Category: Finance

Of Course They Don’t, The Wall Street Owns Them

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Note: These numbers are inflation adjusted

So, after Gordon Brown finally comes out in favor of a Tobin tax on financial transactions, Timothy “Eddie Haskell” Geithner comes out categorically against it:

A day-by-day financial transaction tax is not something we are prepared to support,” Geithner said in an interview with Sky News. In his concluding press conference, Geithner was asked repeatedly to say why he opposed such a tax on banks and indicated he doubted its effectiveness.

“This idea (of a bank transaction tax) has been around for a long time…I think frankly the experiences are mixed,” he said, expressing an American view that there was no widespread backing for such a tax.

The banks f%$#ed us all, we spent to bail them out than on, “WW1&2 (omitted from graphic), the moon shot, the New Deal, total NASA budgets (omitted from graphic), Iraq, Viet Nam and Korean wars — COMBINED,” but somehow it’s unreasonable to place a tax on speculation, to:

  • Reduce speculation.
  • Pay for their own bailout.

The Obama administration has its tongue so far up Wall Street’s ass that it is tasting tonsils.

Not Enough Bullets: Fat Cat Tax Evader Edition

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Floyd Norris documents the latest outrage, that Goldman Sach is looking at buying tax credits from Fannie Mae.

The idea here is that Fannie Mae is losing money, and is federally owned now, so it can’t use the tax credits, so it sells them to GS for something like 80¢ on the dollar, screwing the taxpayer.

Goldman, you may recall, was saved with taxpayer money when the panic spread last year. A naïve person might think such a company would see a patriotic virtue in paying taxes.

Fannie Mae is currently a ward of the government. So this boils down to a proposal to pay Uncle Sam perhaps 15 cents to avoid paying 20 cents to Uncle Sam. The gall involved in even proposing such a thing is awesome.

It also points out one reason companies pay so little in taxes. These tax credits exist as a nonbudgetary way of stimulating investment in low-income housing. It would be a lot cheaper for the government to simply subsidize that, but instead it offers tax credits so there is no “expenditure” for foes of big government to criticize.

Seriously, we need someone to move in and break heads, but the Obama/Geithner/Summers troika has no interest in challenging the excesses of Wall Street.

Here’s The Deal, Because You’re Sorry, You Get a Better Cell*

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John Reed, who was the architect of the merger between Citicorp and Travelers Group, has now admitted that he was wrong:

John S. Reed, who helped engineer the merger that created Citigroup Inc., apologized for his role in building a company that has taken $45 billion in direct U.S. aid and said banks that big should be divided into separate parts.

“I’m sorry,” Reed, 70, said in an interview yesterday. “These are people I love and care about. You could imagine emotionally it’s not easy to see what’s happened.”

He then makes a very good analogy:

“I would compartmentalize the industry for the same reason you compartmentalize ships,” Reed said in the interview in his office on Park Avenue in New York. “If you have a leak, the leak doesn’t spread and sink the whole vessel. So generally speaking you’d have consumer banking separate from trading bonds and equity.”

(emphasis mine)

I am tempted to quote Admiral David Beatty, “There seems to be something wrong with our bloody ships today,” when the Invincible and Queen Mary blew up in short order at Jutland

*Originally, I was going to say a nice long drop and a tight knot to ensure that your end is quick, but then I remembered that I oppose the death penalty….Drat.

Economics Update

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Perspective from the Wall Street Journal:
Falling Hours & Wages Drove Productivity Numbers Up


Long Term Unemployment


Unemployment vs. the Stress Tests, H/T Calculated Risk


Employment:Population Ratio, H/t Calculated Risk


Average Weekly Hours, h/t The Big Picture

Well, I already mentioned that unemployment (U3) broke 10%, with non-farm payrolls falling by 190,000, (better than September), so the next thing is the productivity number, where, “Non-farm business sector labor productivity increased at a 9.5 percent annual rate during the third quarter of 2009.” OMFG, that is a huge number.

Normally, this would be good news, but soaring productivity means fewer workers needed for a task, so in the short term it would tend to stall any recovery in the labor markets.

On the brighter side, we are now getting reports that hiring of temporary workers are increasing, which might presage a more general hiring increase, as temps tend to be hired earlier, because they are easier to get rid of.

On the other hand, US consumer credit fell for the 8th straight month in September, which indicates that the consumer is continuing to deleverage an pay down their debts.

It appears that wholesalers are deleveraging too, as wholesale inventories fell in September, though less than anticipated, and retail sales did rise, but inventories are at an all time low, 1.18 months.

