BankUnited is in trouble. Regulators have called “critically undercapitalized”, and so they are looking for a buyer.
Only one problem, it appears that the bidders are demanding that BankU be placed in receivership, i.e. taken over by the government and the common shareholders wiped out, before they buy into it.
This won’t be pretty.
And, BTW, Paulson’s Evil Minions™ include the then president of the Federal Reserve Bank of New York, one Timothy “Eddie Haskell” Geithner.
Judicial watch is a bunch of nuts right-wing, or maybe they are a bunch right-wing of squirrels who collect nuts, but every now and then amongst their nuts (FOIA requests) they turn up a gem, and this time, it appears to be a doozy.
Basically, they have the memos about the initial TARP, and it is clear from them that Hank Paulson told the banks that they had no choice about letting the US government buy equity in them(See also here and here):
“We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed. If a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance,” the document said, citing Paulson talking points.
One of the things of interest here (see the Scribd Window) is that Hank Paulson’s chief of staff did not know who the “big 9 banks” were….The Secretary of the Treasury‘s chief of staff did not know who the big 10 banks were?
Great googly moogly.
Treasury CEO Talking Points v1
Note that the Scribd link is from Market Ticker, who also notes that according to AIG President Edward Liddy, the Federal Reserve insisted that all Credit Default Swaps at 100¢ on the dollar (CSPAN video Link at about 2:25:00)
It looks like former Countrywide Mortgage CEO Angelo Mozilo is going to be sued by the SEC for, “insider trading and failing to disclose to shareholders the risks the company was running”.
At this point, it appears to just be a civil suit, but it appears to me that this is the first step toward a criminal prosecution.
Needless to say, this is a development that puts me in a Nelson Munz state of mind.
The SEC cannot put Mozilo in jail, but a separate federal criminal probe of Countrywide, begun last year, is continuing, one of the people familiar with the SEC case said.
…..
The agency’s staff also is recommending fraud charges against other former Countrywide officials, according to one of the people familiar with the probe, who was not authorized to discuss it publicly and spoke on condition of anonymity.
In the old days, following the excesses of the 1920s, one of the big players did his jail time, and spent the rest of his life earning a modest living running a farm.
If that were to happen to people like Mozilo and Miliken, it would be a good thing, because it would deter those who would be like them.
I find this hard to believe, coming as it does from Timothy “Regulatory Capture” Geithner, but we now have reports that the Treasury is looking at new regulations on bank executive compensation, with the appropriate squeals of protest from the pigs who get the pay and bonuses.
There is also a proposal to regulate derivative trading by requiring that most of them be traded on open and transparent markets, as opposed to the “black pools” in the shadow banking system.
Additionally they are looking to implement a reporting system on these trades based on the “Trace” system on bond prices, which halved the spreads between buy and sell prices that banks charged to purchasers by about ½.
Now, if they could only remember the lessons the Marine Insurance Act of 1746, and require that people who buy insurance, including swaps, must have a material interest in the underlying asset.
Unfortunately, Geithner, Summers, and Their Evil Minions™ still have their heart set on making the Federal Reserve the “systemic risk regulator, which is bad for a number of reasons:
My guess is that these proposals are going to be half measures designed to forestall real change, but I’m a pessimist realist.
Specifically, the bill in the Senate is likely to contain regulations that would relax the regulations on retailers for charging to use credit and debit cards:
The law allows merchants to charge less for using cash, but card companies’ contracts with retailers can make it difficult. Merchants say they’re required to post two prices on every product if they want to charge more for credit card use, and that the credit card price be more prominent. Retailers can face penalties if they don’t.
The legislation would allow discounts for debit cards and ban retaliation against retailers who charge less for transactions that don’t involve credit cards. [merchants and credit-card costs]
“The extra charges the establishment has to pay for the use of a credit card are kind of hidden inflaters in the cost of the product,” said Sen. Richard Durbin (D., Ill.), who is pushing the measure with Sen. Christopher Bond (R., Mo.).
Needless to say, the banks and other credit card issuers are aggressively lobbying against this.
And look over here, all those derivatives? They are not hitting the real world, they are just trading amongst themselves, and generating commissions, but, “it is a revealing indicator that the non financial companies for whom these products were prescribed did not themselves use them.” Imagine that.One of the alibis presented by those who created the current crisis in the financial system is that this innovation made capital more available, and hence increased economic growth.
So Adam S. Posen and Marc Hinterschweiger take a look at this theory, and they discover that there are no facts to back up this hypothesis:
….
