Category: Finance

It’s Bank Failure Friday!!!!

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

  1. RockBridge Commercial Bank, Atlanta, GA
  2. Peoples First Community Bank, Panama City, FL
  3. Citizens State Bank, New Baltimore, MI
  4. New South Federal Savings Bank, Irondale, AL
  5. Independent Bankers’ Bank, Springfield, IL*
  6. Imperial Capital Bank, La Jolla, CA
  7. First Federal Bank of California, F.S.B., Santa Monica, CA

Full FDIC list

*I think that my parents had an account there in the mid-1980s, when my step-mother was dean at the University of Illinois at Springfield.

Bankers Offer to Overpay on UK Bonus Tax

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No, really, I am completely serious:

Some of the most senior bankers in Britain are planning to convince the Treasury to drop the new 50% tax on bonuses by dangling the prospect of a combined contribution to the exchequer of £2bn. The promise of the boost to Britain’s depleted coffers has been made in recent days and is almost four times the £550m Alistair Darling has said he intends to raise through his payroll tax on bonuses. The Chancellor has been met with anger in the City since he announced the one-off tax in his pre-budget report last week and been warned of a mass exodus of high-flying bankers to countries with a less punitive tax regime.

(emphasis mine)

I don’t know what is going on here, but when Britain’s own little vampire squids wrapped around the face of humanity,* decide that it’s time to overpay their taxes by a factor of 4, something very hinky going on.

Somewhere in these bonus pools that Chancellor Darling wants to tax is something bad….Something Really, Really, Really, Really bad.

We are talking something murder-for-hire and laundering drug money through child prostitutes bad. Something is rotten in the Street City,† and they, whoever exactly they are, very badly want it covered up.

*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm Goldman Sachs, The Great American Bubble Machine.
†The UK equivalent of Wall Street. Corrected my error on edit.

Stop Ben Bernanke

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I know that there are a lot of people who think that Bernanke did the right thing, and I know that I am not one of them.

That being said, the real question is whether or not Bernanke is the right person for the path forward, and it is clear from his testimony before the Senate Banking Committee that he is completely unsuited to the task.

The fact is that it was clear from his earlier testimony, when he endorsed gutting Social Security, which was completely inappropriate for a Fed Chair, that he is a conservative (though not necessarily crazy).

But at the confirmation hearings, he was asked a very good question by, of all people David “Diaperman” Vitter.

Vitter did not come up with the question, Brad Delong came up with the question, and it’s why he’s on my blogroll, but it is a good question, and his response is telling:

Q: Why haven’t you adopted a 3% per year inflation target? [Note, the target is 2%]

Bernanke: The public’s understanding of the Federal Reserve’s commitment to price stability helps to anchor inflation expectations and enhances the effectiveness of monetary policy, thereby contributing to stability in both prices and economic activity. Indeed, the longer-run inflation expectations of households and businesses have remained very stable over recent years. The Federal Reserve has not followed the suggestion of some that it pursue a monetary policy strategy aimed at pushing up longer-run inflation expectations. In theory, such an approach could reduce real interest rates and so stimulate spending and output. However, that theoretical argument ignores the risk that such a policy could cause the public to lose confidence in the central bank’s willingness to resist further upward shifts in inflation, and so undermine the effectiveness of monetary policy going forward. The anchoring of inflation expectations is a hard-won success that has been achieved over the course of three decades, and this stability cannot be taken for granted. Therefore, the Federal Reserve’s policy actions as well as its communications have been aimed at keeping inflation expectations firmly anchored.

(emphasis mine)

When you translate this from Fed Speak, it reads as follows, “If inflation threatens to rise above 2%, I will slap it down, and I don’t care if unemployment remains above 10% for the next decade.”

We are in a liquidity trap, and the only way out of it is to create the expectation of inflation, so people worry about their money losing value and spend it.

That’s Econ 101, and I believe that Ben Bernanke has written things to this effect too.

