And 100% correct. The numbers now are already worse than the “worst case” scenario that the Treasury is using.
The Money quote is, “Conclusion: Actual macro data for 2009 are already worse than the more adverse scenario in the stress tests. These are not stress tests but rather fudge tests.” (emphasis original)
I agree.
This is getting way out of hand, and someone needs to go postal on everyone involved in this process:
There’s a major problem and a minor problem. The minor problem is documentation. I’ve spent four weeks now looking for someone who can give me the details of the stress test so that we can do an independent evaluation of whether the stress test is any good.
We get: “someone will call [you] right back.” Only the call doesn’t come.
Hopefully, this will improve with Kashkari’s replacement, but my guess is that this comes from Geithner, not Kashkari.
Goldman Sachs, as I mentioned yesterday, is looking to sell shares to pay off the TARP, which is made easier by their recent profit numbers.
How did they make those numbers, it turns out that they put their losses into December, and then dropped the month from their quarterly results
Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February.
The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.
How remarkably convenient.
Then we have Wells Fargo, which also announced good quarterly results, and now analysts are saying that losses uncovered in the stress test will uncover $120 billion in losses, and require that $50 billion in capital be raised.
But wait, there’s more, as other analysts are saying that Bank of America is likely seriously short on capital, and will need to dilute its shareholders stocks.
Finally, because they haven’t boned the taxpayer enough, Citigroup is looking to cut its conversion ratio, the rate at which it is planning to convert its preferred stock to common stock, and the largest preferred shareholders is, you guessed it, the American taxpayer, because the share price for the common stock has gone from about 98¢ to $3.97/share when I checked the number today.
Timothy “Eddie Haskell” Geithner should go tell Citi CEO Vikram Pandit to go Cheney himself, but he won’t because, he’s is the big bankers’ bitch.
We have a bumpy road ahead on the economy, with
retail sales falling 1.1% and the Producer Price Index (PPI) falling 1.2%, both of which indicating that there are still deflationary and recessionary pressures out there.
In regulation, there is finally an Obama choice to run the TARP, Fannie Mae CEO Herb Allison, replacing Bush holdover Neel “Cash and Carry” Kashkari, who along with Hank Paulson, should be in jail for the fraud perpetrated on the US taxpayers.
We also have some news from the moniliner insurers, after a long break, with Moody’s downgrading Ambac to junk status.
Dead man walking.
That being said, there are more signs that credit is thawing, with the LIBOR, the rate big banks charge each other for loans, falling at the fastest rate in 3 months.
In currency, we have news from Asia, where Singapore has devalued its currency by lowering interest rates in an attempt to stem its recession, the idea being that its export based economy would be boosted by a falling currency.
This is a fairly limited option for most nations, as many nations that need the help are debtor nations, while Singapore is a creditor nation.
Meanwhile, the US dollar is up vs. the Euro and down vs the Yen.
Lawyers for Goldman Sachs have gone postal on GoldmanSachs666.com, a website dedicated to criticizing the firm, and so their lawyers have sent a cease and desist letter against the blogger, despite the fact that there is a clear disclaimer, and there is no way to confuse the two sites:
My guess is that Goldman knows that there are a lot of people out there who have damning information, and they really don’t want a clearing house, but as soon as you send a C&D, you explode the exposure of the site.
Stupid, but intellect is not a requirement for a Wall Street banker. If it were, they would not have f%$#ed up the economy so badly.
Well, we are seeing more signs that China is slowly walking back from its massive investment in the US Dollar, with the world’s most populous nation decreasing its holdings in US securities in January and February of this year.
Of note is the rather Panglossian panic in the tone of this article, which appears to make some fairly epic leaps in order to suggest that this is all really good news for the United States and the US dollar.
If there is really a Chinese pullout of US assets for any extended period, the dollar will fall significantly, and inflation will increase, as the cost of imports, including will increase markedly.
This may not be a rush to the exits, but if it’s a major player in the currency markets tiptoeing towards the door, it’s a much bigger deal than the authors let on.
In any case, it appears that Goldman Sachs will sell about $5 billion in new shares, it’s current market cap is around $60 billion, in order to evade the executive pay limits.
I would argue that this is managers not acting in the best interests of the shareholders, particularly since Warren Buffet’s deal with Goldman is more costly, as they are theoretically required to, but the idea that shareholders actually own a financial firm, and that management works for the shareholders, is apparently for suckers.
In energy, oil fell on projections from the IEA that demand would continue to fall, though this has had little effect on retail gasoline, which is up 10¢ over the past few weeks.
In currency, the dollar is down, in light trading.
Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight and Government Reform Committee, has sent a letter to Treasury Secretary Geithner demanding informanton on any special purpose entities that might be used to avoid executive compensation limits.
As I noted about a week ago, it appears that the Treasury is setting up dummy entities to avoid executive pay limits (scroll down), and now it appears that some of members of Congress are sitting up and beginning to sit up and take notice.
Matthew Yglesias makes a very good point about how we view virtue in our society, specifically that the people at senior levels in the finance giants are not good people.