In any case, the unemployment numbers drove a flight to safety, which drove Treasuries up, and their yields down.

This flight to safety has also drive both the dollar and the Yen up, while concerns about recovery has driven oil down.

G.M. Is Snatching Defeat from the Jaws of Victory with Opel

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As a part of the deal that would have GM’s Opel/Vauxhall division sold to a consortium headed by Canadian auto parts manufacturer the workers agreed to wage and benefit concessions that would save the firm €265 million.

OK, so far, so god, but then GM decided to back out of the sales deal at the last minute.

This is apparently because they think that bring their European division back to profitability will be easier than everyone else thinks:

The company said it expected to spend 3 billion euros, or $4.4 billion, to downsize operations, which it said was “significantly lower” than what Magna and other bidders had projected.

There is also the matter that GM has next to nothing by way of fuel efficient cars in its labs in the US, because….because…They are f%$#ing morons, and they need Opel’s technology in order to make fuel efficient cars in the US.

Well, good luck with that, as the abrupt reversal has enraged Angela Merkel in Germany, and Putin in Russia, as well as the their workers, who now see the entire sales fiasco as a sort of Kabuki theater for the benefit of Angela Merkel’s reelection.

We are already seeing calls in the Bundestag for the immediate return of the €1.5 billion bridge loan that was floated by the Germans to facilitate this sale.

As a result of this decision, there have been strikes across Opel’s German factories, with protests by people carrying signs saying, “GM – Go Away!” and “Hands off Opel!”, and the German unions are demanding changes to the structure of the company, from LLC to AG (joint stock corporation), so as to increase German, and lessen US control, over the firm, because joint stock corporations in Germany mandate greater worker stock ownership and board participation.

So, GM, which will still need government support for the foreseeable future, has double-crossed and made enemies of the entire political establishment in Russia and Germany, while also creating a hostile and demoralized workforce.

Heck of a job, Brownie.

The Galleon Insider Trading Scandal Spreads

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So now, we are seeing more prominent people tied into this.

This time it’s, “Richard Grodin, formerly of SAC, one of the country’s most well-respected and largest hedge funds.”

What is going on here is that authorities used wire taps, a change in the area of securities fraud, and it looks like a double digit percentage of Wall Street was in it at some level.

My guess is that this sort of behavior is in fact endemic to the street, and that this is the tip of the iceberg.

My concern is that the wire taps might not be the part of a securities investigation, but instead were a result of a investigation of Raja Rajaratnam’s ties to the LTTE terrorists.

Considering the level of damage to our country done by the bankers, we should be going full PATRIOT act on them, because they make Osama bin Laden look like “My Little Pony”.

This is Never Good News

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The much delayed audit of the Federal Housing Administration (FHA) has been delayed again:

A much-anticipated audit of the Federal Housing Administration was abruptly postponed just before it was supposed to be made public, after questions arose about its accuracy.

The auditor, Integrated Financial Engineering, said it notified the F.H.A. late Tuesday that its computer models were creating unexplained inconsistencies. A news conference scheduled for Wednesday morning was canceled.

The audit calculates whether or not there are solvency issues under various economic scenarios.

The fact that concerns over these models led to another delay on the release of the audit is concerning, to say the least, particularly since, “The delinquency rate on F.H.A. loans was 14 percent in the second quarter.”

Economics Update

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The Notch is the Bankruptcy law change
H/t Calculated Risk

The FOMC has met, and they are keeping their benchmark rate at essentially 0%, and they have clearly said that they will keep rates low for an extended period of time.

Meanwhile the Bank of Japan has issued a statement that its walk-back on emergency programs to bolster the credit market are not a precursor to a rate hike.

In employment, ADP’s private sector job survey reports that 203K jobs were cut in October, the smallest cut in over a year, and Challenger, Gray, & Christmas is reporting that announced that planned layoffs fell to 55,6799 in October, down 16% from September.

Meanwhile, in New Zealand, where they are supposed to be out of the recession, their jobless rate hit a 9-year high, 6½%.

Meanwhile, the Institute for Supply Management’s Non-Manufacturing survey fell to 50.6, down from September’s 50.9, but any number above 50 indicates expansion., though, as Calculated Risk notes, “the Non-Manufacturing Employment Index for October registered 41.1 percent. This reflects a decrease of 3.2 percentage points when compared to the 44.3 percent registered in September,” so the sector expanded, while employment in the sector shrank.

Still, even after the draconian legislation enacted in 2005, personal bankruptcies rose 9% in October, to a new post law change high (see graph pr0n). (American Bankruptcy Institute report)

One interesting thing on all this is that the the market is pricing in increasing inflation expectations, as indicated by the spread between Treasury Inflation-Protected Securities (TIPS), and generic Treasuries. It’s at 2.08%, the highest level in over a year.

