include wives and children of the newly unemployed. Call me a bleeding-heart, but I think these numbers tell a far more compelling story than the trials and tribulations of private health insurers. Will the American people be satisfied with inclusive mandated coverage which has proven only to drive up health insurance costs to the point that coverage becomes unsustainable? Do privatized insurers and the AMA give a damn? And why are single-payer advocates being arrested at Senate Finance Committee hearings? After the cramdown fiasco Sen. Dick Durbin remarked how banking interests "run this place". I guess private health insurer shills like Chuck Schumer prove that bankers aren't the only "special interest" that controls Congress.
The public plan must be funded by premiums and co-payments ONLY. No tax revenue or government appropriations.
The public plan should pay doctors and hospitals MORE than Medicare pays. Medicare usually pays less than private insurers.
The government cannot coerce doctors and hospitals to participate in a public plan just because they accept Medicare reinbursement.
Officials who manage a public plan will have no stake in regulating the private insurance market.
Seems as if Sen. Schumer is bound and determined to create a public plan that is as unpalatable as the privatized insurance market. Way to go, Chuck!
For some background on what's at stake here let's turn to a recently published report by the Center For American Progress entitled The Erosion of Employer-Sponsored Health Insurance. After detailing how Chrysler retirees could lose their health benefits depending on how the current Chapter 11 proceedings shake out, the report goes on to note how since the start of the recession 2.4 million laid-off Americans have lost their health insurance coverage. In March 2009 alone 320,000 workers lost coverage, numbers that don't include wives and children of the newly unemployed. Call me a bleeding-heart, but I think these numbers tell a far more compelling story than the trials and tribulations of private health insurers. Will the American people be satisfied with inclusive mandated coverage which has proven only to drive up health insurance costs to the point that coverage becomes unsustainable? Do privatized insurers and the AMA give a damn? And why are single-payer advocates being arrested at Senate Finance Committee hearings? After the cramdown fiasco Sen. Dick Durbin remarked how banking interests "run this place". I guess private health insurer shills like Chuck Schumer prove that bankers aren't the only "special interest" that controls Congress.
Tuesday, April 7, 2009
Obama Agonistes - The Empire Re-Ups
With nearly 3/4 of the Obama Administration's first 100 days behind us, it's now possible to gauge the political trajectory of our 44th President, and surely I'm not the only pundit, blogger, whatever to notice the similarity to Bill Clinton's first days in office. Just like the Big Dawg, Obama has been more than prone to making grandiloquent pronouncements only to backtrack towards the political center when actually implementing policy. First there was "I will close Guantanamo" (actually, it'll take a year provided we can find countries willing to take detainees {excluding Venezuela, of course} and obviously only after consultations with "my commanders on the ground"). Next there was "we will withdraw all fighting forces from Iraq in 16 (18?) months" (actually we'll leave a "residual force" of 50,000 troops whose mission will be reclassified leaving no "combat troops" in country. And if the aforementioned "commanders" see fit to break the Status Of Forces Agreement and remain in Iraq beyond 2011, well, that's the way it is.) Update 4/9/09 - Today President Obama asked Congress to approve an additional $83.4 billion to continue financing wars in Iraq and Afghanistan. This is the same type of "pay as you go" war funding resolution that Obama vehemently opposed when he was a senator. Recently the President was ready to flog AIG bonus-takers in the square of public opinion when that scandal became front-page news, even though the Administration had known for months in advance about the AIG payoffs. Funny how the far more egregious Merrill-Lynch bonuses were hardly mentioned 'till AIG hit the fans.
Okay, so Obama is a master of prevarication. But his centrist instincts truly falter when it comes to dealing with the global financial meltdown. By allowing Tim Geithner and Larry Summers to restart "the casino", AKA the housing bubble with the help of $12.8 TRILLION of the taxpayers' money Obama reveals just whose financial interests he's protecting, namely the shareholders and counterparties enmeshed in our biggest financial institutions. That's why even temporary nationalization of "too big to fail" zombie banks is so off the table, because any major restructuring of Big Finance would entail a nasty haircut for some very powerful individuals. However, this way forward is indeed perilous, which makes it absolutely critical for Obama to keep ahead of public outrage over Geithner's toxic asset bailout proposals. When average Americans get wind of the fact that PPIP is simply an acronym for nearly risk-free investing and profit-taking for hedge funds and wealthy private investors they will be righteously pissed. But wait, now comes news that ordinary joes will be able to invest in PPIP. I wonder if over 90% of their venture capital will be guaranteed just like the big boys!
Okay, so Obama is a master of prevarication. But his centrist instincts truly falter when it comes to dealing with the global financial meltdown. By allowing Tim Geithner and Larry Summers to restart "the casino", AKA the housing bubble with the help of $12.8 TRILLION of the taxpayers' money Obama reveals just whose financial interests he's protecting, namely the shareholders and counterparties enmeshed in our biggest financial institutions. That's why even temporary nationalization of "too big to fail" zombie banks is so off the table, because any major restructuring of Big Finance would entail a nasty haircut for some very powerful individuals. However, this way forward is indeed perilous, which makes it absolutely critical for Obama to keep ahead of public outrage over Geithner's toxic asset bailout proposals. When average Americans get wind of the fact that PPIP is simply an acronym for nearly risk-free investing and profit-taking for hedge funds and wealthy private investors they will be righteously pissed. But wait, now comes news that ordinary joes will be able to invest in PPIP. I wonder if over 90% of their venture capital will be guaranteed just like the big boys!
Thursday, March 26, 2009
No Plan B - "Cash For Trash" = Another Taxpayer Bailout/Gaming Geithner's Plan
If progressives haven't yet sussed out Barack Obama's hardline centrist ideology the Geithner version of Hank Paulson's "cash for trash" toxic asset bailout should make it abundantly clear; fix this momentary glitch in a perfectly acceptable financial "engine" with as much taxpayer debt as needed and move on, preferably into mortgage refinancing, and let the housing bubble re-inflate! If this doesn't work, then poof! we'll create another trillion out of nothing and try something else! Even if Geithner's hedge-fund enrichment program is on the money, the problem of scale remains; AIG alone still has 1.6 trillion of unsecured debt while TALF is only budgeted out to $500 billion, with an option for 1 trill.
In a March 24 column for Vox EU, economist Jeffery Sachs lambasted the FDIC "subsidy" that will be built into toxic asset purchases:
The investors will bid substantially more ...(than face value)... because of the massive subsidy implicit in the FDIC loan. The FDIC is giving a "heads you win, tails the taxpayer loses" offer to the private investors. Specifically, the FDIC is lending money at a low interest rate and on a non-recourse basis even though the FDIC is likely to experience a massive default on its loans to the investment funds. ... In essence, the FDIC is transferring billions of dollars of taxpayer wealth to the banks.
Don't think this "nuance" has escaped Big Finance. On thursday the Wall Street Journal reported the curious phenomenon of Citigroup and Bank of America buying up big-time "toxic sludge" off the secondary markets. With FDIC asset price inflation guaranteed, Citi and BofA are just booking first-class passage on the PPIP gravy train. What suckers these taxpayers be!
Of course the bottom line is WILL PPIP loosen credit and restore lending? Economist James Galbraith doesn't think so. In his superb March 23rd article in the Washington Monthly, Mr. Galbraith is direct:
... The most likely scenario, should the Geithner plan go through, is a combination of looting, fraud, and a renewed specualtion in volatile commodity markets such as oil. Ultimately the losses fall on the public anyway, since deposits are largely insured. There is no chance that the banks will simply resume normal long-term lending. To whom would they lend? For what? Against what collateral? And if banks are recapitalized without changing their management, why should we expect them to change the behavior that caused the insolvency in the first place?
This kind of straight talk is verboten in the MSM, even for upscale liberal platforms like The New Yorker, where inferring that Geithner so far seems intent on saving Big Finance from any undue hardship at taxpayers' expense is "paranoid politics" according to George Packer. Your Humble Dissembler's assessment is if it looks like an asset-price-inflated FDIC-facilitated taxpayer bailout you can probably dispense with "smells like" and "tastes like".
In a March 24 column for Vox EU, economist Jeffery Sachs lambasted the FDIC "subsidy" that will be built into toxic asset purchases:
The investors will bid substantially more ...(than face value)... because of the massive subsidy implicit in the FDIC loan. The FDIC is giving a "heads you win, tails the taxpayer loses" offer to the private investors. Specifically, the FDIC is lending money at a low interest rate and on a non-recourse basis even though the FDIC is likely to experience a massive default on its loans to the investment funds. ... In essence, the FDIC is transferring billions of dollars of taxpayer wealth to the banks.