But not every innovative product is safe, let alone productive. Unlike pharmaceuticals, aerospace, and a host of other technical fields, financial innovations have been allowed to proliferate unscrutinized and untested for safety or effectiveness. Yet the negative spillovers on the public at large from faulty financial engineering and toxic products have now been clearly demonstrated to be enormous. In particular, there is some solid evidence that the most recent batch of financial innovations was used in manners inconsistent with their labeling, and not only had terrible side effects, but did not even yield the advertised benefits.
….
Between 2003 and 2008, US gross fixed capital increased by about 25 percent, a reasonable number during an economic expansion, but hardly a boom. During the same five-year period, the global amount of over-the-counter (OTC) derivatives increased by 300 percent, while derivatives held by the 25 largest US commercial banks rose by 170 percent.
The reality is that people were not aiding capital formation of the “real” economy, they were creating products that would best allow them to feather their own nests.
In other words, this world of innovation was actually an exercise in personal selfishness.
There is a word for this, capitalism, and the same capitalism that creates a hybrid car also gives us the crack dealer and the stock broker, and the crack dealer harms far fewer people.
So, initial jobless claims rose 32,000 637,000 (seasonally adjusted) worse than expected, the four-week moving average rose by 6,000 to 630,500, and continuing claims rose by 202,000 to a record 6.56 million.
Meanwhile producer prices rose unexpectedly by 0.3%, indicating that, perhaps, the inflation genie is not as firmly in the bottle as one would hope.
Meanwhile, in real estate, office rents in London have fallen to 1991 levels, as a combination of overbuilding and the implosion of “The City”, the UK Wall Street have driven down rents.
We are seeing the same thing in retail space, with rents falling and concessions increasing, at such high profile locations as Rodeo Drive, 5th Avenue, Bond Street, and the Champs Elysees.
It’s no wonder then, that commercial and multi-residential mortgage loan originations have fallen sharply. (top pic)
Also, the HousingWire has a good picture on the surge in foreclosures that I noted yesterday. (bottom pic)
Neanwhile, energy and the dollar seem to be at odds with each other, with oil up today, it appears on the belief of a recovery, and the dollar also up, on economic insecurity.
Go figure.
When he was asked about AIG’s bonus program when it became a scandal, Geithner simply lied about it:
As American International Group chief executive Edward M. Liddy returns to Washington to face Congress today, new details are emerging about how long federal officials were aware of the company’s recent bonus payments to its executives and of how inflammatory the payments could be.
Documents show that senior officials at the Federal Reserve Bank of New York received details about the bonuses more than five months before the firestorm erupted and were deeply engaged with AIG as well as outside lawyers, auditors and public relations firms about the potential controversy. But the New York Fed did not raise the alarm with the Obama administration until the end of February.
(emphasis mine)
The post does note that, “his [Geithner’s] name is not among those of senior New York Fed officials mentioned in the summaries of phone calls, correspondence and other documents obtained by The Washington Post,” but this makes him either a liar, willfully blind, or unconscionably incompetent.
It is crap like this which has led Edolphus Towns (D-NY-10) to call for supervision of AIG to be removed from the New York Bank of the Federal Reserve and moved to a government agency.
Right now these trustees answer to the NY Fed.
It makes sense. The Federal Reserve in general, and the New York Fed in particular, are textbook cases of “regulatory capture“, and what’s more, they are secretive, and opaque.
It does not help that the New York Fed is owned by the banks it is charged to regulate too.
As to AIG CEO Liddy’s testimony today that AIG would pay back the money in 5 years. That’s just a bald faced lie.
With all this talk of green shoots, its worth noting that the evidence in the underlying economy does not really indicate much in the way of a recovery, which is why the decline in retail sales in April should come as no surprise.
That’s a big portion of the US economy right there, and what’s not is real estate, which is showing little in the way or recovery either, with foreclosures at a new record in April, though actual repossession of property fell, because the banks are worried about the costs of actually having to take care of the property when they finally assume ownership, along with changes in laws that have drawn out the process in many of the hardest hit states.
The number of foreclosures were up 1% over an already record March, and up 32% year over year.
We also saw a drop in mortgage applications as refinancing slowed with the increase in interest rates.
There is not a whole bunch of economic recovery in the Euro zone either, with industrial output falling more than 20% year over year.
We are seeing some good news on the credit front again though, because LIBOR hit a 2 month low, though in the real world, where it’s lending to real businesses, as opposed to banks, real interest rates, interest minus inflation, are at a 25 year high and it is curtailing all sorts of capital activity.
It also looks like BankUnited may be heading to a headline on Friday Night Bank failures, with a late filing with the SEC saying that they need to raise over $1 billion in capital, because, “the Board of Directors of the Bank entered into a Stipulation and Consent to Prompt Corrective Action Directive (the “PCA Agreements”) with the OTS.” (Office of Thrift Supervision).