Unsurprisingly, the statement by the Fed regarding rates, juxtaposed with the increased inflation concerns, pushed Treasuries down, and hence their yields up.

The Fed’s statement pushed the dollar down, as investors looked for higher returns, though this was abated somewhat when Fitch cut Ireland’s credit rating to AA- from AA+, which put a downward pressure on the Euro.

As is customary, the falling dollar drove oil prices up, but only by about 1%, to $80.40/bbl.

Full Federal Reserve Open Market Committee statement after break.

Press Release

Release Date: November 4, 2009

For immediate release

Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. 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 support 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.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. 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 will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and 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. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

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.

Geithner is not Incompetent, or Captured by the Street, He is Corrupt

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Dylan Ratigan and Senator Maria Cantwell wonder why he still has a job.
I wonder why he hasn’t been arrested

Is I mentioned earlier, small business lender CIT went bankrupt, and cost the taxpayers $2.3 billion.

It now appears that this happened because Timothy “Eddie Haskell” Geithner completely screwed the pooch on the lend of TARP money:

But here’s the bad news: While senior debt holders will only lose 30% of their investment, we, the U.S. taxpayer, will lose the entire $2.3 billion we lent the company this summer.

William Black, professor at the University of Missouri-Kansas City School of Law is dumbfounded. “We put ourselves on the hook in a completely inept way where we lose first. We lose entirely as the taxpayers.”

….

The government was in no way obligated to lend the struggling CIT money and, in fact, initially refused to provide it bailout funds. More importantly, being the lender of last resort, the government should have guaranteed we’d be the first to get paid if CIT eventually filed Chapter 11. By failing to do so, “it’s like he [Geithner] burned billions of dollars again in government money, our money, gratuitously,” says Black.

I think that this has gone beyond mere incompetence.

Timothy Geithner is a mole for Wall Street in general, and for Goldman Sachs in particular. First, we have him making AIG pay its swaps at 100¢ on the dollar, and now this.

This is not incompetence. This is regulatory capture. This is deliberate corruption to favor people who have mentored him throughout his career, and it’s happening because Geithner knows that when he leaves, he will get a senior executive position at one of those Wall Street firms for millions of dollars a year.

Burying the Lede

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Yves Smith of Naked Capitalism was called in, along with a number of other prominent financial bloggers to a meeting with Treasury Department officials.

Aside from the, not particularly earth shattering observation that the bloggers and the T-men talked past each other, and this was the general sense of the bloggers there, Ms. Smith makes the most notably observation far down in her post:

My bottom line is that the people we met are very cognitively captured, assuming one can take their remarks at face value. Although they kept stressing all the things that had changed or they were planning to change, the polite pushback from pretty all the attendees was that what Treasury thought of as major progress was insufficient. It was instructive to observe that Tyler Cowen [he’s a relatively sane Libertarian economist], who is on the other side of the ideological page from yours truly, had pretty much the same concerns as your humble blogger does.

(emphasis mine)

The people running the Treasury Department have been thoroughly captured by Wall Street.

To my mind, this has gone well beyond a cultural problem, and straight into outright corruption.

This needs to change.

Economics Update

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The Misery Index Continues to Rise
H/t My Budget 360

Today will be a slow news day, because everyone is waiting on the Federal Reserve Open Market Committee’s (FOMC) statement tomorrow afternoon.

I think that the big news is that Warren Buffet’s Berkshire Hathaway has bought the Burlington Northern-Santa Fe Railroad, betting on recovery while further reducing his stake in Moody’s Investors Service.

Warren Buffet does not invest in things that he cannot get his head around, which is why he missed the dot com implosion, he couldn’t figure out how they could make money.

So now, he is dumping a financial company for rail, which implies to me that he sees a lot more trouble ahead for the banking industry, even as the economy recovers, and the demand for goods and services increases.

This is further reinforced by the September new factory orders rising by 0.9%.

Also the numbers for automobile sales were remarkably good, considering the “cash for clunkers” sales hangover.

There was strong sales growth for and strong October sales numbers from Ford, GM, Nissan, Hyundai and Kia, while sales for Toyota and Honda were basically flat.


Bummer of a birth mark, Chrysler

As for Chrysler, well…..”Bummer of a birthmark, Hal.

BTW, if you’ve been reading the financial press, you may not that they are touting a 4.4% increase in the MIT Center for Real Estate’s transaction-based index (TBI) index for the 3rd quarter.

