Category: Finance

Not Enough Bullets

No Comments

Here is a guy who is worth more than the GDP of something like 80% of the countries in the world, and he’s bitching because people are not as nice to him as he would like:

What’s eating Jamie Dimon?

At last week’s World Economic Forum in Davos, Switzerland, the JPMorgan Chase chief executive once again lambasted the media and politicians for portraying all bankers as greedy evil-doers.

It was at least the 12th time since the start of the financial crisis that Dimon has complained about Wall Street critics painting all bankers as cut from the same cloth. But the timing of his latest outburst seemed odd.

In December, as part of President Barack Obama’s bid to make nice with U.S. business leaders, Dimon was invited to a private Oval Office one-on-one with the president to discuss the economy. Dimon and his wife Judy were also guests at the state dinner the White House arranged for Chinese President Hu Jintao last month. And one of Dimon’s top executives, Bill Daley, was tapped by the president as chief of staff.

BTW, the reason that the media portrays, “all bankers as greedy evil-doers,” and critics of our banking system paint, “all bankers as cut from the same cloth,” is because it’s true.

You are all a bunch of contemptible greed-heads, Mr. “We started shorting Bernie Madoff because we knew he was a fraud, but didn’t bother telling anyone.”

This is why we need to prosecute every one of these rat-bastards to the fullest extent allowed by law.

It’s Bank Failure Friday!!!!

No Comments

And here they are, ordered, and numbered for the year so far.

  1. American Trust Bank, Roswell, GA
  2. North Georgia Bank, Watkinsville, GA
  3. Community First Bank Chicago, Chicago, IL

Full FDIC list

As you can see below, the 2011 and the 2010 lines have finally crossed.  I don’t expect 2011 to b e good, but I expect it to be better than 2010.

So, here is the graph pr0n with last years numbers for comparison (FDIC only):

And since it’s early in the year, here is a detail of the first few weeks:

A Belated Bank Failure Friday!!!!

No Comments

And here they are, ordered, and numbered for the year so far.

  1. The First State Bank, Camargo, OK
  2. Evergreen State Bank, Stoughton, WI
  3. FirsTier Bank, Lousiville, CO
  4. First Community Bank, Taos, NM

Full FDIC List.

As you can see, after a slow start, things seem to be ramping up, and, allowing for the fact that the first Friday of last year was January 1, when they would not be closing banks, the new year looks a lot like the old year.

So, here is the graph pr0n with last years numbers for comparison (FDIC only):

And since it’s early in the year, here is a detail of the first few weeks:

The Financial Crisis Inquiry Commission (FCIC) Report is Out

No Comments

The FCIC ain’t the Pecora Commission, it lacked the authority, budget, and time to do so, so it is at best a half measure, but it is better than I had anticipated.

I am rather surprised that the they did not fall back on the “Hoocoodanode” explanation in the majority report, and actually assigned blame.

They actually assigned blame, with much of that going to Alan “Bubbles” Greenspan and “Helicopter” Ben Bernanke.

The commission also cites compromised federal regulators, particularly the OCC and the OTS, who went out of their way to hamstring state regulators who were far more aware, and more proactive, as well as the SEC’s unwillingness to regulate.

I am unsurprised that they determined that Timothy Geithner’s tenure as President of the New York Fed, “missed signs of trouble at Citigroup and Lehman,” though I am pleased that they stated so explicitly, and it is nice that they called out Larry Summers for his dogged attempts to completely deregulate derivatives.

The ratings agencies get a mention as “cogs in the wheel of financial destruction,” but it seems to soft pedal the degree that these folks were both corrupt, incompetent, and essential to both the financial system and the meltdown.

Some of the insiders have leaked that they think that all the reports ignore the fact that the system failed, and instead focus on fitting the events into the philosophical worldview, and I tend to agree:  This is much less of a description of the forest than it is of the trees.