Senate Banking Committee Passes Bernanke

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The vote was 16-7, with 1 Democrat, out of 13 on the committee and 6 Republicans out of 10 on the committee voted against:

Yes
No
Christopher Dodd (D) Jeff Merkley (D)
Tim Johnson (D) Richard Shelby (R)
Jack Reed (D) Jim Bunning (R)
Chuck Schumer (D) Mike Crapo (R)
Evan Bayh (D) Jim DeMint (R)
Robert Menendez (D) David “Diaperman” Vitter (R)
Daniel Akaka (D) Kay Bailey Hutchison (R)
Christopher Dodd (D)
Sherrod Brown (D)
Jon Tester (D)
Mark Warner (D)
Herb Kohl (D)
Michael Bennet (D)
Bob Bennett (R)
Bob Corker (R)
Mike Johanns (R)
Judd Gregg (R)

I’m not sure if the Republican voted against Bernanke because they believe that the economy will suck in 2010, and they want to be able to say that they opposed “helicopter Ben”, or if they are opposing him just because he’s Obama’s nominee, but it’s pretty clear that there will be some number greater than 2 Republicans who will be willing to vote for cloture, so it’s pretty much a done deal.

It sucks, because not only does Bernanke conflate the well being of Wall Street with that of the nation, but he’s also pretty right wing, see his comments earlier on gutting Social security.

Fail

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Remember yesterday, when I wrote about the contemptible tax-giveaway that Obama’s Treasury department engineered for Citi?

Basically, it involved allowing Citi to carry forward losses after a change in ownership when Obama’s Treasury department sells out the US stake.

Well, not so fast. It turns out that, not withstanding all manner of subsidies and payoffs to Bob Rubin’s old firm, people still think that the company is crap, and are not willing to pay much for the stock, so in order to Treasury Secretary Tim “Eddie Haskell” Geithner to sell the US government’s stock now, they would have to take a big loss, which would clearly demonstrate that Timmeh grossly overpaid for the stock when they swapped preferred shares for common stock a few months ago:

Two days after Mr. Pandit trumpeted news that Citigroup would start untangling itself from the federal government, his bank stumbled — this time, on Wall Street. Badly misreading the financial markets, the company struggled on Wednesday to raise the money it needed to repay its bailout funds.

While Citigroup managed to raise $20.5 billion in the stock market and will forge ahead with the repayment, the sale went so poorly that anxious Treasury officials reversed course and delayed their plans to start unwinding the government’s stake in the company immediately, according to people briefed on the matter.

……………

After the close of trading in New York, Citigroup priced its new shares at $3.15 each, below the $3.25 price at which the government assumed its one-third stake in the company. Before the sale, the share price of Citigroup fell 11 cents to $3.45, as investors braced for the new stock.

Rather than suffer a loss for taxpayers, the Treasury Department will now hold on to the $5 billion stake it planned to sell alongside Citigroup’s own $17 billion stock offering. After an initial 90-day delay, the government will try to sell its entire stake — about 7.7 billion shares — over the next six to 12 months.

What this means is that anyone with a pulse………Well, anyone with a pulse whose tongue is not so far up Wall Street’s ass that they taste tonsils (see Geithner, Timothy and Obama, Barack), realizes that Citi is a mess and they won’t pay what the government paid for it.

Regulators Sell Out To Banks

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This time, it’s international regulators, who have pushed back the so called Basel requirements on capitalization:

Global regulators will give banks a grace period before forcing them to implement stricter capital rules, three people said on Wednesday, easing concerns that lenders might need to issue massive amounts of shares in the near future.

……………

The committee is expected to publish proposals this week for stricter financial regulations in response to the credit crisis. There had been fears that if banks implement the new rules quickly, they would have to raise substantial capital.

The three people with knowledge of the matter said the committee would stick to its plan to gradually implement changes starting in 2012, but will give banks a transition period to help them adjust to the rules.