Don't think this "nuance" has escaped Big Finance. On thursday the Wall Street Journal reported the curious phenomenon of Citigroup and Bank of America buying up big-time "toxic sludge" off the secondary markets. With FDIC asset price inflation guaranteed, Citi and BofA are just booking first-class passage on the PPIP gravy train. What suckers these taxpayers be!
Of course the bottom line is WILL PPIP loosen credit and restore lending? Economist James Galbraith doesn't think so. In his superb March 23rd article in the Washington Monthly, Mr. Galbraith is direct:
... The most likely scenario, should the Geithner plan go through, is a combination of looting, fraud, and a renewed specualtion in volatile commodity markets such as oil. Ultimately the losses fall on the public anyway, since deposits are largely insured. There is no chance that the banks will simply resume normal long-term lending. To whom would they lend? For what? Against what collateral? And if banks are recapitalized without changing their management, why should we expect them to change the behavior that caused the insolvency in the first place?
This kind of straight talk is verboten in the MSM, even for upscale liberal platforms like The New Yorker, where inferring that Geithner so far seems intent on saving Big Finance from any undue hardship at taxpayers' expense is "paranoid politics" according to George Packer. Your Humble Dissembler's assessment is if it looks like an asset-price-inflated FDIC-facilitated taxpayer bailout you can probably dispense with "smells like" and "tastes like".
Saturday, March 21, 2009
AIG - Necessary Bailout Or "PASS-THRU" Scam?
Now that the smoke is cleared, the "shock" wearing off of the mid-September meltdown of the financial industry (alleviated by heroic, if painful 'bailouts') to the point where informed people can analyze actions and consequences, it's painfully clear that the initial Paulson-Bernanke TARP bailouts where skewed to the will of an ultra-insider Fed-Goldman-Sachs clique. In retrospect Goldman seems to be on 3 sides of the bailouts at once, as adviser (Blankfein was allowed to oversee the negotiations which produced the initial AIG package), receiver of bailout funds, of course, and the recently revealed $12 billion counterparty paid off by AIG. Wow, GS, what's in your wallet? Oh, the President, the Treasury Secretary, the Fed Chairman, etc., etc.
My big question is since we now come to own 80% of it already, what if the government would have nationalized AIG? No "bonuses" controversy to obscure the real issue of tens of billions of dollars "passing through " AIG on their way to Societe' Generale, Deutsch Bank, Goldman, UBS (where the 'architect', Phil Gramm resides), and many more. Of course, none of these charity cases were paying taxes; the IRS during the Bush years would never prosecute them. And if AIG was in Federal receivership, the counterparties wouldn't get 100 cents on the dollar either.
This all goes round and round and costs the taxpayers more and more money with an ever-expanding bread line of "too big to fail" debtors. With the Fed now devoted to creating trillions out of thin air to single-handedly (no risk to investors) revive credit and lending, "pass-thru"gate probably won't have much of a shelf life; AIG's initial TARP money is long gone, and baring incredibly progressive "clawback" legislation that demands retroactive taxes on counterparties in the end it's just more of a tax burden on our grandkids.
My big question is since we now come to own 80% of it already, what if the government would have nationalized AIG? No "bonuses" controversy to obscure the real issue of tens of billions of dollars "passing through " AIG on their way to Societe' Generale, Deutsch Bank, Goldman, UBS (where the 'architect', Phil Gramm resides), and many more. Of course, none of these charity cases were paying taxes; the IRS during the Bush years would never prosecute them. And if AIG was in Federal receivership, the counterparties wouldn't get 100 cents on the dollar either.
This all goes round and round and costs the taxpayers more and more money with an ever-expanding bread line of "too big to fail" debtors. With the Fed now devoted to creating trillions out of thin air to single-handedly (no risk to investors) revive credit and lending, "pass-thru"gate probably won't have much of a shelf life; AIG's initial TARP money is long gone, and baring incredibly progressive "clawback" legislation that demands retroactive taxes on counterparties in the end it's just more of a tax burden on our grandkids.
Wednesday, March 18, 2009
Fed Creates $1.2 Trillion To Re-Inflate The Housing Bubble
The Federal Reserve today announced it would purchase $750 billion worth of government-guaranteed mortgage-backed securities (on top of the $500 billion it already owns), plus $300 billion of longer-term Treasury securities over a 6-month period. This action is expected to exert downward pressure on interest rates of all types, especially mortgage rates. Calculated Risk quotes David Greenlaw of Morgan Stanley in the March 18th Wall Street Journal:
...."The Fed's annoucement signals a clear intent to continue to drive mortagae rates lower and we expect them to meet this objective ..... (I)f the Fed brings 30-year fixed-rate mortgages to 4.5% and all homeowners are able (to) refi, the aggregate permanent cash-flow savings would be on the order of $200 billion/year."
Aside from the fact that not everyone can "refi" (obnoxious term) this seems like a transparent attempt to re-inflate the housing bubble. If a great majority of homeowners can refinance at 4.5%, it means taking on more personal long-term debt (albeit at a great rate!). Something tells me that if the public thinks the recession is easing, folks will take on even more credit-card debt, too. Any sane person can tell you that sooner or later, debt is either written-off or unsustainable. What'll it be, America?
...."The Fed's annoucement signals a clear intent to continue to drive mortagae rates lower and we expect them to meet this objective ..... (I)f the Fed brings 30-year fixed-rate mortgages to 4.5% and all homeowners are able (to) refi, the aggregate permanent cash-flow savings would be on the order of $200 billion/year."
Aside from the fact that not everyone can "refi" (obnoxious term) this seems like a transparent attempt to re-inflate the housing bubble. If a great majority of homeowners can refinance at 4.5%, it means taking on more personal long-term debt (albeit at a great rate!). Something tells me that if the public thinks the recession is easing, folks will take on even more credit-card debt, too. Any sane person can tell you that sooner or later, debt is either written-off or unsustainable. What'll it be, America?
Monday, March 16, 2009
The Worst Person In The World - In Perpetuity
Before we reveal our candidate for eternal damnation, a few thoughts about AIG and their indefensibly clueless decision to follow legal protocol and award millions in bonuses to the key players in their London "financial products" division:
1) As Gretchen Morgenson so aptly described today on Fresh Air (D.O.E. has a love/hate relationship with NPR) if the economy doesn't improve pronto we may have to give EVEN MORE MONEY to AIG, due to maturing credit-default swaps. Wether the American taxpayer then collectively storms the castle, torches and pitchforks in hand, is open to question.
2) I love how Obama's condemnation of AIG's bonus giveaway made Larry Summers look like such a pompous asshole for the remarks he made about "America, a nation of laws" and "the sanctity of contracts" on the Sunday pundit gab-fests. I predict both Summers and Geithner will be millstones around Barry's neck 'till he throws 'em overboard!
3) Dr. Doom has spoken! On Saturday uber-heavyweight economist Nouriel Roubini referred to last week's market "rally" as a "dead cat bounce", nothing to get your assets out of T-bills for.
And now, D.O.E. proudly nominates Joesph Cassano, president of AIG Financial Products, as the Devil himself. Back when housing prices were eternally on the rise and AIG's London affiliate was insuring Mortgage-Backed Securities to the tune of, oh, 400 times the net worth of AIG itself, Mr. Cassano was receiving a million-dollar-a-month bonus. Good thing, too, because when the criminal and civil lawsuits come rollin' in, Super Joe will have the best legal representation on Planet Earth. May you be eaten by dogs.
1) As Gretchen Morgenson so aptly described today on Fresh Air (D.O.E. has a love/hate relationship with NPR) if the economy doesn't improve pronto we may have to give EVEN MORE MONEY to AIG, due to maturing credit-default swaps. Wether the American taxpayer then collectively storms the castle, torches and pitchforks in hand, is open to question.
2) I love how Obama's condemnation of AIG's bonus giveaway made Larry Summers look like such a pompous asshole for the remarks he made about "America, a nation of laws" and "the sanctity of contracts" on the Sunday pundit gab-fests. I predict both Summers and Geithner will be millstones around Barry's neck 'till he throws 'em overboard!
3) Dr. Doom has spoken! On Saturday uber-heavyweight economist Nouriel Roubini referred to last week's market "rally" as a "dead cat bounce", nothing to get your assets out of T-bills for.