One big surprise is the fact that the FCIC has referred some of its information to the DoJ because it believes that laws have been violated:

The claim of allegedly widespread securities law violations is among the more explosive findings in a sweeping report released Thursday by the Congressionally-appointed Financial Crisis Inquiry Commission. Those details help explain why the panel opted to refer several financial industry figures to state or federal law enforcement agencies for potential prosecution, as The Huffington Post reported Monday.

I don’t expect any action from Barack Obama or Eric “Place” Holder on this, after all, when it comes to law breaking by powerful elites, they want to “look forward”, rule of law be damned.

As to surprising revelations, the fact that they caught Goldman Sachs in a $2.9 billion lie regarding the Vampire Squid’s claim that they got no money for their own investments from the AIG bailout is surprising.

Not the Goldman lying part, that’s pretty normal, but the fact that they caught Goldman and then released it, is a surprise for me.

On the depressing side, it appears that the FCIC’s pledge to release all the raw documents is not as sweeping as they are claiming:

The FCIC’s commissioners, for their part, believe that they’ve done their best to be transparent. But Phil Angelides, the FCIC’s chairman, told Mother Jones in a Thursday conference call that the commission simply couldn’t release everything. “In the course of doing this kind of inquiry, you look at many documents that are completely irrelevant,” Angelides says. In addition, he says, “there are trade secret laws, other laws, federal law that controls the ability of the commission to release documents… It wouldn’t be responsible to do a document dump of documents that weren’t relevant to the crisis.”

Angelides promised that the “predisposition of the commissioners” would be to have a “fairly short period” before the National Archives and Records Administration releases the FCIC documents that won’t be released immediately. In the conference call, Angelides and fellow commissioner Brooksley Born refused to quantify what percentage of the commission’s documents will be released at what times, but Born claimed that the commissioners “erred on the side of openness.”

Even so, the National Chamber of Commerce is the absurd claim that any release of documents is a job-killing action akin to Wikileaks document dumps:

“The commission’s final report and its pledge to post raw materials — apparently including information obtained from companies as well as other government agencies — is an astounding abuse of process that would effectively create a government-sanctioned Wikileaks,” said Lisa Rickard, president of the U.S. Chamber’s Institute for Legal Reform.

Considering the fact that these documents will reveal things like the big Wall Street firms knowing selling “a sack of s%$#” to investors, I tend to think that a full and complete release is a good thing, because the tighter the regulations, the more confidence that investors have, and so the more willing that they are to invest.

As to the slightly less absurd, there are the two minority reports from the Republicans.

The first, issued by 3 of the 4 Republicans on the committee, seems to primarily blame, “failures, near-failures, and restructurings of 10 firms triggered a global financial panic,” which is kind of silly, because panic is what happens when you realize that your 401K is all smoke and mirrors, because the banksters have been lying to you.

It’s really pretty similar to what the majority report says, only they say that it cannot be regulation, because the crisis was worldwide, ignoring the fact that the US and UK have been leading a regulatory race to the bottom for the past 30 years.

The remaining dissent, by Peter J. Wallison, who is co director of the American Enterprise Institute’s financial markets deregulation project, basically says that it was attempts by the government to make sure that banks did not discriminate against minorities, or, to put it more bluntly, he said, “this is what happens when you lend money to n*****s.”

Economics Update

No Comments

It’s not a good week for employment.

Initial unemployment claims rose by 51,000 to 454,000, people are talking about snow doing this, but I’m inclined believe that the weather had less to do with this than the underlying weakness in the economy.

The less volatile 4 week moving average rose by 15,750 to 428,750, and continuing claims rose by 94K to 3.99 million, and emergency claims fell by 98K to 4.62 million, though a lot of that last number dropping are people simply running out of benefits completely.

The Federal Reserve is still concerned about such thing, as the latest Federal Open Market Committee statement, which maintains its concerns as well as their quantitative easing (printing money) policy.

It’s Bank Failure Friday!!!!

No Comments

And here they are, ordered, and numbered for the year so far.