My bet is that in 2010, start will be pushed off to 2013, and in 2011, it will be pushed off to 2014.

Rinse……Lather……Repeat.

Economics Update

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Rent-price ratio h/t Calculated Risk

So, the Open Marked Committee of the Federal Reserve left rates unchanged, though they do seem set on ending their quantitative easing over the next few months:

In light of ongoing improvements in the functioning of financial markets, the Committee and the Board of Governors anticipate that most of the Federal Reserve’s special liquidity facilities will expire on February 1, 2010, consistent with the Federal Reserve’s announcement of June 25, 2009.

Full FOMC statement is after the break.

The bond markets responded with Treasurys falling, and yields rising.

We actually saw a non trivial inflation rate in November, with the Consumer Price Index rising 0.4% in November, though that was energy and food, the core rate was 0%.

There is a troubling data point in the data though, rent, and owners’ imputed rent both fell, which is not a problem in terms of inflation, but is in terms of real estate.

Basically, even with house prices having fallen in the past 2 years, they are still above the traditional price-to-rent ratio trend, and as rents, fall, homes have to fall further to get back to the traditional (and sane) range, so there is more pain in real estate.

In more real estate news, new home construction jumping 8.9% from October to November, though it is down 12.4% year over year, (PDF link) while mortgage applications, and the rate for a 30-year fixed mortgage, rose marginally last week.

The statements on the unwinding of quantitative easing pushed the dollar up.

In energy, oil rose again, on reports of falling inventories.

Press Release

Release Date: December 16, 2009

For immediate release

Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating. The housing sector has shown some signs of improvement over recent months. Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment, though at a slower pace, and remain reluctant to add to payrolls; they continue to make progress in bringing inventory stocks into better alignment with sales. Financial market conditions have become more supportive of economic growth. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

In light of ongoing improvements in the functioning of financial markets, the Committee and the Board of Governors anticipate that most of the Federal Reserve’s special liquidity facilities will expire on February 1, 2010, consistent with the Federal Reserve’s announcement of June 25, 2009. These facilities include the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. The Federal Reserve will also be working with its central bank counterparties to close its temporary liquidity swap arrangements by February 1. The Federal Reserve expects that amounts provided under the Term Auction Facility will continue to be scaled back in early 2010. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30, 2010, for loans backed by new-issue commercial mortgage-backed securities and March 31, 2010, for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Corruption Update: Another Bailout for Bob Rubin’s Old Firm

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Seriously. The fact that the IRS, or let’s be clear about, Timothy Geithner’s Department of the Treasury is allowing Citi to get an additional $32 billion in tax breaks so that it can repay the TARP more quickly:

The Internal Revenue Service on Friday issued an exception to long-standing tax rules for the benefit of Citigroup and a few other companies partially owned by the government. As a result, Citigroup will be allowed to retain billions of dollars worth of tax breaks that otherwise would decline in value when the government sells its stake to private investors.

By way of comparison, the government invested $45 billion in Citi, which has, through various means, converted into common stock at above market valuations.

So, it now appears that we are paying Citi to pay us back the TARP money, $32 billion in tax deductions, so that they can pay back the $20 billion that is still owed as debt, overpay their next CEO.

With the top corporate tax rate at 35%, this translates to about us paying them $11.2 billion to get back our $20 billion, which was earning us 8%, or $1.6 billion a year……Lovely deal, huh?

I’m calling corruption on this.

I’m not sure if anyone in the White House is personally getting rich on this, but, much like the recently deceased Yegor Gaidar in Russia, they are creating and maintaining a corrupt system.

I’m sure, like Gaidar, they see themselves as heroic, but they are looting the United States.

Not Enough Bullets: Porsche Cayenne Turbo Edition

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SEC & DoJ need to fix this.
It should read: Sorry Ass in Jail!

So, Morgan Stanley Vice-Chairman Rob Kindler drives a Porsche Cayenne with the License Plate 2BG2FAIL.

