Alan Grayson (D-FL) questioning the Inspector General for the Federal Reserve, and it appears that no one is in the process of reviewing any Federal Reserve activities.
Un-dirtyword believable.
The Federal Reserve needs to be reformed and made more transparent.
I don’t know of any specific allegations of corruption, but when you are seeing 9 trillion in transactions, and not even the attempt to see what is going on, I cannot imagine that someone out there is not lining their own pockets.
As Peter Boockvar observes, they can raise the capital through a simple accounting trick
Considering that they’ve already received $45b in preferred stock from the US taxpayer, an accounting maneuver of converting that to common can, Voila, cure their capital needs without raising a penny of new money, a move that even the magician David Copperfield would be in awe of.
Just delightful.
Everyone gets a gold star, and all the test takers are cheating.
I think that we have some promising news here, though, eternal bear that I am, believe it to be a pause rather than the start of a turn around.
That being said, first time jobless claims fell, as did the less noisy 4 week moving average (see pic), which makes 4 weeks for the 4 week moving average, though continuing claims rose 56K to 6.351 million, indicating that this might more that businesses are running out of people to lay off than people are being rehired.
That being said, the fact that the April retail sales numbers beat expectations is just generally good news.
I’m not sure, however, how they managed to beat expectations, what with consumer credit dropping a record $11.1 billion in March, which indicates that the consumer is retrenching.
My guess is that this is an artifact of tax refunds.
In Europe, we have the Bank of England holding rates steady and the ECB cutting rates by 250 basis points (¼%), and both have expanded their programs of “quantitative easing” (printing money).
These actions were not particularly aggressive, which meant that the dollar Euro, because they are simply less likely to debase the currency as much as Uncle Ben (Bernanke).
The concerns about the US money supply are also finding their way into the US Treasuries market, with interest rates on the latest bond sales exceeding expectations, because investors are worried about monetarily driven inflation.
Still, reading the tea leaves on real estate, things are not going well, with delinquencies on dues to homeowners associations, which tend to foreshadow mortgage defaults, growing rapidly from 2.8% last June to 5.3% today.
Additionally, you have condo and apartment sales in Manhattan declining precipitously, with sales falling 48% year over year. (!)
The fact that mortgage rates are trending higher is not a help here.
In the world outside of real estate, the transportation based indicators are not showing any sign of recovery either, with Suez Canal April revenues falling 22.7% YoY.
Still, oil traders are betting on increased demand for oil, which translates into increased economic activity, and so crude rose today.
We are getting reports now of what Timothy “Eddie Haskell” Geithner’s stress test has determined, and it’s clearly not reality.
| Bank | Needs Capitalization |
Amount |
| Bank of America | Yes | $34 B |
| Wells Fargo | Yes | $15B |
| Citigroup | Yes | $5B |
| Morgan Stanley | Yes | $1-2B |
| Goldman | No | |
| MetLife | No | |
| JP Morgan Chase | No | |
| Bank of NY Mellon | No | |
| American Express | No | |
| Capital One | No | |
| BB&T | No |
This is a damn joke.
You have one “oh my God” number, for Bank of America, and it’s about 50% of their market cap, but Citi, which is clearly in much worse shape is somehow better capitalized by a factor of 6.
This is simply not true, even after BoA’s disastrous acquisition of Merrill Lynch and Countrywide.
Also note this joint statement from the Treasury Department, Federal Reserve, FDIC, and Office of the Comptroller of the Currency, which, to my untutored eye, appears to say that they are going to go with their cockamamie scheme to claim that capital is increased by swapping preferred for common stock.
It’s an accounting trick, and what’s more, it’s one where the taxpayer has just taken a second haircut.
They are making great theater by pretending to talk tough and giving a month for the banks that need to to present a plan to raise capital, and 6 months to have this plan in action, but it’s all a lie, since the plan may very well be, “suck on this, taxpaying rubes”.
I disagree with former IMF chief economist Simon Johnson’s analysis, which is that they are selectively leaking to create confusion in order to keep people from looking at whether the test was too hard on the banks.
I think that his analysis is incomplete. The “stress test” begins and ends with public relations. It’s a sham, and it has always been a sham, intended to show that the government was serious about reigning in the big banks, without actually engaging in the necessary actions, like seizure of insolvent institutions that would actually be required for it to work.
Well, the rumors are out there, and the latest is that the test will report that Bank of America needs $34 billion in additional capital.
(By way of context, BoA is trading at about $11½ with a market cap of $74 billion, which means that it needs to sell new shares roughly equivalent to half of its outstanding ones in order to properly capitalized by the standards of Timothy “Eddie Haskell” Geithner’s Treasury Department.
Note, of course that this is based on their so called “worst case” stress test, which is already more optimistic than what we have seen in the past 3-4 months.
That being said, if the numbers are bad for BoA, they must be truly horrific for Citi, which is generally considered to be in the worst shape of the big 19 banks, which has been trading at about $3½, with a market cap of 19.2 billion, and if they need to raise anything near to 30 billion, they will be back in penny stock land for good.
I would also note that if these numbers are accurate, and they might not be, I think that the indications are that the stress test was conceived to make sure that everyone “got a gold star,” which would make reality even more alarming.