  1. Enterprise Banking Company, McDonough, GA
  2. CommunitySouth Bank & Trust, Easley, SC
  3. The Bank of Asheville, Asheville, NC
  4. United Western Bank, Denver, Co

Full FDIC list

4 banks this week, as Atrios would say, “Eated.”  The FDIC is hungry.

So, here is the graph pr0n with last years numbers for comparison (FDIC only):

And since it’s early in the year, here is a detail of the first few weeks:

No Comments

Cindy Gertz, the US Treasury official responsible for trying to prevent foreclosures, just praised the mortgage servicers for their efforts at preventing forecolsures:

An Obama administration housing official on Wednesday defended mortgage servicing companies, just one day after Treasury Secretary Timothy Geithner said the industry needs an overhaul.

Cindy Gertz, director of operations at the Treasury Department’s Homeownership Preservation Office, said mortgage servicers–firms which collect loan payments–have hired tens of thousands of extra staff to work with a crush of struggling borrowers who are trying to renegotiate the terms of their mortgages.

“I think tremendous progress has been made,” Gertz told a group of bankers at a conference organized by the Mortgage Bankers Association. Gertz, a former executive at mortgage finance giant Freddie Mac, did acknowledge that the process is not complete.

This is kind of like saying that IV drug users who share needles have been helpful in the fights against AIDS.

The only explanation for the fact that a Google News search of the name does not reveal the phrase, “Spending more time with her family,” is that this is what her boss, Tim “Eddie Haskell” Geithner, and his boss, Barack Obama, actually believe that loan servicers acting in bad faith are a necessary to protect our banking system.

My Bad……

No Comments

I’ve had a busy month, just look at my posting volume, so I missed the first two bank failure Fridays.

There were two bank failures on the 7th, and one on the 14th, and there have been no credit union failures this far

And here they are, ordered, and numbered for the year so far.

  1. First Commercial Bank of Florida, Orlando, FL
  2. Legacy Bank, Scottsdale, AZ
  3. Oglethorpe Bank, Brunswick, GA

Full FDIC list

So, here is the my new, improved graph pr0n with trendline (FDIC only).

I’ve dropped the trend line, and replaced it with two line graphs, for 2010 & 2011, so we can see how they compare.

And since it’s early in the year, here is a detail of the first few weeks:

Note that we are seeing a calendar artifact here. The first Friday of 2011 was January 1, when the banks were all closed, and the FDIC would not be closing anyone, while the first Friday of 2011 was the 7th, and so very much a business day for the FDIC.

We should see a better comparison of activity by early February, when trends become more visible.

The Vampire Squid Has Conquered Time Itself

No Comments

As if nearly destroying the world wasn’t enough, when Goldman Sachs became a bank holding company, allowing it to get billions in Federal Reserve bailouts, it moved its fiscal year from starting on December 1 to January 1, as regulations required, and then it disappeared the missing month of December, 2008, and loaded the “orphan month” with huge losses as well as huge bonuses to its employees that basically went down the memory hole”

As a result, some great information gets missed, and is that much harder for the rest of us to find. For instance, the main news in the story is this:

Nearly 36 million stock options were granted to employees in December 2008 — 10 times the amount issued the previous year — when the stock was trading at $78.78. Since those uncertain days, Goldman’s business has roared back and its share price has more than doubled, closing on Tuesday at nearly $175.

The story goes on to detail the dates at which the options can be exercised. But there’s much more to be said on this matter. For one thing, the monster option grant took place during Goldman’s notorious orphan month, meaning that it would never appear in an annual report. And for another thing, it was very expensive even at the time.

……

Remember that December 2008, when Goldman made these grants, was the worst month in the company’s history: it lost $1.3 billion, and was mired in the depths of the financial crisis. Yet many partners will have received stock and options awards that month which are worth hefty eight-figure sums today. Not bad for a month’s work.

(emphasis mine)

I cannot see this as anything but a deliberate attempt to loot the company at the expense of the share holders.

Why these ratf%$#s aren’t under criminal investigation is beyond me.

