Category: Corruption

The “Stress Testing” of the Big Banks is a Lie

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I’m shocked, shocked to find that gambling is going on here!

As Atrios notes, this is, “just overpaying for sh&%pile.“

Statement from the Treasury
Currently, the major U.S. banking institutions have capital in excess of the amounts required to be considered well capitalized.:

A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments. “We announced on February 10, 2009, a Capital Assistance Program to ensure that our banking institutions are appropriately capitalized, with high-quality capital. Under this program, which will be initiated on February 25, the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment. Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital.

Otherwise, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis. Instead, it is available to provide a cushion against larger than expected future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers. Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory. Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares.

The conversion feature will enable institutions to maintain or enhance the quality of their capital. “Currently, the major U.S. banking institutions have capital in excess of the amounts required to be considered well capitalized. This program is designed to ensure that these major banking institutions have sufficient capital to perform their critical role in our financial system on an ongoing basis and can support economic recovery, even under an economic environment that is more challenging than is currently anticipated. The customers and the providers of capital and funding can be assured that as a result of this program participating banks will be able to move forward to provide the credit necessary for the stabilization and recovery of the U.S. economy. Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands.”

(Emphasis is from FT Alphaville, not the original)

I don’t know about you, but it appears to me that Timothy Geithner has absolutely no intention of applying the normal standards of solvency to any of the big banks.

We have this further reinforced by this lovely quote:

Said one high-level official, “I think the market is missing that the whole intent of this process is to show that the banks have enough capital for even worse outcomes than we currently envision and to show there’s a program in place to give banks access to that capital if they need it.”

So that’s Geithner’s and by extension Barack Obama’s official policy: privatize profits, and nationalize losses.

(H/T Naked Capitalism for finding the quote)

BTW, just when you thought that Geithner could not get his tongue any further up Wall Street’s anus, we have news that he wants to loan massive amounts of money to hedge funds, to encourage them to buy large pieces of the sh%$pile.

By Dagon’s doughnuts, if this is that bad, we need to nationalize preprivatize the banks tomorrow.

Citi’s Plan to Get Bailed out….Again

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Once again, I can’t believe it, but I’m quoting Henry Blodgett, and he runs the numbers on the proposed conversion of preferred stock to common stock:

And what will the US taxpayer get for this preferred stock conversion? 40% of the company for some of its $45 billion of preferred, say reports. The reports add that Citigroup’s goal here is to keep the US’s ownership under 50%, so this won’t be a de facto nationalization.

Well, that’s nice for Citigroup…and another ream-job for taxpayers.

Citigroup’s common equity is currently worth $10 billion. If the US were to convert all $45 billion of its preferred at the current stock price, it should end up with 80% of the company, not 40%.

Basically, preferred stock is very similar from an accounting standpoint, to debt, while common stock is assets….What’s more in the process of writing off debt to assets, the taxpayer is expected to take a 50% haircut.

So the way for the banks to stay out of government hands is for the government to own the banks.

Citi also wantsother sovereign investors, such as, “Abu Dhabi Investment Authority, the Government of Singapore Investment Corporation, and the Kuwait Investment Authority,” to take part in a similar debt to equity swap, though it is not clear if they are being asked to take a similar haircut.

It appears that the US government, particularly treasury are, “open to considering a request to so do,” because placing an insolvent bank, which is what we have with Citi, in receivership is, at least according to Timothy “Eddie Haskell” Geithner evil beyond belief.

Someone needs to explain to Mr. Geithner that he is no longer an employee of the New York banks, as he was when he was president of the Federal Reserve Bank of New York.

Not Enough Bullets: TARP Recipients

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So, after taking billions of dollars of money from the treasury, and trillions from the Federal Reserve’s sh%$pile for cash program, we now discover that they are overcharging for federally guaranteed loans:

Since the Federal Deposit Insurance Corp. started guaranteeing debt in November, banks have charged clients, including themselves, more than $375 million in fees on $154 billion of deals in the U.S., according to data compiled by Bloomberg. Pittsburgh-based PNC Financial Services Group Inc., which received $7.6 billion from the U.S. Treasury, paid Citigroup and JPMorgan Chase & Co. 30 basis points, or $6 million, in December to sell FDIC-backed notes due in three-and- a-half years. A month later, JPMorgan and two other banks charged Freddie Mac 7.5 basis points for a similar offering.