(click pictures for full size)
Well, here’s a big surprise, credit card delinquencies are up.
Truth be told, this is a lagging indicator, seeing as how closely it is tied to unemployment.
I would note that so called “marginally attached workers,” which is workers who are still looking for work, but are no longer looking hard enough to be counted, has risen significantly, see pic.
Then again, remember the increase in construction spending I mentioned yesterday?
Private construction spending actually fell slightly in March so the increase I was stimulus spending.
Also, note that the Institute for Supply Management’s index of non- manufacturing businesses, basically a measure of activities in the services, fell in April, albeit at a slower pace than the past few months, so you can decide whether the glass is half full or half empty.
We have another retailer filing bankruptcy, this time Chapter 11 reorg,
Filene’s Basement.
Here’s one for nostalgia’s sake, another monoliner insurer has been downgraded, Fitch cuts Assured Guaranty from AAA to AA, which means that their insurance, which basically leases out their credit rating, is done.
We have more evidence of credit loosening though, with the
LIBOR falling below 1% for the first time ever for overnight interbank loans.
I’m not sure if this is confidence in banks, or confidence in government bailouts though.
In currency, the dollar gained vs the Euro, largely on the expectation of an ECB rate cut, which in turn is based on the largest drop in European producer prices in over 20 years.
the Chrysler creditors, the ones who pushed the automaker into Chapter 11, are claiming that the White House threatened the reputations of the firms involved in order to get them to accede to their demands
In an interview with a Detroit radio host, Frank Beckmann, Mr. Lauria said that Perella Weinberg “was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight.”
I hope that the WH was threatening to destroy the reputations of the firms involved.
Shame is a legitimate tactic to coerce cooperation, though the idea that Obama would use the, “full force of the White House press corps,” is absurd on its face.
Now to start playing hardball with Goldman Sachs.
This is actually a very good idea, see also here.
Of course, you will hear a lot of hand wringing about “free trade,” and “global competitiveness,” but the real reason that there will be objections is because these folks believe that only the little people pay taxes.
Personally, I would go further, and label the worst of them as money laundering nations, which is what they are, and forbid US banks from doing business with them.
We have some good news in real estate, with pending sales of existing homes posting their first back to back increase in almost a year, and construction rose unexpectedly.
Note however, that the pending homes sales numbers are for homes going into contracts, and has been diverging from closings lately, largely because of financing issues.
I’m a bull, and Yale economist Robert Shiller, of the famed Case-Shiller real estate index, is somewhat bearish too, saying that the improvements in real estate are “fragile”.
Sometimes, markets pause for a breath on the way down, just as they do on the way up.
That being said, the lending situation does seem to be loosening up, as spreads are falling, which means that money is cheaper.
Still, banks are predicting more loan losses from the economy contracting according to a Federal Reserve report.
Meanwhile the generally good news has driven oil up, on the expectation of increased demand, and driven the dollar down, as people leave the safe haven of the $US.
They were supposed to be announced tomorrow, but the results will be delayed until Thursday.
A delay means bad news. If it had been good, Geithner and Summers would already be crowing about it.
Also note that Austan Goolsbee is saying that the delay is, “A disagreement by banks over the results of the tests,” which also implies bad news, because the bankers would never object to an overly optimistic projection, which would make them money off their stock options.
Additionally, it seems to me that the reports themselves will be rather sketchy, with important details not being made available to the public.
On my last bank fail post, I listed the total number of bank failures this year at 28. This in error.
That number is just those banks closed by the FDIC, and I got it by totalling their Full list.
If you go there, and click on the most recent closing, it gives the current tally, which is 32 for the year.
Additionally, I neglected to mention the significance of the failure of Silverton Bank.
Silverton Bank was a large institution, providing services for other banks, about 1500 of them, not consumers.
It was a clearing house for payments, credits, and it repackaged loans among multiple banks.
As such, this may trigger further bank failures.
Posted via mobile phone….While in line for a roller coaster at Hershey Park.
28 so far this year.
Citizens Community Bank, Ridgewood, NJ
Silverton Bank, N.A., Atlanta, GA
Oh, we also have a German bank, Hypo Real Estate (HRE), that specialized in loans to developers being nationalized by the German government, albeit in a confusing, slow motion sort of way.
And finally, there is Accredited Home Lenders Holding Co., a San Diego, California based mortgage banker filed for Chapter 11 bankruptcy, listing debt of as much as $500 million and assets of less than $50 million.
Because that’s just what happened with the Chrysler bankruptcy, as this article titled Chrysler Lenders Tried Obama’s Patience, Lost Game of Chicken shows.
They are making noises about how unfairly they have been treated:
An anonymous group of 20 Chrysler lenders calling itself the “Committee of Chrysler Non-Tarp Lenders” said in a statement yesterday that they’d been treated worse than junior creditors during negotiations in violation of “long-recognized legal and business principles.” They said they were owed $1 billion.
