I find the original memo sketchy, and I’ve some different analyses, but in a pinch, I would go with Felix Salmon’s take on the memo, that it serves to obscure far more than it tends to reveal.
Category: Finance
Not Enough Bullets, AIG Yet Again
This time it appears that AIG is paying either $165 million, or $450 million to senior employees of their financial products division, the one which bankrupted the firm through their credit default swap (CDS) business.
It appears that the treasury, who, you know, manages AIG on behalf or the taxpayers, who now own of 80% of the bankrupt in everything but name only firm, were told by AIG president Edward Liddy that these were contracts, and so they had to honor them:
[Obama economic guru Larry] Summers said the government would examine its options, but he acknowledged it might not be able to terminate prior bonus agreements.
“We are a country of law. There are contracts. The government cannot just abrogate contracts,” he said in an interview Sunday on ABC’s “This Week.”
AIG is already scheduled to pay $121.5 million in incentive payments for 2008 to senior executives and 6,400 of its employees. And AIG is laying out another $619 million for 2009 in retention payments to more than 4,000 employees.
Total expected payments amount to almost $1.2 billion.
Somehow, the contracts signed with auto workers must be renegotiated, but those signed with failed and incompetent financial executives must be supported.
Seriously, the US government claim of impotence in the face of a contract is a reflection of the fact that Mssrs. Summers and Geithner are creatures of the corrupt financial industry on Wall Street, and cannot see beyond this.
If I had to choose between Vladimir Lenin and Timothy Geithner at Treasury, I would be very hard pressed to choose.
Economics Update
Well, it looks like bank failure Friday is going to be busy, with 200 Federal Deposit Insurance Corp. (FDIC) agents descending on Puerto Rico, and a report that BankUnited has halted attempts to raise capital, which indicates a fair number of bank seizures, or at least serious investigations, and BankUnited is a fairly big bank.
On the brighter side, we had the Consumer Sentiment Index rise in March.
In the meantime, people are still buying very little, so international trade is falling, including the US trade deficit, which fell to a 6 year low.
Part of this is that banks are increasingly unwilling, or charging more, to issue letters of credit to shippers, which makes shipping more difficult and expensive.
This is being mirrored by the tepid response to the Federal Reserve/Treasury program, the TALF, which has pushed back its start date because of the low number of interested parties.
In energy, we have oil falling on weak demand.
In currency, we have the dollar falling on the good consumer confidence numbers, which slows the “flight to safety.”
Jon Stewart: The Best Financial Journalist in America
Hell, maybe the best journalist in America, or at least the best interviewer. Jon Stewart really gets it.
Jon Stewart interviews Jim Cramer of CNBC (I saw it last night on TV):
When Does Jim Cramer Go To Jail?
I’m not an investment banker, but this sounds like illegal stock manipulation.
The Criminality is Systemic
So, it appears that Eric Holder is looking to crack down on financial fraud.
This makes sense, what with about half a dozen large Ponzi schemes popping up in the past few months, but if they are serious, they will discover quite a lot under that rock, because there are very few people at senior levels in US investment banking who would not be targeted for criminal investigation under a strict reading of the laws.
Signs of the Apocalypse
Signs of the Apocalypse, I Agree With Paul La Monica, who I generally find trite and relentlessly upbeat, when he says that mark to market is not a problem, but rather that the problem is that the banks made sh$% loans and created sh%$ derivatives, and did not hold enough capital.
That being said, he is not as inventive in his lede as David Reilly, who says that, “Elvis Lives, and Mark-to-Market Rules Fuel Crisis,” and notes that even now, only a fraction of the big sh$%pile is marked to market:
Of the $8.46 trillion in assets held by the 12 largest banks in the KBW Bank Index, only 29 percent is marked to market prices, according to my analysis of company data. General Electric Co., meanwhile, said last week that just 2 percent of assets were marked to market at its General Electric Capital Corp. subsidiary, which is similar in size to the sixth-biggest U.S. bank.
What are all those other assets that aren’t marked to market prices? Mostly loans — to homeowners, businesses and consumers.
Loans are held at their original cost, minus a reserve that banks create for potential future losses. Their value doesn’t fall in lockstep with drops in market prices.