These are people who are millionaires many times over, and are set for life, and still continue to believe that the only way to induce them to do good is to offer them the opportunity to earn millions more.
In any sane society, this is both evil and insane, as Charlie Sheen’s character so ably noted in the movie Wall Street, “Just how many yachts do you need to water ski behind?”
Now there’s a decent argument out there, familiar from Adam Smith and the whole tradition of economics, that a world full of greedy people isn’t necessarily quite the disaster that pre-modern ethical thinkers would have thought. This is all well and good. True even. But it’s a sign, I think, of a kind of sickness running through American society that we’ve lost the willingness to just say clearly that ceteris paribus [all things being equal] greedy behavior is not virtuous behavior. In the spirit of decency, of course, we recognize that none of us are without sin. It would be crazy to try to condemn everyone who’s ever done anything greedy to the gallows. But the fact still remains that greedy behavior is not admirable behavior and that, as Krugman says, it’s very unlikely that the “best” young people were going into finance. And to say that they’re not necessarily good people need not entail that they’re criminals. Simply the fact that the best people are people who aren’t primarily driven by greed.
(emphasis original)
He’s right. What was presented as a statement of perversion in the movie, “Greed is Good,” by Michael Douglas’ Gordon Gecko character, is now in many places, including, I think, in the minds of Larry Summers and Timothy Geithner, is considered to be a big truth.
These are people who are grossly overpaid, and demand gross overpayment, for jobs that involve far less risk, than those of a policeman, or a fireman, or, at a somewhat smaller pay scale, pro football player.
The idea that their all encompassing greed is a good thing indicates that our society’s values are warped, and possibly broken.
This makes 23 so far this year.
New Frontier Bank, Greeley, CO
Cape Fear Bank, Wilmington, NC
Posted via mobile phone.
In this case, it’s Douglas McIntyre of Time Magazine, who looks at a positive quarterly report from Wells Fargo, so he looks at the big sh$&pile, and thinks that there is a pony in there,thus declaring that the banking crisis to be over.
Not unsurprisingly, this ignores the the backdoor bailout through AIG, the fact Wells is deriving profits from a special tax loophole that allows it to write off WaMu’s old losses, that Wells is rather healthy by the standards of the big banks, and the fact that their worthless assets effect solvency, not quarterly profit statements.
Making a quarterly profit is easy for a bank that is not writing down bad loans as it is supposed to.
Posted via mobile phone.
At least that is what this New York Times article appears to say.
Everyone gets a gold star….Lovely.
Posted via mobile phone.
We have a report that consumer confidence is improving, according to the IBD/TIPP economic optimism index, which rose to 49.1 from 45.3, which is only slightly pessimistic, 50 being neutral.
I have no idea if the folks at at Investors Business Daily/TIPP actually run a good poll, but it does look like consumer confidence is up a bit, though the Federal Reserve’s view of the economy remains gloomy.
Certainly with wholesale inventories falling by 1.5% in February, the largest drop in 17 years, there are some bright spots here, because as inventories fall, orders have to be made to restock.
The same cannot be said for commercial real estate, with
mall vacancies at a 10-Year high, and office t rents falling significantly in San Francisco.(-24% year over year !)
Rents fell for apartments in Southern California and nation wide too, which tends to mitigate the impetus for people to buy homes, so I think that the continued increase in mortgage applications is still largely Refi activity.
The credit markets still suck which is why the Fed is looking at offering longer term loans at a higher interest rate for TALF, even as participation in the program is less than anticipated, indicating that investors are still leery of investing in things like mortgage backed securities.
In international finance, Fitch has followed S&P’s lead, and downgraded Ireland’s sovereign debt.
The Treasury has expanded TARP to cover insurance companies, including some of the very big names, such as Hartford, Prudential, and Met Life.
This Problem is getting smaller, not bigger.
Finally, both oil and the US dollar rose today, on a less then expected inventory for the former, and a flight to safety for the latter.
Peterr at Firedoglake was looking at job postings on the FDIC website, and saw something that was probably not intended for the general public, specifically some job postings by the FDIC that may indicate that there will be some very big fish on a path to be caught in the FDIC’s net.
First, there is a posting for a Deputy Chief Accountant (announcement number 2009-EM-0096) who is responsible for, “identifying emerging accounting, auditing, and taxation issues, particularly those raising systemic concerns, for which the timely development of policy guidance for FDIC -supervised and -insured institutions and the Division’s examination staff is critical” (emphasis mine).
“Raising systemic concerns?” Sound like anyone we know? As Peterr notes, it looks like part of their duties will be teasing out responsibilities amongst other financial regulators, which may involve putting a finger in the eye of Timothy “Too Big to Allow to Fail” Geithner’s Treasury Department.
Additionally, there are two openings for two Senior Large Financial Institution Specialist (announcement number 2009-HQD-B1089) located in New York, NY and Charlotte, NC, which are where the HQ’s of Citi and BoA are located, though obviously there are many financial institutions with headquarters in the New York City area, as well as a Chief, Examination Support and Risk Analysis Section (announcement number 2009-HQDEU-1113), who seems to be in charge of “Formulates, refines, and updates supervisory expectations relative to Basel II implementation efforts,” which means risk evaluation of banks.