(emphasis mine)

Also, the bailed out banks continue to maintain lavish offices, complete with office staff, for their recently ousted CEOs:

Looking for Charles O. “Chuck” Prince, ousted 15 months ago as Citigroup Inc.’s chief executive officer? Just call his extension at the bank, which still pays for his office and secretary in Midtown Manhattan.

Former Citigroup investment-banking head Michael Klein also has a free office and secretary after receiving a $34.3 million exit package when he quit in July 2008. John Reed, 70, who hasn’t worked at the bank since he resigned as co-CEO in 2000 with a $5 million parting bonus, is entitled to an office and secretary for as long as he wants.

Sanford I. “Sandy” Weill, who retired as chairman in 2006, is ending a 10-year consulting contract with the bank in April after just three years. The agreement gave him millions of dollars in perks, including an office, car and driver and use of company aircraft, which he gave up in February.

Sure as hell beats working for a living, I guess.

It appears to me that we have our own oligarchs in the United States, and we need to deal with them appropriately.

Unfortunately, I can’t find Vladimir Putin on my speed dial.

Not This Sh&% Again

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Yes, it’s the gifts that keep on giving, courtesy of Roland Burris and Rod Blagojevich, and not it appears taht Burris “forgot” to mention that Blago’s brother hit him up for a donation before his appointment:

Senator Roland W. Burris of Illinois acknowledged in documents made public Saturday that the brother of former Gov. Rod R. Blagojevich sought campaign fund-raising help from him in the weeks and months before his appointment to succeed Barack Obama as the state’s junior senator.

Mr. Burris said he provided no money to Governor Blagojevich’s campaign in response to the brother’s request.

The disclosure was different from Mr. Burris’s earlier descriptions, including one under oath, of his conversations with those closest to the former governor. It raised new questions about events that preceded Mr. Burris’s unusual appointment in late December and prompted some Republican lawmakers in Illinois to immediately demand an inquiry into whether Mr. Burris committed perjury.

Please, just make it stop.

If Burris had any illusion about running for office in 2010, this needs to stop right now.

On a more personal level, please, just make it stop.

This is a Natural Result of Private Prisons

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We now know that hundreds, perhaps thousands of children were sent to private juvenile detention facilities because the judges got kickbacks, more than 2.6 million dollars, from the operator of two private facilities.

The judges in question, Mark A. Ciavarella Jr. and Michael T. Conahan have pled guilty, with a recommendation from the prosecutors for a term of 87 months.

It should be 87 years.

The particulars are an indictment of our culture of privatization of government services:

With Judge Conahan serving as president judge in control of the budget and Judge Ciavarella overseeing the juvenile courts, they set the kickback scheme in motion in December 2002, the authorities said.

They shut down the county-run juvenile detention center, arguing that it was in poor condition, the authorities said, and maintained that the county had no choice but to send detained juveniles to the newly built private detention centers.

So, private players get into the system, pay off the right people, and these people shut down the government run facilities, and take kick-backs.

It’s worth noting that these kick-backs are called “consultancy fees” when the IMF and the World Bank do this in 3rd world nations, and have frequently involved basic human needs like a municipal water supply.

It should be noted that Robert J. Powell, the owner of the two facilities involved, PA Child Care and Western PA Child Care, is claiming that he did not bribe anyone, but rather that he was shaken down by the judges:

Robert J. Powell co-owned PA Child Care and Western PA Child Care until June. His attorney, Mark Sheppard, said his client was the victim of an extortion scheme.

“Bob Powell never solicited a nickel from these judges and really was a victim of their demands,” he said. “These judges made it very plain to Mr. Powell that he was going to be required to pay certain monies.”

Let’s see, you build jails for kids, and then suddenly they shut down the existing facility, because they think that you might bribe them?

I don’t think so.

BTW, these folks might never have been caught, but for the fact that they were doling out favors to friends in arbitration awards, and the insurance companies cried “foul,” and got an investigation.

In any case, they are now reviewing thousands of cases, and the federal prosecutors have petitioned the court to expedite notification to the victims.

Interestingly enough, the thing that seems to be bothering me the most involves a person who is not going to jail:

At worst, Hillary Transue thought she might get a stern lecture when she appeared before a judge for building a spoof MySpace page mocking the assistant principal at her high school in Wilkes-Barre, Pa. She was a stellar student who had never been in trouble, and the page stated clearly at the bottom that it was just a joke.

Instead, the judge sentenced her to three months at a juvenile detention center on a charge of harassment.

Why is anyone who would criminalize a satirical MySpace page allowed anywhere near children?