And now, D.O.E. proudly nominates Joesph Cassano, president of AIG Financial Products, as the Devil himself. Back when housing prices were eternally on the rise and AIG's London affiliate was insuring Mortgage-Backed Securities to the tune of, oh, 400 times the net worth of AIG itself, Mr. Cassano was receiving a million-dollar-a-month bonus. Good thing, too, because when the criminal and civil lawsuits come rollin' in, Super Joe will have the best legal representation on Planet Earth. May you be eaten by dogs.
Saturday, March 14, 2009
Whistling Past The Graveyard, Part 2/Bankers Want It Both Ways
The run of the "mini-bulls" continues! For the week, the NYSE was up 9% to a "startling" 7223.98 (James Glassmer, author of Dow 36,000, MUST be feeling vindicated) as investors rejoiced over a coal slurry of positive developments:
1) Instead of crashing, GE was only downgraded to AA status, due to worries over questionable investment decisions by GE Capital.
2) Warren Buffet's company was downgraded to AA. That'll show him for daring to question the value of deregulating credit-derivatives! The nerve of some people!
3) Larry (the "Oracle") Summers was prosletyzing at the Brookings Institution yesterday, saying all is nearly well, Tim Geithner knows what he's doing, the crisis is so complex mere mortals can't fathom it, while refusing to answer questions about temporary nationalization of the zombies (wait for those "stress tests" oh ye of little knowledge).
4) New retail sales numbers fell less than anticipated.
5) The best for last: Investors are speculating that regulators will change mark-to-market accounting rules, which determine how companies value assets, and they're betting the SEC will reinstate rules intended to slow the short-selling of stocks. for more on this changing-the-rules-to-please-the-players paradigm, we turn to Floyd Norris of the New York Times:
.... (T)he problem in short is not that the banks acted irresponsibly in creating financial instruments that blew up, or in making loans that could never be repaid. It is that someone is forcing them to fess up. If only the banks could pretend the assets were valuable, then the system would be safe. ....Representative Paul E. Kanjorski, Democrat of Pennsylvania, said the accounting rule "does provide transparency for investors", but that "strict application" of the rule had "exacerbated the ongoing financial crisis". .... "If the regulators and standard setters do not act now to improve the standards, then the Congress will have no other option than to act itself".
And I thought Ben Bernanke was falling over himself to further game the system for Big Zombie. Rep. Kanjorski's "proposal" amounts to what Robert H. Herz, the chairman of the Financial Accounting Standards Board, calls "mark-to-management" accounting. Norris is more direct:
.... I call it 'Alice In Wonderland' accounting, after Humpty Dumpty's claim in the book that "When I use a word, it means just what I choose it to mean, neither more nor less."
Norris' best remedy to this increasingly ridiculous recalibration of accounting rules is to force banks to disclose which toxic assets they own, wether that engenders a competitive disadvantage or not. Given Obama's, Geithner's, and Summer's coddling of "to-big-to-fail" banks this suggestion is off the radar, but at least the NYT financial desk has an adult in the room.
1) Instead of crashing, GE was only downgraded to AA status, due to worries over questionable investment decisions by GE Capital.
2) Warren Buffet's company was downgraded to AA. That'll show him for daring to question the value of deregulating credit-derivatives! The nerve of some people!
3) Larry (the "Oracle") Summers was prosletyzing at the Brookings Institution yesterday, saying all is nearly well, Tim Geithner knows what he's doing, the crisis is so complex mere mortals can't fathom it, while refusing to answer questions about temporary nationalization of the zombies (wait for those "stress tests" oh ye of little knowledge).
4) New retail sales numbers fell less than anticipated.
5) The best for last: Investors are speculating that regulators will change mark-to-market accounting rules, which determine how companies value assets, and they're betting the SEC will reinstate rules intended to slow the short-selling of stocks. for more on this changing-the-rules-to-please-the-players paradigm, we turn to Floyd Norris of the New York Times:
.... (T)he problem in short is not that the banks acted irresponsibly in creating financial instruments that blew up, or in making loans that could never be repaid. It is that someone is forcing them to fess up. If only the banks could pretend the assets were valuable, then the system would be safe. ....Representative Paul E. Kanjorski, Democrat of Pennsylvania, said the accounting rule "does provide transparency for investors", but that "strict application" of the rule had "exacerbated the ongoing financial crisis". .... "If the regulators and standard setters do not act now to improve the standards, then the Congress will have no other option than to act itself".
And I thought Ben Bernanke was falling over himself to further game the system for Big Zombie. Rep. Kanjorski's "proposal" amounts to what Robert H. Herz, the chairman of the Financial Accounting Standards Board, calls "mark-to-management" accounting. Norris is more direct:
.... I call it 'Alice In Wonderland' accounting, after Humpty Dumpty's claim in the book that "When I use a word, it means just what I choose it to mean, neither more nor less."
Norris' best remedy to this increasingly ridiculous recalibration of accounting rules is to force banks to disclose which toxic assets they own, wether that engenders a competitive disadvantage or not. Given Obama's, Geithner's, and Summer's coddling of "to-big-to-fail" banks this suggestion is off the radar, but at least the NYT financial desk has an adult in the room.
Tuesday, March 10, 2009
Was It Something He Said? - NYSE Up 379 Points
Our long national economic nightmare is over, at least for one day. As I'm sure everyone knows by now, the New York Stock Exchange was up 379 points on tuesday, due primarily to good news from Citigroup. Chairman Vikram S. Pandit confirmed in a monday night employee memorandum that the company was on its way to a highly profitable first quarter. I guess all that taxpayer bailout money was good for something. Also, speaking tuesday before the Council On Foriegn Relations, Federal Reserve Chairman Ben Bernanke unveiled a new mantra: far-sighted. "flexible" regulation of financial markets is back in style. According to the online edition of today's New York Times:
... Mr. Bernanke stoked a new controversy by endorsing more flexible accounting rules that would not force banks to book as many losses during an economic downturn as current rules require. ... (H)e called for reducing the "pro-cyclical" aspects of current regulation - the tendency of accounting rules and capital aquirements to aggravate both financial retrenchment during a slowdown and financial excesses during a boom. ..."We should review capital regulations to insure that they are appropriately forward-looking, and that capital is allowed to serve its intended role as a buffer - one built up during good times and drawn down during bad times" ...
These statements don't exactly strike Your Dissembler as a commitment to more transparency. If Bernanke intends to prevent the ridiculous leveraging of debts to assets that brought down Bear-Stearns and Lehman Bros., fine. But this incredibly opaque rhetoric seems to imply some sort of "cushion" for the big boys to land on next time they take a fall. Meanwhile, despite Chairman Pandit's rosy memorandum, the Wall Street Journal reports preliminary gnashing of teeth over the future of Citigroup:
.... Barely a week after the third rescue of Citigroup, Inc., U.S. officials are examining what fresh steps they might need to take to stabilize the bank if its problems mount .... One possible future step could involve creating a "bad bank" to take distressed assets off the balance sheet of Citigroup or other troubled financial institutions. ...Last week, shares of banks fell to their lowest levels in decades, as broad stock and bond markets tumbled. In the credit-default-swap market, the cost of insuring against defaults by financial institutions is soaring. ...
With Firedoglake estimating the cost of establishing a Citigroup "bad bank" at 250 billion, I'd say a lot of folks are whistling past the graveyard.
... Mr. Bernanke stoked a new controversy by endorsing more flexible accounting rules that would not force banks to book as many losses during an economic downturn as current rules require. ... (H)e called for reducing the "pro-cyclical" aspects of current regulation - the tendency of accounting rules and capital aquirements to aggravate both financial retrenchment during a slowdown and financial excesses during a boom. ..."We should review capital regulations to insure that they are appropriately forward-looking, and that capital is allowed to serve its intended role as a buffer - one built up during good times and drawn down during bad times" ...
These statements don't exactly strike Your Dissembler as a commitment to more transparency. If Bernanke intends to prevent the ridiculous leveraging of debts to assets that brought down Bear-Stearns and Lehman Bros., fine. But this incredibly opaque rhetoric seems to imply some sort of "cushion" for the big boys to land on next time they take a fall. Meanwhile, despite Chairman Pandit's rosy memorandum, the Wall Street Journal reports preliminary gnashing of teeth over the future of Citigroup:
.... Barely a week after the third rescue of Citigroup, Inc., U.S. officials are examining what fresh steps they might need to take to stabilize the bank if its problems mount .... One possible future step could involve creating a "bad bank" to take distressed assets off the balance sheet of Citigroup or other troubled financial institutions. ...Last week, shares of banks fell to their lowest levels in decades, as broad stock and bond markets tumbled. In the credit-default-swap market, the cost of insuring against defaults by financial institutions is soaring. ...