And they are technically correct that they are secured creditors, but their security is not equal the full value of the loans, more like 10-20% of the outstanding amount, and they are vulture capitalists who intended this shakedown in the first place, as evidence by the fact that they, “paid from 50 cents to 70 cents on the dollar for their Chrysler loans,” (my money is actually on their purchasing this debt for less than 50¢ on the dollar).
Now they are whining, and they are the ones who will be taken into court and have the fingers pointed at them.
This is a very big shot across the bow for creditors for General Motors.
In completely unrelated auto news, the April sales figures are out, and they are bleak, with GM -33%, Ford -32%, Honda -25%, Nissan -38%, Hyundai -14%, Daimler -31%, and Toyota -42% year over year.
Of course, because of their strict gun laws, we may have to implant the bullets manually:
City bankers are to reap nearly £7bn in bonuses this spring even though the government has been forced to pump tens of billions into the banks to prevent them collapsing.
The good news is that this is down from its £14.1 billion peak in 2007.
The bad news is that these folks still say that they need this with a straight face.
As my British friend would say, “Fecken bollocks Numpty wankers!!”
We have an enormous crisis looming in commercial real estate, because, unlike home ownership, these loans are typically for a short period, 5 years typically, and at the end of the term, you need to refinance, and right now, the property owners are under water:
Thousands of commercial mortgages valued at hundreds of billions of dollars are approaching their renewal dates, and by some estimates, two out of three no longer will meet the original loan conditions and won’t be able to refinance. With prices for commercial properties expected to plunge, a vicious cycle could unfold, much as it has in the nation’s housing market.
The interesting thing here is that hese mortgages could be modified by a bankruptcy judge (cram down), they are performing loans, and it’s where the sensible banks did their business, which means that they will get hammered.
I see another government bailout.
And they do their master’s bidding and kill a cram down amendment, which would allowed bankruptcy judges to adjust mortgage principal for primary homes much in the same way they do for vacation homes and commercial property.
15 Democrats, including newly minted Dem Arlen Specter, voted for banks, and against American families.
The house passed a bill with cramdown, and Pelosi has been insistent that it be included, and conference reports, and this will now go to a conference committee as the bills are different, are not filabusterable.
Here’s hoping that ordinary people win.
Well Chrysler had gone Chapter 11, because of the unwillingness of a number of the smaller creditors to negotiate in good faith.
Those folks are actually better described as hedge funds, and knowing how hedgies work, they doubtless bought debt at a discount for the express purpose of holding it for ransom.
Here is hoping that the BK judge cleans them out.
Meanwhile, back in GM land, its bondholders have made a counter-offer, wanting a 58% stake in the firm, as opposed to the 10% stake offered, so there is a big gap to bridge there too.
To initial jobless claims fell to 631,000 this week, down 14,000 from the prior week, though continuing claims rose by 133,000 to 6.271 million, another new record.
More generally, both personal income and personal spending fell.
We also have the Institute for Supply Management’s Chicago Purchasers’ Index for April rising to 40.1, though this still indicates contraction, just slower contraction, as 50 is the neutral point.
Additionally, mortgage rates are essentially unchanged over the past week. remaining near historic lows.
The markets seem to be anticipating an improvement in the economy, which has pushed oil up and the dollar down, which I think means nothing, but the folks who run those predictive markets rather like.
It was a close vote, but splitting the CEO and Chairman of the Board positions passed, 50.3%-49.7%, and the new Chairman is Walter Massey.
I do not think that this makes much of a difference in day to day operations, but the fact that shareholders went against Lewis and the board on this is significant.
It’s also a big win for AFSME, who campaigned for this, because of Lewis’ aggressive campaign against labor unions.
Well, it looks like the Chrysler/Fiat thing is a done deal, though this would likely be post bankruptcy, because they cannot get the smaller creditors on to agree to concessions:
The Obama administration last night planned to send Chrysler into bankruptcy, replace chief executive Robert L. Nardelli* and pump billions of dollars more into the effort, all in hopes the company can emerge from court proceedings as a reenergized competitor in the global economy.
Government officials clung to 11th-hour hopes last night that bankruptcy could be averted, but talks broke down with Chrysler’s creditors. A bankruptcy filing could happen as soon as today.
The U.S. government’s attempt to save the automaker amounts to another extraordinary intervention in the economy and a landmark event in the history of the American auto industry.
Under the administration’s detailed court strategy, ownership of Chrysler would be dramatically reorganized, the leadership of Italian automaker Fiat would take over company management and the U.S. and Canadian governments would contribute more than $10 billion in additional funding.
I would note that Cerberus would be completely wiped out on this deal, and be left with nothing, but they are not complaining, since they bought Chrysler to flip it to GM, and then found themselves having to run it when GM had its own crisis, and the alternative, that various parties go after them is even less palatable.
In related news, the dealers for both Chrysler, with the aid of the NADA, are lawyering up to deal with the consequences of a bankruptcy, which would void their franchise agreements.
Cutting dealerships is necessary, as Chrysler has about 2¾ times as many dealers per car sale as Toyota, which adds costs and inefficiencies to the system.
*Full disclosure, I worded at GE Transportation Systems (GETS) their locomotive manufacturing unit from 1994-1996, and for about half of my time there, the chief of the division was Bob Nardelli, who I have never met.