One should note, as Calculated Risk does, that this is not the But this isn’t the monthly Moody’s/REAL Commercial Property Price Index (CPPI), which actually showed a drop.

This is an index of, “commercial properties sold by major institutional investors,” and these institutional investors are likely avoiding the distressed properties like the plague.

It should be noted that things are still bad, with business bankruptcy filings rising 7% in October, a change from the drops in filings in August and September.

Gold surges to an all-time high – Nov. 3, 2009: “

Here’s a bonus for the gold bugs, gold hit a new high, $1,084.90/oz (troy) after the Reserve Bank of India announced that it was bought 200 metric tonnes of gold from the IMF. (What’s up with this? Really, I have no clue.)

In energy and currency, both oil and the dollar rose today.

An Idea So Good It Will Never See the Light of Day

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As a part of the Consumer Financial Protection Agency, Congressmen Alan Grayson, Wm. Lacy Clay, and Brad Miller have proposed the “Financial Autopsy” amendment.

The summary is:

Today we will offer the “Financial Autopsy” amendment. The Grayson/Clay/Miller amendment is essential to attacking the root problem of consumer bankruptcy and foreclosure because it requires the CFPA to do a financial audit of products that have caused the highest rates of bankruptcy and foreclosure annually. Not later than March 31st of each calendar year, the CFPA will list these anti-consumer products, submit their conclusions on why these products “fail” consumers, the companies and employees that underwrote these products, and authorizes the CFPA to take action to restrict these products.

Financial Autopsy Amendment:

  • Requires the CFPA conduct a “Financial Autopsy” of each state’s bankruptcies and foreclosures (a scientific sampling), and identify financial products that systematically led to a large number of bankruptcies and foreclosures.
  • Requires the CFPA report to Congress annually on the top financial products (the companies and individuals that originated the products) that caused consumer bankruptcies and foreclosures.
  • Requires the CFPA take corrective action to eliminate or restrict those deceptive products to prevent future bankruptcies and corrections
  • The bottom line is to highlight destructive products based on if they are making people “broke”. Thank you for your consideration, we hope you will join us in supporting this amendment.

This is brilliant. As opposed to coming up with rules that some quant will be paid 6 figures to evade, simply identify bad financial products by seeing which ones make people go bankrupt.

The problem is not specific financial products, it’s the fact that there are looters out there, and they will continue to find ways to loot people.

The solution is to look for the looting, and take away tool sets as they are used to do this.

At the link above, the author, “George Washington” suggests that the reports should be updated monthly, to eliminate the delay in response, and Karl Denninger argues that it needs to prevent minor tweaks to allow for reissuance of the products, and that it should have provisions to allow the victims to claw back their money.

These are all good points, but this is an amazingly good starting point.

Ron Paul Says Fed Audit Legislation is Gutted

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If this is true, then it is very bad news, but seeing as how Ron Paul’s goal is to destroy the Fed, I’ll wait until I see a statement from someone who is less whack-a-doodle wingnuttish.

Here is what Paul said:

Paul, a member of the House Financial Services Committee, said Mel Watt, a Democrat from North Carolina, has eliminated “just about everything” while preparing the legislation for formal consideration. Watt is chairman of the panel’s domestic monetary policy and technology subcommittee.

I just put a call into Representative Alan Grayson’s office, he is a co-sponsor of the bill, but there is no statement from him about this yet.

CIT Declares Bankruptcy

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Note that this is lender to small businesses, CIT, not perennially mismanaged bank CitiGroup, and that once again, US taxpayers will be on the hook for billions, in this case, $2.3 billion in TARP money, but that, “even though CIT was vital to many small businesses that needed financing, the company’s problems did not pose the type of systemic risk that led to the aggressive rescues of Citigroup and Bank of America.”

Which means, I guess, that Goldman Sachs was not a major counter-party, and so had nothing to lose.

It’s Called Lipstick on a Pig, and It is Illegal

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McClatchy, just finished an investigation of some of Goldman Sachs’ behavior, and the lede says it all:

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

You know, being a bit more optimistic in public than being in private is a fuzzy line. This ain’t it.

Later in the article, it is discussed how Goldman, and hedge fund operator John Paulson, bought billions in Credit Default Swaps (CDS) on mortgage backed bonds to profit on the collapse.

Note that Paulson is in a different boat from Goldman, because he didn’t sell those bonds in the first place, but once again it shows how the lessons of the South Sea Bubble, which led to the Marine Insurance Act of 1746 have been forgotton and so it is no longer required that people who buy insurance, including swaps, must have a material interest in the underlying asset.

H/t Atrios.