With Firedoglake estimating the cost of establishing a Citigroup "bad bank" at 250 billion, I'd say a lot of folks are whistling past the graveyard.
Thursday, March 5, 2009
A.I.G. Update/ What Price Toxic Assets?
Today on Capitol Hill the Senate was roasting Federal regulators, presumably to blame for looking the other way and costing the American taxpayer $170 billion. That's just for A.I.G., of course. The only problem with the Senators' newfound populist rage is that the credit derivatives that brought down A.I.G. and everyone else have been UNREGULATED since the passage of the "Commodity Futures Modernization Act" in late 2000! But that's the great thing about American politics: never let the facts get in the way of some good 'ol fashioned bi-partisan grand standing! It's the United States Of Amnesia, after all!
Controversy has been raging at hell-fire level all over the econo-blogosphere as to the value of toxic assets (or "toxic waste" as Tim Geithner calls them) held by currently insolvent "zombie banks" ("sound financial institutions" in Geithner-speak). The Krugman-Roubini school defines them as worthless trash, ready for the boneyard (nationalize 'em, dammit). Lucian Bebchuk (In Defense Of Private Funds For Jump-Starting The Market For Troubled Assets) takes a relativist approach; if these assets were over-valued during the housing bubble perhaps they are under-valued now. He advocates devising competitive "rounds" for the private entities vying to purchase said toxicity (with a $200 billion initial investment for any serious players). Sounds like he's in Geithner's corner. Your humble Dissembler doen't believe Bebchuk for a minute, and neither does Kansas City Fed Bank President Thomas Hoenig (Too Big Has Failed):
... We should ask ... why would anyone assume we are better off leaving an institution under the control of failing managers, dealing with a large volume of "toxic" assets they created and coping with a raft of politically imposed controls that would be placed on their operations?
Earlier in the piece Hoenig effectively says "shareholders de damned" which is a hell of a thing to opine for someone in his position and amounts to a blatant admission that yes, the financial system is in BIG trouble and political considerations be damned, temporary nationalization is the way to go.
Controversy has been raging at hell-fire level all over the econo-blogosphere as to the value of toxic assets (or "toxic waste" as Tim Geithner calls them) held by currently insolvent "zombie banks" ("sound financial institutions" in Geithner-speak). The Krugman-Roubini school defines them as worthless trash, ready for the boneyard (nationalize 'em, dammit). Lucian Bebchuk (In Defense Of Private Funds For Jump-Starting The Market For Troubled Assets) takes a relativist approach; if these assets were over-valued during the housing bubble perhaps they are under-valued now. He advocates devising competitive "rounds" for the private entities vying to purchase said toxicity (with a $200 billion initial investment for any serious players). Sounds like he's in Geithner's corner. Your humble Dissembler doen't believe Bebchuk for a minute, and neither does Kansas City Fed Bank President Thomas Hoenig (Too Big Has Failed):
... We should ask ... why would anyone assume we are better off leaving an institution under the control of failing managers, dealing with a large volume of "toxic" assets they created and coping with a raft of politically imposed controls that would be placed on their operations?
Earlier in the piece Hoenig effectively says "shareholders de damned" which is a hell of a thing to opine for someone in his position and amounts to a blatant admission that yes, the financial system is in BIG trouble and political considerations be damned, temporary nationalization is the way to go.
Tuesday, March 3, 2009
Q: Why $30 Billion More For A.I.G.? A: Credit-Default Swaps
Ben Bernanke was back before the Senate today, taking horrific abuse over the $30 billion line of credit extended to A. I. G. on top of the $130-160 billion that's been thrown away already. Senators from the left (Ron Wyden) and the right (Jim Bunning) assailed Bernanke and the Fed over this seemingly endless giveaway to the mother of all insurers. Dollar Ben was also suitably outraged, claiming that A.I.G.'s London 'financial services' branch had gamed the system big-time through its manipulation of unregulated credit-default swaps that enabled the insurer to grab the world economy by the throat. For more insight we turn to NYT buisness columnist Joe Noctera with excerpts from his Feb. 27th Times article "Propping Up A House Of Cards":
... Unlike many of the Wall Street investment banks, A.I.G. didn't specialize in pooling subprime mortgages into securities. Instead, it sold credit-default swaps.
These exotic instruments acted as a form of insurance for the securities. In effect, A.I.G. was saying if, by some remote chance (ha!) these mortgage-backed securities suffered losses, the company would be on the hook for the losses. And because A.I.G. had that AAA rating, when it sprinkled its holy water over those mortgage-backed securities, suddenly they had AAA ratings too. That was the ratings arbitrage. ... Like everyone else on Wall Street, A.I.G. operated on the belief that the underlying assets - housing - could only go up in price. ... (B)ecause credit-default swaps were not regulated, and were not even categorized as a traditional insurance product, A.I.G. didn't have to put anything aside for losses. And it didn't. ... At its peak, the A.I.G. credit-default business had a "notional value" of $450 billion, and as recently as September, it was still over $300 billion. (Notional value is the amount A.I.G. would owe if every one of its bets went to zero.) ... If the company defaulted, hundreds of billions of credit-default swaps would "blow up" and all those European banks whose toxic assets are sopposedly insured by A.I.G. would suddenly be sitting on immense losses. Their already shaky capital structures would be destroyed.
And that's how the "interconnectedness" of the world economy became the Sword of Damocles. We could truly all go broke together unless these debt-spouting behemoths are shored up. And if in the short-term Bernanke-Geithner Inc. (the Treasury and the Fed) just keep doling out $100 billion bailouts, how soon before hyper-inflation sets in? How do Robert Rubin, Lawrence Summers, Phil Gramm, and Bill Clinton feel about deregulating derivatives now?
... Unlike many of the Wall Street investment banks, A.I.G. didn't specialize in pooling subprime mortgages into securities. Instead, it sold credit-default swaps.
These exotic instruments acted as a form of insurance for the securities. In effect, A.I.G. was saying if, by some remote chance (ha!) these mortgage-backed securities suffered losses, the company would be on the hook for the losses. And because A.I.G. had that AAA rating, when it sprinkled its holy water over those mortgage-backed securities, suddenly they had AAA ratings too. That was the ratings arbitrage. ... Like everyone else on Wall Street, A.I.G. operated on the belief that the underlying assets - housing - could only go up in price. ... (B)ecause credit-default swaps were not regulated, and were not even categorized as a traditional insurance product, A.I.G. didn't have to put anything aside for losses. And it didn't. ... At its peak, the A.I.G. credit-default business had a "notional value" of $450 billion, and as recently as September, it was still over $300 billion. (Notional value is the amount A.I.G. would owe if every one of its bets went to zero.) ... If the company defaulted, hundreds of billions of credit-default swaps would "blow up" and all those European banks whose toxic assets are sopposedly insured by A.I.G. would suddenly be sitting on immense losses. Their already shaky capital structures would be destroyed.
And that's how the "interconnectedness" of the world economy became the Sword of Damocles. We could truly all go broke together unless these debt-spouting behemoths are shored up. And if in the short-term Bernanke-Geithner Inc. (the Treasury and the Fed) just keep doling out $100 billion bailouts, how soon before hyper-inflation sets in? How do Robert Rubin, Lawrence Summers, Phil Gramm, and Bill Clinton feel about deregulating derivatives now?
Friday, February 27, 2009
Mommy, What's A Credit Derivative?
Hey, you default geeks, you MBS-CDO-CDS groupies, your Dissembler has found the motherlode! Every day in thousands of articles and op-eds about the economy the words 'credit derivative' appear again and again with the assumption that everyone has a working definition when in fact hardly anyone does! 3 years ago when I was simply intrigued about "the Market" I bought a book called Confidence Games by Mark C. Taylor which presented these 'instruments' as complex equations that even the informed layman (i. e. me) could never comprehend. Finally, the shroud has been lifted! In simply the BEST writing I have ever seen on the financial crisis, James Lieber in the Jan. 27th Village Voice (online, of course) parses this heart of darkness with a micro-scalpel. Here's 4 money paragraphs; go out and read this article again and again infinitum 'till it's seared into your cerebral cortex:
What Cooked The World's Economy? (Excerpts)
..... Derivatives weren't intially evil. They began as insurance policies on large loans. A bank that wished to lend money to a big, shaky venture.... could hedge its bet by buying a credit derivative to cover losses if the debtor defaulted. Derivatives weren't cheap, but in the era of globalization and declining American competitiveness, they were prudent. Interestingly, the company that put the basic hardware and software together for pricing and clearing derivatives was Bloomberg.