Yet these loans still produce losses, thanks to the housing meltdown and recession. In fact, bank losses on unmarked loans are typically bigger than mark-to-market losses on securities like bonds backed by mortgages.
They both make the point that mark to model to a large created this crisis, by encouraging banks to create risky pieces of crap that no one wants to buy, though this reality is not preventing Congress from pressuring regulators to relax the rules on mark-to-market.
This stuff is worth pennies on the dollars, and the banks are insolvent. Let’s recognize reality and move on.
Guilty, Guilty, Guilty
Madoff has pled guilty to all 11 charges, and the judge has ordered him jailed immediately as a flight risk.
Economics Update
So, today is the day for new jobless claims, and U.S. jobless claims rose by 9000 to 654,000, which is not a new record, though the continuing claims number of 5.317 million, which was a new record.
Well, we are seeing more in the way of rate cuts world wide, with the European Central Bank approaching 0% interest rates by stealth, using their deposit rate now at ½%, as opposed to their benchmark rate, now at 1½%, by lending like a madman, and the the Swiss central bank cut its benchmark rate to ¼% in an effort to keep the Franc from appreciating against other currencies, so the zero interest rate contagion is spreading.
And the consumer is still on vacation with retail sales falling by 0.1% in February, and it’s seen as a sign of progress, because the experts were expecting a fall of 0.5%.
It’s no wonder that retail sales are falling, as U.S. household net worth fell at a record pace in 4Q 2008, $5.1 trillion for the quarter and $11.2 trillion for the year, and this was accompanied by the first drop, at a 2% annual rate, in household debt ever.
These numbers are not surprising. With house prices down, and a foreclosures rising 30% year over year, and 6% month to month in February, it just makes sense to economize.
Interestingly enough, even though foreclosures continue to increase, mortgage rates fell this week, largely on the expectation of little in the way of inflationary pressures because of the weak economy.
We also have two bits of WTF today, with yet another bank, this time Bank of America saying that it made a profit in the first two months of the year, while not counting its losses in the big sh&^pile.
Additionally, S&P has downgraded General Electric from AAA to AA+, which, until the last year or so, I always thought was a sign of the economic apocalypse.
In energy, oil is up. largely on the retail sales report.
In currency, the dollar is up, largely on the aforementioned Swiss rate cuts.
The FDIC Didn’t Do What?????
Whiskey Tango Foxtrot??? The FDIC did not collect insurance premiums between 1996 and 2006.
I admit that I am not an insurance executive, but even I know enough to collect the damn premiums.
What a Little Whiner
Jamie Dimon, CEO of JPMorgan Chase:
Jamie Dimon, chief executive officer of JPMorgan Chase & Co., said the U.S. can rescue its banking system by the end of the year if officials start cooperating and stop the “vilification” of corporate America.
“If we act like a dysfunctional family and we don’t finish these things and we’re forever debating them, I think this will go on for several years,” Dimon, 52, said at a conference hosted by the U.S. Chamber of Commerce in Washington. “It’s completely up to us at this point.”
Awww…The poor liddle baby…..Someone hurt his feelings.
If I had the power sir, you would be in jail awaiting trial right now, because you are more dangerous than Osama bin Laden.
Not only did you loot this country, but you continue to do so.
Unencumbered by the Thought Process
The EU is continuing to push finance deregulation in third world:
While EU and other global leaders have talked tough about re-regulating the financial sector in the wake of the economic crisis, they remain committed to pushing through banking deregulation in the developing world via trade deals.
This strategy is undermining poverty reduction in these countries and is reproducing the same type of circumstances that led to the crisis in the first place, warns a new report published on Wednesday (11 March) by the World Development Movement, an UK-based anti-poverty NGO.
Someone needs to whack these jokers upside the head with a clue stick.
More CNBC PWN463 (Ownage)
Damn, Jim Cramer is a glutton for punishment.
Remind me never ever to f^%$ with Jon Stewart.
Someone Who Gets it
David Leonhardt, who notes in the New York Times that the banks took outrageous and stupid risks because they expected to be bailed out by the taxpayer:
….