Why is this person still employed? Why are the police officers and prosecutors who did not laugh him off, or better still throw him in jail for harassment?

There is so much wrong here, that I’m beyond ranting.

Americans Want Accountability for Bush Torture

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Though, interestingly enough, USA Today runs with the lede of Most want inquiry into anti-terror tactics, while Gallup goes with No Mandate for Criminal Probes of Bush Administration.

38% want a criminal investigation, 24% want some sort of “truth and reconciliation” panel, and 34%, the “dead enders,” don’t want either.

Sounds like a mandate to me.

FWIW, the numbers for investigation Attorneygate and warrantless wiretapping are even more in favor of investigating the matters.

Truth Hits the Autism-Vaccine Wacko Community

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Well, a couple of days ago, it was revealed that doctor Andrew Wakefield’s data on autism and vaccines were completely fraudulent, and now the federal vaccine court, which was largely created on the back of Wakefield’s myth, has ruled that there is no credible connections between vaccines and autism.

As to the court case:

The decision by three independent special masters is especially telling because the special court’s rules did not require plaintiffs to prove their cases with scientific certainty — all the parents needed to show was that a preponderance of the evidence, or “50 percent and a hair,” supported their claims. The vaccine court effectively said today that the thousands of pending claims represented by the three test cases are on extremely shaky ground.

In his ruling on one case, special master George Hastings said the parents of Michelle Cedillo — who had charged that a measles, mumps and rubella (MMR) vaccine caused their child to develop autism — had “been misled by physicians who are guilty, in my view, of gross medical misjudgment.”

Hastings said that he was deeply moved by the suffering autism imposed on families such as the Cedillos, but that “the evidence advanced by the petitioners has fallen far short of demonstrating . . . a link.”

As to the despicable Andrew Wakefield and his 1997 article in the Lancet, this is more than just bad science.

Wakefield, in the employ of vaccine litigation specialists, simply made up data:

The research was published in February 1998 in an article in The Lancet medical journal. It claimed that the families of eight out of 12 children attending a routine clinic at the hospital had blamed MMR for their autism, and said that problems came on within days of the jab. The team also claimed to have discovered a new inflammatory bowel disease underlying the children’s conditions.

However, our investigation, confirmed by evidence presented to the General Medical Council (GMC), reveals that: In most of the 12 cases, the children’s ailments as described in The Lancet were different from their hospital and GP records. Although the research paper claimed that problems came on within days of the jab, in only one case did medical records suggest this was true, and in many of the cases medical concerns had been raised before the children were vaccinated. Hospital pathologists, looking for inflammatory bowel disease, reported in the majority of cases that the gut was normal. This was then reviewed and the Lancet paper showed them as abnormal.

You can see my earlier posts on this here.

Competition For Thee and Not for Me

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As part of his initiative to make state government more efficient, New Jersey Governor, and former chief of Goldman Sachs, John Corzine is is looking to mandate competition for almost all goods and services that are purchases.

But, there is one exception, municipal bonds….You know, where companies like Goldman Sachs make an awful lot of money managing the sales of these instruments, and competitive bidding does save money:

Competitive bond offerings force banks to line up on an advertised day and submit the lowest interest-cost bid to win underwriting business. In a negotiated sale, states and cities decide in advance which banks will market the bonds. Underwriters have promoted the no-bid method, saying it allows them to get the best prices for issuers by tailoring the debt to specific types of investors.

Bid sales saved issuers 17 to 48 basis points, “on average and all else equal,” according to a study published in the Winter 2008 issue of the Municipal Finance Journal. A basis point is 0.01 percentage point. On $100 million of debt, the savings mean $1.7 million to $4.8 million less interest over the life of a 10-year bond.

I guess that his buddies at Goldman Sachs are suffering under the restrictions Obama has placed on executive compensation.

We Were Played By Hank Paulson and His Evil Minions&trade on TARP?

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I think that we’ve all seen the video (below) where Rep. Paul Kanjorski (D-PA) said on CSPAN that there was a run on the money markets, and we were hours away from a complete meltdown of the financial system.

The money quote, if you don’t want to watch the vid, is, “If they had not done that, their estimation is that by 2 p.m. that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it.”

The New York Post, the right wing flagship of Rupert Murdoch’s media empire, and there are no on the record sources, though there is a cool graphic with Marlon Brando from Apocalypse Now (right).*

So, not only is the story completely based on anonymous sources, but there are no other contemporaneous reports of this happening.