...... unregulated and opaque derivatives trading was countercultural in the sense that low or no risk led to quick, astronomically high rewards. By plunking down millions of dollars, a hedge fund could reap billions once these fatally constructed securities plunged. Again, the funds did not need to own the securities; they just needed to pay for the derivatives - the insurance policies for the securities. And they could pay for them again and again. This was known as replicating. It became an addiction.
...... Last year, the Bank For International Settlements, a consortium of the world's central banks based in Basel (the Fed chair, Ben Bernanke, sits on its board), reported the gross value of these commitments at $596 trillion. Some are due, and some will mature soon. Typically, they involve contracts of 5 years or less.
Credit derivatives are breaking and will continue to break the worlds' financial system and cause an unending crisis of liquidity and gummed-up credit. Warren Buffet branded derivatives the "financial weapons of mass destruction". Felix Rohatyn, the investment banker who organized the bailout of New York a generation ago, called them "financial hydrogen bombs".
So basically we can throw trillions at the financial sector and it will all DISAPPEAR. Of course, the "informed" Mainstream Media has found the culprit; the problem is YOU. On thursday 2/26 NPR continued their deceitful and pathetic coverage of the Great New Depression (Remember back in Sept. when their 'financial correspondent' asserted that the only people affected by the meltdown would be folks with 3 homes and a getaway cottage in Bermuda? I do.) by blaming the American people and their miscreant overspending. The penance, of course, will be higher taxes. Never mind that real wages adjusted for inflation have remained stagnant for over 30 years. Never mind that the economy grew thanks to a $8 trillion housing bubble that noone in charge recognized or was willing to regulate. And never mind that hedge fund masters made billions off of credit derivatives providing they had tens of millions to play with. It's the American taxpayer's fault! At times like this I'm tempted to agree with my neo-con dopplegangers that National Public Radio should be defunded and put out of its misery!
What Cooked The World's Economy? (Excerpts)
by James Lieber
..... Derivatives weren't intially evil. They began as insurance policies on large loans. A bank that wished to lend money to a big, shaky venture.... could hedge its bet by buying a credit derivative to cover losses if the debtor defaulted. Derivatives weren't cheap, but in the era of globalization and declining American competitiveness, they were prudent. Interestingly, the company that put the basic hardware and software together for pricing and clearing derivatives was Bloomberg.
...... unregulated and opaque derivatives trading was countercultural in the sense that low or no risk led to quick, astronomically high rewards. By plunking down millions of dollars, a hedge fund could reap billions once these fatally constructed securities plunged. Again, the funds did not need to own the securities; they just needed to pay for the derivatives - the insurance policies for the securities. And they could pay for them again and again. This was known as replicating. It became an addiction.
...... Last year, the Bank For International Settlements, a consortium of the world's central banks based in Basel (the Fed chair, Ben Bernanke, sits on its board), reported the gross value of these commitments at $596 trillion. Some are due, and some will mature soon. Typically, they involve contracts of 5 years or less.
Credit derivatives are breaking and will continue to break the worlds' financial system and cause an unending crisis of liquidity and gummed-up credit. Warren Buffet branded derivatives the "financial weapons of mass destruction". Felix Rohatyn, the investment banker who organized the bailout of New York a generation ago, called them "financial hydrogen bombs".
So basically we can throw trillions at the financial sector and it will all DISAPPEAR. Of course, the "informed" Mainstream Media has found the culprit; the problem is YOU. On thursday 2/26 NPR continued their deceitful and pathetic coverage of the Great New Depression (Remember back in Sept. when their 'financial correspondent' asserted that the only people affected by the meltdown would be folks with 3 homes and a getaway cottage in Bermuda? I do.) by blaming the American people and their miscreant overspending. The penance, of course, will be higher taxes. Never mind that real wages adjusted for inflation have remained stagnant for over 30 years. Never mind that the economy grew thanks to a $8 trillion housing bubble that noone in charge recognized or was willing to regulate. And never mind that hedge fund masters made billions off of credit derivatives providing they had tens of millions to play with. It's the American taxpayer's fault! At times like this I'm tempted to agree with my neo-con dopplegangers that National Public Radio should be defunded and put out of its misery!
Thursday, February 26, 2009
Credit Card Debt - The New Toxin/More Billions For Bank "Stimulus"
Here at the D.O.E. we're not to fond a' The Huffington Post. Next to Ariana's 5-star meta-edifice, Dissembler resembles the blogosphere equivalent of a Sri Lankan fishing village. And we could so do without all the celebrity gossip/video she wastes byte space on. But occasionally the Huff empire justifies the opulence. Such is the case with Ariana's Feb. 24th post about the impending credit card debt meltdown. Why isn't anybody else covering this story? We'll go green for the highlights:
As more and more Americans default on their credit card debt, banks will find themselves faced with a sickening instant replay of the toxic securities meltdown from the mortgage crisis. In another example of Wall Street 'creativity', credit card debt is routinely bundled together into 'credit card receiveables' and sold to investors - often pension funds and hedge funds. Securities backed by credit card debt is a $365 billion market....
Earlier on she mentions that the total c.c. debt for 2008 was $951 billion! Holy Ben Bernanke, Batman! We'll be underwater at Wayne Manor!
In other news, looks like the Mishter was on the money with his "100 cuts to the taxpayer" theory of how Barry and the Shysters are gonna finagle more billion-dollar 'stimulus' to the banking sector. Here's Dean Baker on 'stress tests':
... the baseline scenario for the stress tests is that the unemployment rate rises to 8.4% and home prices fall 14%. The worst case scenario is that unemployment rises to 8.9% and house prices fall 22%.
OK, unemployment will almost certainly reach 8% and possibly 8.1% in February. It might cross 8.5% in March. The worst case scenario is that it hits 8.9% by the rest of the year? Remember, this is the same crew that told us there was no housing bubble. ... The stress tests indicate that our economic policy makers are still in a serious state of denial.
I think the salient point here is that Obama, the Federal Reserve, and the Treasury consider the welfare of shareholders in Citigroup, Morgan Stanley, AIG, etc., etc. far outweigh the economic interests of the American people. If the government moves against said shareholders (i. e. nationalization) they'll crash the market and then Barack will sure have some 'splainin' to do.
As more and more Americans default on their credit card debt, banks will find themselves faced with a sickening instant replay of the toxic securities meltdown from the mortgage crisis. In another example of Wall Street 'creativity', credit card debt is routinely bundled together into 'credit card receiveables' and sold to investors - often pension funds and hedge funds. Securities backed by credit card debt is a $365 billion market....
Earlier on she mentions that the total c.c. debt for 2008 was $951 billion! Holy Ben Bernanke, Batman! We'll be underwater at Wayne Manor!
In other news, looks like the Mishter was on the money with his "100 cuts to the taxpayer" theory of how Barry and the Shysters are gonna finagle more billion-dollar 'stimulus' to the banking sector. Here's Dean Baker on 'stress tests':
... the baseline scenario for the stress tests is that the unemployment rate rises to 8.4% and home prices fall 14%. The worst case scenario is that unemployment rises to 8.9% and house prices fall 22%.
OK, unemployment will almost certainly reach 8% and possibly 8.1% in February. It might cross 8.5% in March. The worst case scenario is that it hits 8.9% by the rest of the year? Remember, this is the same crew that told us there was no housing bubble. ... The stress tests indicate that our economic policy makers are still in a serious state of denial.
I think the salient point here is that Obama, the Federal Reserve, and the Treasury consider the welfare of shareholders in Citigroup, Morgan Stanley, AIG, etc., etc. far outweigh the economic interests of the American people. If the government moves against said shareholders (i. e. nationalization) they'll crash the market and then Barack will sure have some 'splainin' to do.
Tuesday, February 24, 2009
Bernanke Placates The Shareholders - Obama Plays To The Cheap Seats
I was going to spend the evening Googling to compile a thumbnail sketch of that Louisiana Scalliwag, Bobby Jindal, who yesterday refused $100 million of stimulus money to extend unemployment benefits because it would drive up buisness taxes. This kind of blind obediance to financial elites got Dubya all the way to the Oval Office (along with his last name, of course) and you can be sure B.J. has studied the playbook backwards and forewards. Jindal also has a leg-up on Bush's legacy because of his fully engaged performance during last summer's "mini-Katrina" that admittedly did severe damage to the Gulf Coast area. So I'm going on record to predict Governor Jindal has the inside track to the GOP nomination in '012 unless he massively f***s up.