Just delightful.

I need to figure out how to go long on pitch forks and torches.

And maybe some rabid ferrets, and ground beef, and honey, and really nasty stinging ants.

But no guns or rope: I oppose capital punishment.

H/t Matt Taibbi

Bair Says More Bank Failures in 2010 than in 2009

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Statement about Bank Failures at 2:00

By way of context, remember that we’ve had 133 failures so far this year.

It’s nice that she’s honest about the situation, but all those Wall Street pukes in the Obama administration, must really, really, hate her, because they make it much harder to return to business (obscene pay and bonuses for failure) as usual in the finance industry:

Bank failures will continue to accelerate into next year despite “some encouraging signs” that things are turning around for the battered industry, FDIC Chair Sheila Bair told CNBC.

There are a lot of people in the Obama administration who want to declare success, and walk away from the “real change” that both the finance industry, and the economy, deeply need.

Economics Update

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Surprise! Geithner and Bernanke:
As popular as a case of the Clap.
H/t Calculated Risk


And ore Americans than ever are on food stamps, h/t Naked Capitalism

Well, we have a bunch of good news on the consumer front, with retail sales growing by 1.3% in November, more than the 0.6% forecast, and the Reuters/University of Michigan Consumer Sentiment Index rose to 73.4 in early December, up from 67.4 last month, and well above the forecast of 69.0, which is all very good, since the holiday season is a huge part of retail sales, but the Discover Financial Services survey is showing that consumers are looking to slash their spending by 15%.

Yeah, I’m confused too.

I would also note that the number of people collecting food stamps hit a record, 37.2 million, which raises the question if, “food stamps are the soup lines of this Great Depression?”

We are now seeing some rumblings of inflation on the other side of the pond, with UK factory input prices rising at fastest pace in a year, 4%:

Input prices gained by 4% last month from November 2008, and by 0.4% from October.

Output prices – the prices of goods leaving UK factories – rose 2.9% on the year, the fastest pace since February.

Output prices – the prices of goods leaving UK factories – rose 2.9% on the year, the fastest pace since February.

So we are likely going to have some of the central banks out there, most likely the ECB, panicking and jacking up rates at just the wrong time.

Still, the retail sales numbers drove the dollar rises to a 2-month high, though interestingly enough, oil fell for the 8th straight day, to $69.87/bbl, which is kind of odd, increased consumer sales implies increased demand, but a rising dollar may trump that in the mind of oil speculators.

F%$# the Shareholders, They Are Worthless Punks

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I don’t think that. I own shares in a number of Vanguard®‘s funds, but it’s clear that’s what the banks, and the bankers think about their shareholders.

We know that the UK is allocating a special levy on bonus funds for financial institutions, which will shrink the size of the bonuses that bankers get. The banker’s solutions is to increase the size of the pools to maintain the same outrageous bonus levels.

The way that these bonuses are supposed to work is that you allocate a certain percentage of profits in a publicly held firm to a bonus pool, based on the needs of the firm, things like profits, the need for cash on hand, and things like dividends for the shareholders, who are, after the people who own the f%$#ing company.

Well, that’s not how the bankers think, so when that pool gets taxed, you just take it out of the hides of the shareholders, and financial reserves, etc.

This is way beyond mismanagement. This is theft, just like what Conrad Black went to jail for, and it should be treated as such:

Bonuses are supposed to be determined by the amount of money available after you settle accounts for the year. If you decide it by starting from how much you want to pay for yourself, you are doing what Conrad Black did, and he’s now in prison:”

Several of the big US banks, and some UK banks, conceded in private that they were nervous of cutting the bonuses of City staff, partly for fear of causing internal friction, and partly to avoid having top staff picked off by bolder rivals or hedge funds

Disgraceful. Particularly when these guys were the ones who f%$#ed up our system in the first place.

Banking is not a meritocracy, not that it was ever much of one, it’s a kakistocracy.