Additionally, we have Treasury announcing a delay in the reporting the results of the stress tests, “until after the first-quarter earnings season.”
People do not delay good news.
I wouldn’t expect anything this Friday on one of the big 20 financial institutions, but it could get interesting in a few weeks.
Elizabeth Warren, the head of the TARP oversight commission is calling for executives at TARP recipients to be fired, and their shareholders to be whiped out, saying, “It is crucial for these things to happen. Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade.”
It appears that her report will specifically mention Citi and AIG.
Your mouth to God’s ear, Dr. Warren.
The big news is that there are rumors of GM preparing for bankruptcy, and mark my words, if they do go into bankruptcy, it will be because of the bond holders, not the union, and I do not see it working as a prepackaged filing, so we would see massive disruptions amongst all the auto plants of all brands in the US.
Were it not for the GM rumors, the lede would be the continued implosion of consumer credit, with grim February reports showing that U.S. consumer credit falling by $7.48 billion, an annual rate of 3.5%, and homeowner mortgage default rates have increased to 7%, up more than 50% from a year ago.
That being said, it’s not just consumers and homeowners in trouble, as the default rate of “speculative-grade corporate borrowers” hit the highest rate since the depression in March.
Meanwhile in a harbinger of things to come in commercial real estate, New York City office rents fell 6% in the Q1 of 2009, and the vacancy rate is at 9.6%, up from 6.1% a year ago.
It is therefore unsurprising that the Business Roundtable’s survey of CEOs is showing falling confidence.
In the meantime, uncertainty, particularly the GM rumors have driven both the Yen and the US Dollar up, and has driven oil down.
Who despite an (unfortunately non-binding) vote of share holders against his $1 million a year pension of about 90%, is telling RBS to go pound sand, he’s keeping the money.
Note that his pension fund was doubled the week that the UK bailed out the bank.
As I’ve said before, if you are going to go postal…..
Treasury has had to push back the application deadline for its latest sh^%pile for cash program, the Public-Private Investment Program, because they are getting complaints, and not getting enough applicants.
Hoocoodanode?
Zero Hedge is reporting that there are strong indications that Wall Street firms are going back to their Dotbomb era practice of swapping favorable ratings for analysts in exchange for business underwriting their IPOs:
1) First Merrill Lynch/BofA gets clients to subscribe to a massively diluting equity offering (105 million new shares out of 271 million pre-offering shares, or 39% dilution). The offering prices at $7.10/share, a 6% discount to the previous day closing price of $7.49. In the process Merrill pockets an underwriting fee likely equal to 3% of the offering or around $20 million.
2) Minutes after the offering Merrill REIT analyst Schmidt comes out with a report, changing the recommendation on the stock from a Sell to a Buy, thereby getting the vanilla money which makes critical fiduciary decisions merely based on what some sell-side analyst will recommend. As a result Kimco stock rises throughout the day and closes at $9.40, a 25% premium to the closing price, and a 30% premium to offering price of $7.10, which closed that very same day.
…
Go read the rest. It’s pretty damning, and yet another indication that at least 1 in 10 of the brokers, executives, and analysts on Wall Street should be under criminal investigation.
Once again, it looks like the management at Ford did everything right to face this crisis, and they have executed debt for equity swaps and haircuts to bondholders that has lowered their outstanding debt by $9.9 billion, and lowered their interest payments by about $550 million a year.
On the other side of doing the right thing, we have GM, who says that they
expect to sell their SAAB automobile division by the end of June, as there are 3-5 serious bidders.
I never understood this merger in the first place, SAAB auto was too small for GM, and unlike Ford’s purchase of Jaguar, where Ford’s quality was marked superior, and was applied to the British sports care maker, GM didn’t have anything of value to send to SAAB.
Meanwhile, I get to say a sentence that I rarely get to say, that “The New Republic gets it,”on the auto bailout.
The problem is not the unions. It’s the bondholders and banks who are unwilling to deal.
Jeffrey Sachs has looked at the plan, and his assessment is that it is far worse than previously believed, noting that, “Insiders can easily game the system created by Geithner and Summers to cost up to a trillion dollars or more to the taxpayers.”
Basically, it means that the banks can set up off the balance sheet subsidiaries to over pay for the assets, and when they go bankrupt, the federal government is left holding the bag:
Citibank thereby receives $1 million for the worthless asset, while the CPPIF ends up with an utterly worthless asset against $850K in debt to the FDIC. The CPPIF therefore quietly declares bankruptcy, while Citibank walks away with a cool $1 million. Citibank’s net profit on the transaction is $925K (remember that the bank invested $75K in the CPPIF) and the taxpayers lose $925K. Since the total of toxic assets in the banking system exceeds $1 trillion, and perhaps reaches $2-3 trillion, the amount of potential rip-off in the Geithner-Summers plan is unconscionably large.
This is so stupid and corrupt that Larry Summers has to be the guy who came up with this.