In any case, the bad consumer spending figures pushed oil down on demand concerns, and pushed the dollar up as investors fled to safety.
The US trade deficit rose in March, to 27.6 billion, on falling exports and the recent increases in oil prices.
Imports fell by $1.6 billion, but exports fell by $3 billion.
We will not be, as the Japanese did, exporting our way out of this trade deficit.
This is one reason why the American Express/CFO Research Services survey has 59% of CFOs seeing more layoffs.
Of course, the fact that nationwide, US home prices fell the most on record, 14% year over year, and the only markets where home sales are rising are where vultures are sweeping in to buy cheap foreclosure properties.
On the bright side, the National Federation of Independent Business’ monthly index of small business sentiment was up for the first time in 4 months.
It appears, however, that credit card company Advanta is not so optimistic. The company, which specializes in credit cards for small businesses, is shutting down its lending operations on June 10, after uncollectible debt exceeded 20%.
They are not shutting down, they are just shutting down all their credit lines, and just taking payments, which is awfully close to shutting down, so the credit cards just become so much plastic.
The deficit is not looking good either, with tax receipts so low that the federal government ran its first April deficit since 1983.
In energy, oil was up today, briefly breaking $60/bbl for the first time since November, before settling at $58.85/bbl.
This, along with banking changes and interest rate increases, is why the ruble is on a tear right now, and the US dollar fell to a 4 month low on comments by a number of experts that the recession is bottoming….Yeah….sure…
It appears that the Fed’s best efforts to revive the housing market through low interest rates may be reaching their limits as mortgage rates and long term bonds climb higher.
Additionally, it appears that the Obama administration is seriously looking at winding down and liquidating Fannie Mae and Freddie Mac in the long term, which would generally push up mortgages issued after that point.
In the long run, I see this as a good thing. Home ownership as a goal in and of itself has driven much of the ills in our society whether it is the housing bubble, or the suburbanization of our society and out energy consumption levels,
In energy, oil fell on inventory growth, but that has not lowered retail gasoline prices, which are up 9% over the past 2 weeks.
In the mean time, the dollar and the Yen both rose, as the stock market decline pushed investors into safe havens.
First and foremost, it looks like GM will be dropped from the Dow Jones Industrial average, no surprise with GM trading at around a buck and a half.
For the same reason, GM is looking at a 1-For-100 reverse stock split, which is no surprise, as the troubled automaker was trading at over $50 a share just 2 years ago.
Seeing as how GM bled $6 billion in the last quarter, the reverse stock split is prudent.
Meanwhile, the Chrysler bankruptcy is proceeding rather smoothly, see here, and here.
The judge has generally ruled against the sanctimony of the “non-TARP lenders,” whose numbers has dwindled, and the fact that their names will be revealed has made think twice about being jerks.
Meanwhile Fiat has been busy after having taken a stake in Chrysler, and is now looking to purchase GM Europe, aka Opel, and spin off its own auto manufacture in Italy to incorporate in their new larger auto manufacturing concern. (See also here)
Yawn, another day, another claim by the “healthier” of the big banks that they are going to repay the TARP money “any day now”.
Of course they are…..Really….Just as soon as they pay back the FDIC loans.
But that is the standard used by the US Department of the Treasury in the stress tests to define properly capitalized.
Great googly moogly.
Well, wonder no more. Treasury negotiated the results of the tests with the banks.
Of course if you were a student, and attempted to browbeat your teacher into improving your grade, they would just laugh in your face or demand a bribe, but if you are Ben Bernanke and Timothy “Eddie Haskell” Geithner, they can do it for you for free, or as Joe Btfsplk wrote in the comments section of this story, “Maybe next time, they could give the banksters multiple choice tests,” because they certainly failed the true-false test:
The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation’s biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining.
Bargaining?
This is supposed to be a test administered by the Treasury and Federal Reserve, not a negotiation.
The banks are in hock to the Treasury and FDIC for hundreds of billions of dollars, and to the Federal Reserve for Trillions, and they negotiated with the banks?
Whiskey Tango Foxtrot?
In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits.
Again, this is not grading on a curve, this is is everyone getting a gold star.
Yes, Wells threatened a lawsuit, but that was an empty threat, because of the response of the market to their suing the FDIC, Treasury, and Federal reserve would have turned their shares into penny stocks.
Yep, it’s Timothy “Eddie Haskell” Geithner again, who really does not have a f^%$ing clue.
In this case, it is his insistence that U.S. banks can earn their way out of the current hole that they dug themselves in:
Treasury Secretary Timothy Geithner is betting that U.S. banks can do something their Japanese counterparts were unable to accomplish in that country’s “lost decade” of the 1990s: earn their way out of trouble.