However, real-time crisis has trumped your Dissembler's ambition. Today Ben Bernanke went before the Senate and stated that the, uh, recession will end by the end of '09 if, if, if, if (you get the drift). More importantly to the top 5%, the Duke of Liquidity assured the shareholders that there will be no outright nationalization of the major insolvent banks, so the stock market is saved! As I'm typing President Obama is firing up the troops, er, citizens with 2 parts BS, 1 part clear-eyed vision of what lies ahead (austerity unless you're well-off, more bailouts for critical industries, comprehensive health care that won't contain costs) etc., etc.
So while Barry asks a debt-ridden, overworked, totally stressed-out adult population to go back to college, let's whirl around the economic blogosphere to see what the "experts" are saying about Chairman Ben's Nostradamus routine:
Calculated Risk - 2/24/09
If the banks are seriously insolvent, this sounds like the zombie bank approach and rewards existing shareholders at the expense of taxpayers. If the banks are not seriously insolvent, this is a reasonable approach. But how does Bernanke know the solution before the data is available from the stress tests?
Paul Krugman - 2/24/09
... does anyone think the reason banks are crippled is that they are tied down by their obligations to preferred stockholders, as opposed to having too much plain vanilla debt? I just don't get it. And my sinking feeling (is) that the administration plan is to rearrange the deck chairs and hope the iceberg melts just keep getting stronger.
Mish's Global Economic Trends Analysis - 2/24/09
The game Bernanke is playing will allow the Fed to slowly bleed taxpayers to death by 100 tiny cuts. Each cut will allow the Fed to inject taxpayer blood (capital) to the banks while pretending the cancerous patient is in good health. ... This is essentially the same model that left Japan's economy stagnating for over a decade.
Econbrowser - 2/24/09
(Quoting Bernanke's remarks) - " If actions taken by the Administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability - and only if that is the case, in my view - there is a reasonable prospect that the current recession will end in 2009 ...
... That's a giant, honking, humongous, get-down-on-your-knees-and-pray-for-salvation "if".
Real Time Economics (Wall Street Journal) -2/25/09
Banks do not have enough capital on their books as they are loaded with toxic assets. They are basically insolvent. If the government injects fresh capital, it will highly dilute the common shareholders, at best, effectively government getting more than 50% of the banks. This is nothing but nationalization, if Bernanke agrees it or not. (Comment by Bill Johnson)
However, real-time crisis has trumped your Dissembler's ambition. Today Ben Bernanke went before the Senate and stated that the, uh, recession will end by the end of '09 if, if, if, if (you get the drift). More importantly to the top 5%, the Duke of Liquidity assured the shareholders that there will be no outright nationalization of the major insolvent banks, so the stock market is saved! As I'm typing President Obama is firing up the troops, er, citizens with 2 parts BS, 1 part clear-eyed vision of what lies ahead (austerity unless you're well-off, more bailouts for critical industries, comprehensive health care that won't contain costs) etc., etc.
So while Barry asks a debt-ridden, overworked, totally stressed-out adult population to go back to college, let's whirl around the economic blogosphere to see what the "experts" are saying about Chairman Ben's Nostradamus routine:
Calculated Risk - 2/24/09
If the banks are seriously insolvent, this sounds like the zombie bank approach and rewards existing shareholders at the expense of taxpayers. If the banks are not seriously insolvent, this is a reasonable approach. But how does Bernanke know the solution before the data is available from the stress tests?
Paul Krugman - 2/24/09
... does anyone think the reason banks are crippled is that they are tied down by their obligations to preferred stockholders, as opposed to having too much plain vanilla debt? I just don't get it. And my sinking feeling (is) that the administration plan is to rearrange the deck chairs and hope the iceberg melts just keep getting stronger.
Mish's Global Economic Trends Analysis - 2/24/09
The game Bernanke is playing will allow the Fed to slowly bleed taxpayers to death by 100 tiny cuts. Each cut will allow the Fed to inject taxpayer blood (capital) to the banks while pretending the cancerous patient is in good health. ... This is essentially the same model that left Japan's economy stagnating for over a decade.
Econbrowser - 2/24/09
(Quoting Bernanke's remarks) - " If actions taken by the Administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability - and only if that is the case, in my view - there is a reasonable prospect that the current recession will end in 2009 ...
... That's a giant, honking, humongous, get-down-on-your-knees-and-pray-for-salvation "if".
Real Time Economics (Wall Street Journal) -2/25/09
Banks do not have enough capital on their books as they are loaded with toxic assets. They are basically insolvent. If the government injects fresh capital, it will highly dilute the common shareholders, at best, effectively government getting more than 50% of the banks. This is nothing but nationalization, if Bernanke agrees it or not. (Comment by Bill Johnson)
Sunday, February 22, 2009
Obama's Mortgage Refinancing Plan - It Won't Fly
Normally it would be a cold day in Hades when Bob Simpson, president of Imarc Investors Mortgage Asset Recovery Co. of Irvine, CA and Greg Palast, BBC Reporter/Progressive Muckraker would agree about anything, but apparently the mother of all ice storms has hit the Devil's Lair. Yesterday in the online version of the Orange County Register Mr. Simpson delivered a scathing rebuke of President Obama's mortgage bailout plan. Here's the highlights:
.... The problem is, we peaked at about $635,000 (in Orange County) average home and now we're below $400,000. So we've got a ton of people who owe $500,000,$600,000, $700,000 and they can't be helped. This plan won't work in California, Florida, Arizona, and Nevada -which account for more than 60% of foreclosures nationwide, because the values have fallen too far. .... It is going to fall apart. Loans are worse than anybody realizes. There was the program under Bush, HOPE for homeowners, and the number of people it helped was infinitesimal. At this point, people have to understand there isn't enough money for everyone who wants to keep their house. People who make $200,000 and bought a $500,000 home that's now worth $300,000, I feel sorry for them. They didn't lie and their house fell in value. .... Probably anyone who bought a home after 2000 is going to be underwater. I don't think that's a stretch.
Today I was listening to the semi-popular Left-wing radio program Best of Flashpoints, where Mr. Palast lambasted Obama's plan for totally different reasons, primarily having to do with the President's co-optation by the financial sector (principally disgraced sub-prime lender Penny Prisker, who coincidentally was the first major backer of Obama's Senatorial campaign) and Barry's subsequent timidity in dealing with the banks. (I'll be paraphrasing here, but in the interest of visual symmetry, let's go back to blue.)
.... Obama's offered the banks $1,000 apiece for each of their bad mortgages, while pleading with them not to do any more foreclosures .... and these guys are so greedy they're not buying it! ... FDR didn't plead with these people; he declared a bank holiday and then made them reorganize on his terms, and it's totally within Obama's power to do this. ....These sub-prime lenders are essentially loan sharks who hid the increase in interest after 2 years in the total value of the mortgage itself and then sprung it on the unsuspecting homeowner. ....You don't plead with loansharks like Countrywide Financial, who are owned by Bank Of America. They've taken $50 billion dollars of taxpayer money and now you're going to give them more and plead with them not to do foreclosures? How about demanding that they stop destroying our country!
So from both a "boots-on-the-ground" and a populist ideological perspective, it appears that saving the homes of the majority of honest folks in trouble isn't happening. When this stark reality becomes apparent in 6-18 months, undoubtedly Obama will be back with a plan that hopefully offers less supplication to Bank Of America and their ilk and more FDR-style cojones', ese'!!!
.... The problem is, we peaked at about $635,000 (in Orange County) average home and now we're below $400,000. So we've got a ton of people who owe $500,000,$600,000, $700,000 and they can't be helped. This plan won't work in California, Florida, Arizona, and Nevada -which account for more than 60% of foreclosures nationwide, because the values have fallen too far. .... It is going to fall apart. Loans are worse than anybody realizes. There was the program under Bush, HOPE for homeowners, and the number of people it helped was infinitesimal. At this point, people have to understand there isn't enough money for everyone who wants to keep their house. People who make $200,000 and bought a $500,000 home that's now worth $300,000, I feel sorry for them. They didn't lie and their house fell in value. .... Probably anyone who bought a home after 2000 is going to be underwater. I don't think that's a stretch.