Un-Dirty-Word-Believable

No Comments

The roof is on fire…

Have you heard the one about the guy who passed the bar exam in Ohio, but was denied his law license on moral grounds because he had accumulated too much debt going to law school?

Yeah, well, it ain’t funny:

Wow. Guy goes to law school, guy racks up a huge amount of debt, guy has no idea how he’ll pay off his debts. Sound familiar? Okay, here’s the twist: the guy failed the “character and fitness” component of the Ohio bar because he has no plan to pay off his loans.

What the hell kind of legal education system are we running where we charge people more than they can afford to get a legal education, and then prevent them from being lawyers because they can’t pay off their debts?

Because it’s not like Hassan Jonathan Griffin was in a particularly unique situation when he went before the Ohio bar. A year and a half ago, we wrote about a man who was dinged on his character and fitness review because he was $400,000 in debt. That’s an extraordinary case. Hassan Jonathan Griffin owes around $170,000. He has a part-time job as a public defender. He used to be a stockbroker. He’s got as much a chance of figuring out a way to pay off his loans as most people from the Lost Generation.

The more that we make getting out of a hole impossible for ordinary Americans, the more we make a hollow country that will one day implode.

If this is what America is, then we need to examine what we are, because this is the sort of sh%$ makes me want to play Nero, and fiddle while the whole corrupt place burns.

Running the Numbers

No Comments

So, some of you might be wondering why we all went on an extended weekend down to Williamsburg, Virginia, despite the fact that it’s the off season, and so many of the attractions (see the aforementioned Busch Gardens post) are closed.

Well, about a month ago, we went to computer show, and picked up a new (used) laptop for my daughter, and my wife filled out an entry form, and we got a call for a timeshare (they call it a vacation share) in the area which included their giving us space in one of their vacation condos for 3 days.

We talked about it, and we decided that this would be a lot of fun, and listening to a sales pitch would be well worth it.

We declined their offers, which by the way got sweeter and sweeter as time went on, pleading poverty, which is only half true.

The other half is that I can do basic math in my head, I are a mechanical engineer after all, and their numbers were simply not that good.

Basically, the spaces were set up as townhouses, with two apartments, each being a 2 bedroom with a decent kitchen and living space, nice bedrooms, and a kickass master bathroom, it included a jacuzzi, a separate shower, and a toilet in its own separate room.

The basic offer was around 10 grand, with a down payment of 2-4K with a 6-8 year loan at 7 percent, and around a $500 a year maintenance fee.

All this for a complex that was about 5 miles away from the Colonial Williamsburg Historic Area.

They talk about this, and show how, for decent, and honestly not as good, hotel space, you would be spending $30K over the next 30 years for lodging, and then discuss how this is a prime location that could be swapped for other space.

Well, ignoring opportunity costs, the economic fact that dollars spent today are worth more than dollars spent later, let’s look at the numbers.

You get 2 weeks a year, either fixed (the cheap option I describe above), or floating, so you are paying for 2 weeks out of 52.

Let’s be charitable, and say that you are paying for 1⁄25of a year, or ½ a month.

This makes purchase price around $250,000.00 (10+K x 25) and the maintenance fee equivalent to about $1000.00 a month.

Note that this is all in the suburban areas of Williamsburg, where nice houses are well under the price that they asked (annualized) if you are more than 5 blocks from historical area/William and Mary College, and then you have a $1000/month rent maintenance fee.

When you consider the fact that the developer did this on what had been soybean fields at some point in the past 3 or so years, it’s certainly a good deal for them.

Obviously for certain people, those who are certain that they will hit the area year after year, and who might want to swap a week with someone in some other location, it might make sense, but for most of us, this is simply not a sensible financial or lifestyle decision.

As for me, I want to vacation in different places, or to visit with family, which makes it even less attractive to me.

Still, I don’t mind the 2 or so hours that I spent on the sales pitch, along with having to say “no” to the very earnest sales person, it was worth it for the rest of the weekend, which was a lot of fun.