The stress-test results released yesterday by regulators found that the 19 largest banks face a $74.6 billion capital hole that may be filled mostly by private money. That compares with the hundreds of billions of dollars seen by outside analysts, including the International Monetary Fund, and takes into account banks’ projected earnings over the next two years.
The “stress-test results are an important step forward,” Geithner said in a statement announcing the results. “Americans should know that the government stands behind the banking system and that their deposits are safe.”
…
Geithner told reporters that regulators took a conservative approach to toting up potential credit losses and calculating the industry’s ability to absorb them through increased earnings. The forecast of future profits was at the “quite low end of analysts’ expectations,” he said.
(emphasis mine)
It is quite literally all a confidence game to him: If he can convince the American public to maintain their confidence in the banking system, then they will make so much money, from those FDIC subsidized loans, I guess, that they will earn their way out of this.
It’s also clear that the “stress test” was intended as a confidence building measure, whether it is justified or not.
When you look at the dictionary for the definition of “regulatory capture“, the process by, “which a government regulatory agency created to act in the public interest instead acts in favor of the commercial or special interests that dominate in the industry or sector it is charged with regulating,” you sill see this picture.
Great googly moogly! How stupid do they think that we are?
Who are they anyway? Maybe we can export them to Namibia.
So, the Bureau of Labor Statistics has its April employment report out, and non-farm payroll employment continued to decline in down 539,000, though this is a slower decline, and beat expectations though the unemployment rate rose to 0.4% to8.9%, a 25 year high.
Under the less restrictive, and to my mind more accurate U6, unemployment rose to 15.8%.
The picture (click for full size) shows the employment fall from peak compared with other recessions.
Meanwhile, wholesale inventories fell by 1.76%, more than the forecast of 1%, as retailers and manufacturers tried to adjust for reduced demand.
We also have some bad news in the financial industry, with Royal Bank of Scotland posting a loss after writing down risky assets, Commerzbank, Germany’s 2nd largest bank, reporting an €861 million loss, and our old friend AIG posted a loss of $4.5 billion. (AIG is the gift that keeps on giving.)
Meanwhile, all the optimism over the jobs report (Whee! !he 2nd derivative is positive!)has driven the dollar down and driven oil above $58.bbl.
Some times you notice something, and think, “I’m gonna have to post about it later,” and by the time you do, the story has changed.
This is particularly true in corruption cases, where things move rather quickly.
Case in point, the corrupt, self dealing Chairman of the Federal Reserve Bank of New York, Stephen Friedman, who, “bought shares in Goldman Sachs in December, profiting to the tune of $1.7 million.“
Ordinarily not a problem, since the Federal Reserve does not regulate investment banks, but for a little fact, that in September, the Federal Reserve allowed Goldman Sachs to become a bank holding company, and hence was regulated by the Federal Reserve, and most particularly was regulated by, you guessed it, the Federal Reserve Bank of New York.
But of course, as Yves Smith so eloquently notes, “A Conflict of Interest is Not a Conflict of Interest If It Involves Goldman,” or as he said to the Wall Street Journal:
Last week, following questions from The Wall Street Journal, Mr. Friedman, 71 years old, disclosed he would step down from the New York Fed at year end. In an interview, he said he made the decision because the waiver letting him own Goldman stock and be a Goldman director expires at the end of the year. He added: “I see no conflict whatsoever in owning shares.”
Except of course, as Ms. Smith notes, he bought shares in a company that he was regulating, and he did so before the waiver was approved.
This is insider trading, pure and simple.
Of course, today we see have justice, Wall Street style, as Mr Friedman has resigned, effectively immediately, from the NY Fed.
That’s it. He gets to walk way and keep his money, there will almost certainly be no criminal investigation.
This is business as usual, and, yet again, all roads on corruption lead back to Goldman Sachs, the BCCI of Wall Street.
Taking these racketeers down them down must be a government priority.
With commercial mortgage delinquencies hitting an 11-Year High, (H/TCalculated Risk) the records only going back 11 years, we are starting to see what might very well be a worse crash in commercial real estate than we saw in housing, because typically, CRE mortgages need to be refinanced every 5 years.
Additionally, we have a report from Deutsche Ban suggesting that 2/3 of loans backed by mortgage backed securities (CMBS) will not be able to be financed if they come due between now and 2018.
While CMBS are only about ¼ of this market, it’s not unreasonable to assume that we could see similar numbers in the same range for other forms of financing, as the property remains under water.
Even if that number is only 20-30% of outstanding commercial markets, we are looking at a death spiral that will make the housing bubble pop look tame.