Enter Felix Salmon of Portfolio.com, who looks at the underlying data, and finds out that it never happened. There was no massive run on the banks.

There were a lot of redemptions to the tune of tens of billions of dollars a day, not trillions per hour.

So, how did this bit of disinformation get out, and why did it get out to a paper not known for financial reporting in the financial capital of the world?

Inquiring minds want to know.

*As a purveyor of news, the New York Post sucks, but I do like their headlines and the way that they spice up their graphics.

Media Consolidation

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Barry Righoltz’s book Bailout Nation has been dropped by McGraw Hill, largely because he refused to soft pedal the ratings agencies role in the financial crisis, and McGraw Hill owns the largest of the ratings firms, Standard & Poors.

They claimed stylistic issues with his first description, which called the ratings agencies, “Pimps to the fixed-income fund managers’ Johns,” which to my mind is a fairly accurate description. (He did come out with an alternate chapter, which, while slightly milder in language, was even more damning, because it was more extensively sourced)

As Mr. Ritholtz himself notes, “The problems came not from Legal, but from Corporate within McGH. Legal had not even finished reviewing the manuscript at this time.“

If you wonder why newspapers and magazines are “dying”, it’s because of crap like this, where conglomerates allow other corporate issues to water down their content.

Not Enough Bullets: The Whole Damn Banking Industry

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Tom Randall, Alex Nussbaum and Peter Robison at Bloomberg News talk about how awful the Obama salary cap for bank executives on the Federal dole is. Their lede:

Eric Langan could run a U.S. bank, based on his $494,713 salary last year, according to President Barack Obama. Langan would rather stay in his job, overseeing 18 strip clubs as chief executive officer of Rick’s Cabaret International Inc.

Well, Mr. Langan actually made a damn profit in 2008.

So they are claiming that $½ million, “may not buy a seasoned executive for a major U.S. financial institution.”

These are the folks who bankrupted the United States, and continue to pay themselves obscene bonuses.

Wanting to hire one of them for your bank is like betting on the Washington Generals when they play the Harlem Globetrotters.

I would also note that Mr. Langan’s job is a lot harder than your senior bank executives. He has to deal with people who stalk the dancers, and how to handle security, and hiring responsible bouncers, etc.

Besides, who is hiring in banking right now.

Michael Steele Caught in Corruption Probe

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Hmmmm….It appears that his 2006 Senate campaign paid $37,000 to Brown Sugar Unlimited, a catering company run by his sister.

OK, that is unseemly, why is it likely illegal? Because the company had filed to dissolve 11 months before the payment.

There also appear to be questionable money transfers, which pissed off the Maryland Republican Party, and significant payments to a law firm for work never done.

How did the Washington Post find out about this?

The U.S. attorney’s office inadvertently sent the confidential document, a defense sentencing memorandum filed under seal [for Alan B. Fabian who was being prosecuted under unrelated fraud charges], to The Washington Post after the newspaper requested the prosecution’s sentencing memorandum.

Which seems to me to be a hit job, and the motivations could be:

  • A disgruntled ‘Phants in the Maryland party.
  • A disgruntled prosecutor, who wanted the investigation to proceed.
  • It could just be a hit from someone who just does not like Steele.

Note, however, that the US Attorney is still a Republican appointee, so if it’s a hit, it’s an internecine affair.

More Adventures in the Incompetence of the Iron Triangle

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In this case, it’s the Marine Corps, who have found a disaster besides the EFV, the Growler, which is basically a stunted version of the Jeep Cherokee designed to fit in the cargo bay of the V-22 Osprey.

It’s supposed to serve for basic transportation, and to tow a trailer for a mortar.
As Paul McLeary notes, “Well take a look at the vehicle and tell me if you would want to tool around IED alley in Afghanistan in this thing.” (Emphasis Original)

In addition to being dangerously exposed in combat areas, it’s cost has skyrocketed:

The inspector general report said that the average cost of a single Growler has risen 120 percent, from about $94,000 when the contract was awarded in 2004 to $209,000 in 2008. The unit cost for the vehicle with mortar and ammunition trailer has grown 86 percent, from $579,000 to $1,078,000.

It turns out that part of this has been the Marines adding features, “air suspension … a new cooling system, power steering and power brakes, along with a beefed-up General Motors engine…,” of which only the air suspension would be considered crucial to the mission (it allows the vehicle to squat to fit in the Osprey).

Note that this contract was awarded in 2004, when it was clear that a thin skinned vehicle would not be acceptable in current conflicts.