Facebook to Buy Time-Warner in a Multibillion Dollar Stock Deal

No Comments

Not really, but the obvious parallels between the dot-bomb mania of the late 1990s, and this bit of Vampire Squid* inspired pump and dump, Goldman Sachs is investing money in, and creating a (completely fictitious) market cap for Facebook of around $50 billion.

Karl Denninger says that it’s a scam, and that whoever invests in after Goldman will be left holding the bag, while William Cohan at the New York Times runs the numbers:

Despite the high price of its investment, Goldman sees in Facebook a business bonanza, a nearly perfect nugget of investment-banking opportunities. First, Goldman’s cost of capital is close to zero — as a bank holding company, it can borrow from the Federal Reserve at negligible interest rates — so any capital gain it makes on its venture in Facebook will be sheer profit. Second, Goldman has almost certainly locked up the role of lead manager of the inevitable Facebook initial public offering.

Fees for underwriting public offerings are generally about 7 percent of the value of the stock sold. Facebook could easily sell $2 billion of stock or more, generating fees to Goldman and the other underwriters of at least $140 million. The other benefit for Goldman in leading the public offering — aside from major bragging rights — is that it can use its marketing, sales and distribution muscle to make sure the value of Facebook at the time of the offering exceeds the $50 billion valuation at which Goldman invested.

Goldman has also won from Facebook the right to offer an additional $1.5 billion of the company’s stock to its private-wealth clients. According to The Times, Goldman will be creating a “special purpose vehicle” to sell the stock to its wealthy clients and then will charge them a 4 percent initial fee plus 5 percent of any profits. While on paper it seems that these high rollers would be foolish to invest in Facebook at such a lofty valuation, they will still most certainly feel increased loyalty to Goldman for making such an exclusive opportunity available to them. On top of it all, there is the increased likelihood that Goldman will get to manage a good portion of the $12 billion fortune belonging to Mark Zuckerberg, Facebook’s founder, for yet more fees.

Seriously, we bailed out those contemptible f%$#s for this?!?!?

By way of perspective, DC at the by invitation only Stellar Parthenon BBS noted:

  • Facebook is worth more than, Starbucks ($25 billion market cap)
  • Facebook is worth more than United, American, Delta, JetBlue, and Southwest Airlines combined (About $32 billion combined market cap)
  • Facebook is worth about 25 times more than the New York Times Company
  • Facebook is bigger than Target’s market cap ($43 billion)
  • Facebook is worth about twice as much as Dell ($26.5 billion market cap)
  • Facebook is worth more than Viacom, which owns MTV and Comedy Central ($28 billion market cap)
  • Facebook is worth more than Campbell Soup and General Mills combined ($34.4 billion combined market cap)
  • Facebook is worth more than Boeing ($48.7 billion market cap)
  • Facebook is worth five times more than Netflix, the stock darling of 2010 ($9.3 billion market cap)
  • Facebook is worth more than Nokia, the world’s biggest cellphone company ($39.5 billion market cap)

All this for a company that doesn’t really sell anything, and has a revenue stream that is rather opaque.

Facebook is still privately held, which implies that they really don’t want people to look under the hood until someone really stupid hands them a lot of money.

*Alas, I cannot claim credit for the bon mot describing Goldman Sachs as a, “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” This was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.

And the Insanity Continues

No Comments

So after a ruinous recession, the economy shrunk by over a fifth, made worse by austerity programs that were intended to maintain a hard peg to the Euro, Estonia’s government has finally achieved the desired result, and at the start of the year, Estonia joins the Euro Zone.

Truth be told, the Estonian government set it up such that there was no choice, since it maintained a hard peg to the Euro, and the Deutsch Mark before that, and almost all the loans outstanding are foreign denominated, so there really never was any sort of fiscal or economic sovereignty in the small Baltic Republic.

If anyone expects an improvement in the standards of living as a result of this though, they are very likely to be disappointed.