Today I was listening to the semi-popular Left-wing radio program Best of Flashpoints, where Mr. Palast lambasted Obama's plan for totally different reasons, primarily having to do with the President's co-optation by the financial sector (principally disgraced sub-prime lender Penny Prisker, who coincidentally was the first major backer of Obama's Senatorial campaign) and Barry's subsequent timidity in dealing with the banks. (I'll be paraphrasing here, but in the interest of visual symmetry, let's go back to blue.)
.... Obama's offered the banks $1,000 apiece for each of their bad mortgages, while pleading with them not to do any more foreclosures .... and these guys are so greedy they're not buying it! ... FDR didn't plead with these people; he declared a bank holiday and then made them reorganize on his terms, and it's totally within Obama's power to do this. ....These sub-prime lenders are essentially loan sharks who hid the increase in interest after 2 years in the total value of the mortgage itself and then sprung it on the unsuspecting homeowner. ....You don't plead with loansharks like Countrywide Financial, who are owned by Bank Of America. They've taken $50 billion dollars of taxpayer money and now you're going to give them more and plead with them not to do foreclosures? How about demanding that they stop destroying our country!
So from both a "boots-on-the-ground" and a populist ideological perspective, it appears that saving the homes of the majority of honest folks in trouble isn't happening. When this stark reality becomes apparent in 6-18 months, undoubtedly Obama will be back with a plan that hopefully offers less supplication to Bank Of America and their ilk and more FDR-style cojones', ese'!!!
Saturday, February 21, 2009
Writing Down The Principal - Another Far-Out Lefty Idea Moves Into The Mainstream
Recently I happened upon 2 sites/blogs providing up-to-the-minute coverage of our ongoing economic catastrophe: Calculated Risk and Economist's View, each more main-stream than what the D.O.E. usually reads about the financial sector. The gargantuan amount of links to related sites/blogs was astonishing: now I wish I had taken that Econ minor at Pitt all those years ago. Anyway, on Thursday 2/19 Calculated Risk ran a video clip from the Charlie Rose Show: 4 economists (including N. Roubini; yay!) and analysts discussing Obama's mortgage refinancing bill. After having to listen to Fortune Magazine's Nina Easton's unceasing mea culpas to Laurence Summers, the new Alan Greenspan whose "operational experience" places him head-and-shoulders above the President's political advisors, who actually show a degree of concern for people who aren't Wall Street players, I heard Mark Zandi of Moody's.com say an amazing thing. The next time Obama comes around to ask for more mortgage relief (generally assumed to be later this year) writing down the principal will have to be the focus. Wow! 6 months ago the idea of writing down actual debt was dismissed as sheer lunacy, the kind of thing the IMF and the World Bank did when they wanted to suck up to Bono. Surely well-respected Wall Street insiders would never consider an idea formerly advocated by far-left economists and pundits like Michael Hudson and Mike Whitney; but there it was, dangling in the breeze, and here's a Moody's rep actually saluting it!!!
Tuesday, February 17, 2009
Wall Street Took Our Money - Now They Want The "Safety Net"
"Entitlement Reform"
Remember when President Bush, after stealing his 2nd election in '04 (rip-off in O-HI-O) wanted to privatize Social Security and put it on the stock market? If that had gone down, Jon Stewart wouldn't be making those "Clusterf**k To The Poor House" jokes. America would be the Poor House! And for many citizens, it already is (your Dissembler is teetering right on the edge this moment, but enough about me). Now President Obama is meeting with conservative pundits and saying he's open to the idea of caps and cuts to entitlements. This dovetails neatly with that constant rhetoric about "discipline" and "sacrifice". And after all, Barry's not about to raise taxes and jeopardize his chances for a 2nd term, now is he?
The con behind the scam, basically, is that the Federal government doesn't want to get caught with their pants down when the Baby Boomers start retiring en masse and wondering "dude, where's my social security benefits?" Although the system itself is basically solvent till 2041, the "Social Security surplus", estimated by William Greider in a recent Nation article as $2.5 trillion, has been looted time and time again (recently to help pay for our Imperial Adventure in Iraq) with the government essentially promising that "don't worry, we're good for it and we'll replenish it when the time comes". Well, that time is now and they're not good for it, aided by people like billionaire Peter Peterson who's the main sponsor of "entitlement reform" white papers that are wending their way through Congress. Peterson wants "up-or-down fast-track legislation" voting on these proposals to safeguard consenting politicians from public outrage. I don't have to tell you that aside from solemnly considering this ripoff the MSM is not informing working people who organized against Bush's privatization of Social Security. Anyone I've talked to about this scheme just rolls their eyes and wonders what can be done? Kill your television, forget about the Stillers, roll out of the bar, start to talk to your neighbors and organize, DAMMIT!!!
Remember when President Bush, after stealing his 2nd election in '04 (rip-off in O-HI-O) wanted to privatize Social Security and put it on the stock market? If that had gone down, Jon Stewart wouldn't be making those "Clusterf**k To The Poor House" jokes. America would be the Poor House! And for many citizens, it already is (your Dissembler is teetering right on the edge this moment, but enough about me). Now President Obama is meeting with conservative pundits and saying he's open to the idea of caps and cuts to entitlements. This dovetails neatly with that constant rhetoric about "discipline" and "sacrifice". And after all, Barry's not about to raise taxes and jeopardize his chances for a 2nd term, now is he?
The con behind the scam, basically, is that the Federal government doesn't want to get caught with their pants down when the Baby Boomers start retiring en masse and wondering "dude, where's my social security benefits?" Although the system itself is basically solvent till 2041, the "Social Security surplus", estimated by William Greider in a recent Nation article as $2.5 trillion, has been looted time and time again (recently to help pay for our Imperial Adventure in Iraq) with the government essentially promising that "don't worry, we're good for it and we'll replenish it when the time comes". Well, that time is now and they're not good for it, aided by people like billionaire Peter Peterson who's the main sponsor of "entitlement reform" white papers that are wending their way through Congress. Peterson wants "up-or-down fast-track legislation" voting on these proposals to safeguard consenting politicians from public outrage. I don't have to tell you that aside from solemnly considering this ripoff the MSM is not informing working people who organized against Bush's privatization of Social Security. Anyone I've talked to about this scheme just rolls their eyes and wonders what can be done? Kill your television, forget about the Stillers, roll out of the bar, start to talk to your neighbors and organize, DAMMIT!!!
Saturday, February 14, 2009
Is Robert Rubin Running The Treasury Department?
Tiny Tim's Rescue Plan
Nationalizing Insolvent Banks - Ixnay!
More Money From Main Street
Orders From Big Poppa
Rubin Protege Marches In Lock-Step
Looks like the insolvent financial sector can rest easy, if Tim Geithner's bank bailout plan becomes reality. In a vague and almost incoherent announcement Tuesday, which caused the market to tank while he was speaking, Geithner "detailed" important facets of a bank restructuring plan "too big to fail" (that phrase again). The key innovation was offering Federal loan guarantees to hedge funds and venture capitalists willing to purchase toxic (and almost certainly worthless) assets from bank portfolios that reportedly are preventing lending and the extension of credit. Said assets would be assigned a value by the Treasury, which would use up to $2.5 trillion of yes, our tax money to guarantee their worth. In addition, banks would have to undergo a "stress test" to determine their solvency, but Timmy Boy said it would be "unseemly" to then nationalize the failing institutions. In fact, he didn't say what if anything would happen to "stressed out" banks. It's interesting to note that all of a sudden the Mainstream Media have become ardent "nationalists" with articles both in the New York Times and The Washington Post (co-written by Dissembler fave Nouriel Roubini) advocating federal takeover, markets be damned. Your humble D.O.E.'s take on all this posturing is that Giethner's trying to implement a soft landing for the financial sector, probably on orders from Bob Rubin, Grand Financial Vizier without portfolio to the Saintly Barack, Banksta-In-Chief. Obama's even referenced the experience of Sweden, which nationalized their banking industry in the early 90's to climb out of a serious financial crisis. Of course, Barry claimed that since we have almost 6,ooo banks, that wouldn't be practical. Bullshit. There's only 6 major institutions that are facing the "stress test", and besides, the paradigm for nationalization is already well-known. As with so many other major issues early in his Presidency, Obama's too timid too try, fearing a market collapse. What the Reagan, Carter, and even the G.W. Bush (in the case of IndyMac) administrations did was send in the FDIC to audit the institution, determine its' solvency, remove the bank officers and staff, and appoint new people at every level to run the show. Methinks Mr. Rubin feels that's a bit too hard on the crony class in this instance, especially with everyone about to receive another bailout payday. Obama, meanwhile, is doing a great Dubya impersonation, staying away from the issue while the floundering Geithner takes the heat.
Let's follow the money: $11.5 Trillion if this bank rescue goes through, including the TARP funds, plus more to come towards the end of the year when the Banksta realizes the financial cupboard is still bare. Stimulus 2.o? More like an early death knell for the audacity of the black Herbert Hoover.
Nationalizing Insolvent Banks - Ixnay!
More Money From Main Street
Orders From Big Poppa
Rubin Protege Marches In Lock-Step
Looks like the insolvent financial sector can rest easy, if Tim Geithner's bank bailout plan becomes reality. In a vague and almost incoherent announcement Tuesday, which caused the market to tank while he was speaking, Geithner "detailed" important facets of a bank restructuring plan "too big to fail" (that phrase again). The key innovation was offering Federal loan guarantees to hedge funds and venture capitalists willing to purchase toxic (and almost certainly worthless) assets from bank portfolios that reportedly are preventing lending and the extension of credit. Said assets would be assigned a value by the Treasury, which would use up to $2.5 trillion of yes, our tax money to guarantee their worth. In addition, banks would have to undergo a "stress test" to determine their solvency, but Timmy Boy said it would be "unseemly" to then nationalize the failing institutions. In fact, he didn't say what if anything would happen to "stressed out" banks. It's interesting to note that all of a sudden the Mainstream Media have become ardent "nationalists" with articles both in the New York Times and The Washington Post (co-written by Dissembler fave Nouriel Roubini) advocating federal takeover, markets be damned. Your humble D.O.E.'s take on all this posturing is that Giethner's trying to implement a soft landing for the financial sector, probably on orders from Bob Rubin, Grand Financial Vizier without portfolio to the Saintly Barack, Banksta-In-Chief. Obama's even referenced the experience of Sweden, which nationalized their banking industry in the early 90's to climb out of a serious financial crisis. Of course, Barry claimed that since we have almost 6,ooo banks, that wouldn't be practical. Bullshit. There's only 6 major institutions that are facing the "stress test", and besides, the paradigm for nationalization is already well-known. As with so many other major issues early in his Presidency, Obama's too timid too try, fearing a market collapse. What the Reagan, Carter, and even the G.W. Bush (in the case of IndyMac) administrations did was send in the FDIC to audit the institution, determine its' solvency, remove the bank officers and staff, and appoint new people at every level to run the show. Methinks Mr. Rubin feels that's a bit too hard on the crony class in this instance, especially with everyone about to receive another bailout payday. Obama, meanwhile, is doing a great Dubya impersonation, staying away from the issue while the floundering Geithner takes the heat.
Let's follow the money: $11.5 Trillion if this bank rescue goes through, including the TARP funds, plus more to come towards the end of the year when the Banksta realizes the financial cupboard is still bare. Stimulus 2.o? More like an early death knell for the audacity of the black Herbert Hoover.
Monday, February 9, 2009
Obama Dissembles On Executive Pay Restrictions, State Secrets
A few days ago our new President issued a stern warning to executives from the financial sector whose firms may receive government bailout money (in the future tense, that is; as far as the $8.6 trillion squandered already, that horse is way out the barn door). CEOs and their ilk will have to get by on 500k a year, baby. That's it, Fort Pitt! Now comes word from The Wall Street Journal that we'd better read the fine print; firms can still embellish salaries by changing executives' titles, restructuring pay packages, or simply letting shareholders vote on increasing compensation. Obama's edict does not apply to restricted stock, so PRESTO!, another loophole. Does this remind anyone of Clinton-era "triangulation"? Is Dick Morris advising Obama?
Far more disturbing is the continuation of a Bush-era legal argument in a recent "states' secrets" case involving Binyam Mohamed, an Eithiopian native, and 4 other detainees who filed suit against a subsidiary Of Boeing for arranging "extraordinary rendition" flights where terrorism suspects were secretly flown to countries that didn't even bother with a legal pretext against torture. The Bush administration argued for dismissal of the suit on the grounds that even discussing extraordinary rendition in court could threaten National Security (the first refuge of scoundrels) and relations with other nations. Although Obama harshly criticized Bush's treatment of detainees during the presidential campaign, on monday a government lawyer for the new administration, Douglass N. Letter, made the IDENTICAL states' secrets argument which even startled several judges on the Ninth Circuit of the U.S. Court of Appeals. Wow, talk about swinging to the Right! It's a sad fact that the majority of the American people have assumed that Obama will just naturally reverse so many of Bush's criminal abuses of the legal system and have returned to worrying about the economy. If change does come from the bottom up, us bottom-feeders have to be ultra-vigilant, because like it or not Obama is naturally cautious (I would say chickenshit) and a tool of the "center" (the undemocratic wing of the Democratic Party) who consciously or not will fall prey to this kind of subterfuge.
Far more disturbing is the continuation of a Bush-era legal argument in a recent "states' secrets" case involving Binyam Mohamed, an Eithiopian native, and 4 other detainees who filed suit against a subsidiary Of Boeing for arranging "extraordinary rendition" flights where terrorism suspects were secretly flown to countries that didn't even bother with a legal pretext against torture. The Bush administration argued for dismissal of the suit on the grounds that even discussing extraordinary rendition in court could threaten National Security (the first refuge of scoundrels) and relations with other nations. Although Obama harshly criticized Bush's treatment of detainees during the presidential campaign, on monday a government lawyer for the new administration, Douglass N. Letter, made the IDENTICAL states' secrets argument which even startled several judges on the Ninth Circuit of the U.S. Court of Appeals. Wow, talk about swinging to the Right! It's a sad fact that the majority of the American people have assumed that Obama will just naturally reverse so many of Bush's criminal abuses of the legal system and have returned to worrying about the economy. If change does come from the bottom up, us bottom-feeders have to be ultra-vigilant, because like it or not Obama is naturally cautious (I would say chickenshit) and a tool of the "center" (the undemocratic wing of the Democratic Party) who consciously or not will fall prey to this kind of subterfuge.
Sunday, February 8, 2009
Dean Baker's Naivete'/ The Story Of America/ D.O.E. Gives IRON MAN Thumbs Up!
In an excerpt on Alternet from PLUNDER AND BLUNDER, Dean Baker's new book about our ongoing financial catastrophe, Mr. Baker (an economist your humble Dissembler greatly admires) states that "anyone with common sense, a grasp of simple arithmetic and a desire to go aginst the consensus should have seen the financial crisis coming." The key phrase of course is "a desire to go against the consensus". Not when it means your job, bucko! Anyone with the stones to be a whistleblower in our former (and perhaps at some misty point way down the road, our future) anything-goes financial sector had to know telling the truth was a one-way ticket to a new and way less profitable career. I mean, this is the story of American finance in general and the sacred "markets" in particular. When profits are skyrocketing for those on the inside and in the know, the idea of letting the chumps in on the con is utter sacrilege. The absolutely greater majority of working America outside Wall Street knows this instinctively; although very well intentioned, perhaps Mr. Baker is too close to the system he so incisively critcises to see the forest. Surely he didn't think an elevated egomaniac like Alan Greenspan was going to be honest.
Here's my Andrew Sarris impersonation:
Although your Dissembler readily admits he's 3-6 months behind the latest releases, I stay anachronistically up-to-date via Netflix. So I finally saw IRON MAN, and throughly enjoyed it! Normally D.O.E. has no use for CGI shoot-'em-up blow-'em-up extravaganzas, but I liked the vaguely anti-corporatist "message" (high-tech for the people instead of multinational weapons manufacturers) and Jeff Bridges (disguised as a bearded Daddy Warbucks) was great as the arch-villian. It also helped to have a real actor in the title role. Going from multiple heroin busts to portraying a Marvel Superhero in a mere 15 years is a career arc that only Robert Downey, Jr. could pull off.
Here's my Andrew Sarris impersonation:
Although your Dissembler readily admits he's 3-6 months behind the latest releases, I stay anachronistically up-to-date via Netflix. So I finally saw IRON MAN, and throughly enjoyed it! Normally D.O.E. has no use for CGI shoot-'em-up blow-'em-up extravaganzas, but I liked the vaguely anti-corporatist "message" (high-tech for the people instead of multinational weapons manufacturers) and Jeff Bridges (disguised as a bearded Daddy Warbucks) was great as the arch-villian. It also helped to have a real actor in the title role. Going from multiple heroin busts to portraying a Marvel Superhero in a mere 15 years is a career arc that only Robert Downey, Jr. could pull off.
Subscribe to:
Posts (Atom)