Not Enough Bullets … No Consequences for the Rich Edition

No Comments

The New York Times has an article on real estate developers who repeatedly fail and default, but continue to attract other people’s money to their schemes:

Larry Gluck, the apartment building king whose company defaulted on loans in New York, San Francisco, Los Angeles and Washington, recently bought the Windermere Hotel in Manhattan and Tivoli Towers, a subsidized housing complex in Brooklyn.

Ian Bruce Eichner, who lost two major New York skyscrapers to foreclosure in the early 1990s and defaulted on a $760 million loan for a Las Vegas casino resort in 2008, is working on a plan to rescue One Madison Park, a troubled 50-story condominium project.

Even Harry Macklowe, whose $7 billion gamble on seven Midtown skyscrapers at the top of the market almost cost him his entire empire, is out looking for new deals.

Industry lore has it that New York is one of the toughest, most unforgiving real estate markets in the world. The costs are so high, the unions so ornery, the politicians so demanding and the rivalries so fierce, that one false move invites financial disaster.

But the truth is that there have been surprisingly few career fatalities among New York developers, even though they have lost billions of investor dollars on overpriced real estate and have littered the city with unfinished apartment buildings. While a homeowner who lost a house to foreclosure would find it difficult to borrow for years, developers who defaulted on enormous loans have still been able to attract money.

The reasons, experts say, are that there is still plenty of money floating around and that the market has a very short memory.

“You can always find an investor who’ll put up equity with a guy, unless he’s Attila the Hun,” said Daniel Alpert, managing partner at Westwood Capital, a real estate investment bank.

………

This is the very definition of moral hazard, and when someone does this repeatedly, it is not incompetence, it is fraud.

Time to end the bailouts and start prosecuting.

Justice Department seeks tougher CFTC and SEC swaps rules | Reuters

No Comments

The DoJ is asking the SEC and CFTC to tighten their rules on ownership of clearing houses for derivatives.

The financial regulators are looking to limit individual members of the clearing houses to 20%, while Justice’s anti-trust regulators want there to be a 40% limit applied to all, “banks and other major swaps players,” in order to prevent 3 or 4 of the big players to create a monopoly situation, in addition to more strictly regulating the boards of these clearing houses.

I’m not sure if it is good news that the DoJ is asking for more, or bad news that the SEC and CFTC asked for so little to start with.

I Think That This is Corruption, Not Stupidity

No Comments

One of the more puzzling aspects of the financial meltdown is the complete lack of prosecutions of high level bankers, and Bill Black of New Deal 2.0 explains why:

What has gone so catastrophically wrong with DOJ, and why has it continued so long? The fundamental flaw is that DOJ’s senior leadership cannot conceive of elite bankers as criminals. On Huffington Post, David Heath writes:

Benjamin Wagner, a U.S. Attorney who is actively prosecuting mortgage fraud cases in Sacramento, Calif., points out that banks lose money when a loan turns out to be fraudulent. An investor in loans who documents fraud can force a bank to buy the loan back. But convincing a jury that executives intended to make fraudulent loans, and thus should be held criminally responsible, may be too difficult of a hurdle for prosecutors. ‘It doesn’t make any sense to me that they would be deliberately defrauding themselves,’ Wagner said.”

(emphasis original)

What is going on here is that the prosecutors are assuming that the agents of the financial institutions are perfect agents of those institutions, and that they would never act in their own personal benefit if it were detrimental to their employer in the long term.

This has a number of names, most commonly, it is called the principal agent problem, and the (now unconstitutional) theory of the theft of honest services prosecutions was based on this.

The facts here, though not necessarily the law, are clear:  Various high level agents at financial institutions engaged in activities that were likely to blow up in the long term, but were unlikely to do so before these agents profited from them.

The only question is whether this behavior was merely stupid or negligent, in which case, a life-time ban from the financial industry is warranted, or fraudulent, in which case, incarceration is warranted.

The calculus here is not rocket science, and the fact that prosecutors are sticking to such a transparently false theory is to my mind more of an indication of corruption than it is of stupidity or wrong headedness.

Without jail time, we will see the behavior repeated.

Hell, we are seeing it repeated right now, that’s why the bonuses are so big this year.