The economists were George Akerlof, who would later win a Nobel Prize, and Paul Romer, the renowned expert on economic growth. In the paper, they argued that several financial crises in the 1980s, like the Texas real estate bust, had been the result of private investors taking advantage of the government. The investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses.
In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer said, would have operated in a completely different manner. The investors displayed a “total disregard for even the most basic principles of lending,” failing to verify standard information about their borrowers or, in some cases, even to ask for that information.
The investors “acted as if future losses were somebody else’s problem,” the economists wrote. “They were right.”
On Tuesday morning in Washington, Ben Bernanke, the Federal Reserve chairman, gave a speech that read like a sad coda to the “Looting” paper. Because the government is unwilling to let big, interconnected financial firms fail — and because people at those firms knew it — they engaged in what Mr. Bernanke called “excessive risk-taking.” To prevent such problems in the future, he called for tougher regulation.
….
Do you remember the mea culpa that Alan Greenspan, Mr. Bernanke’s predecessor, delivered on Capitol Hill last fall? He said that he was “in a state of shocked disbelief” that “the self-interest” of Wall Street bankers hadn’t prevented this mess.
He shouldn’t have been. The looting theory explains why his laissez-faire theory didn’t hold up. The bankers were acting in their self-interest, after all.
….
In effect, the bankers had siphoned off this bailout money in advance, years before the government had spent it.
About the only thing that I disagree about is that he does not suggest real and deliberate criminality.
Go Read.
Neel Kashkari Shut the Hell Up!
It appears that the last member of the association of bald white incompetents, Neel “Cash & Carry” Kashkari is warning against excessive “micromanagement” of banks by the government.
Kashkari, the Assistant Treasury Secretary for Financial Stabilization, and a hold over from Hank Paulson, because no one wants to be tarred with the brush of Timothy “Eddie Haskell” Geithner, has decided that it would be a bad thing for US officials to 2nd guess senior bank executives.
Because, you know, they’ve already done such a bang up job in managing their banks…..not!
Iraq is Fracked
Because it appears that the State Department is sending in Citi to help modernize their banking sector.
This is not the Onion, really, it isn’t.
Greenspan: Fed Didn’t Cause the Housing Bubble
So, Alan “Bubbles” Greenspan is trying to claim that while he was Fed Chairman, he did nothing to create the housing bubble.
Well, even if it weren’t a Wall Street Journal OP/ED, we would know that this was a lie.
He lowered rates to the bone, endorsed things like CDOs, but he is claiming that since mortgage rates (lending long) drove the home price bubble, and not the Fed Funds rate (lending short), it’s just not his fault.
Except, of course, the good monetarist he is, he always claimed that the Fed Funds rate did have an effect on home mortgage rates, and the low short term rates drove people to real-estate backed securities in search of a decent return.
Furthermore, this had a worldwide effect, because it forced other central banks to lower rates, because otherwise their currencies would have appreciated against the $US, killing their exports.
Then there was his endorsement of ARMs, because housing never went down, and his steadfast refusal to “take away the punch bowl” in bubble markets, because he believed that the markets were perfect….A policy which the Federal Reserve has now explicitly disavowed.
How stupid does he think we are?
I don’t have a degree in economics, and even I get that he is simply spouting gibberish in an attempt to obfuscate his leading role in creating an economy of bubbles, arbitrage, and criminal fraud.
Seriously, did Alan Greenspan get his PhD from a cereal box or something?
Oh…I forgot….He DID get his PhD from the back of a cereal box.
Fed Chairman Follies
So, first Federal Reserve Chairman Ben Bernanke calls for some sort or über regulator to manage systemic risk, and it sounds to me like he wants to make the Federal Reserve the “One Ring to Rule Them All,” and then he flat out says that, “would not be allowed to fail.
This sounds an awful lot like what Alan Greenspan said, and did when was running the Fed, and bailing out any reckless speculators that crashed (see Long Term Capital Management).
If there is a lesson here about the Federal Reserve, it is that while its opacity and lack of response to political pressure may be necessary to tighten down on an economy when there is a serious inflation problem, it makes it spectacularly unsuited to anything else, because you never know when it will be run by some frothing at the mouth Ayn Rand acolyte who will run the economy into the ground.
When You Are In a Hole, Stop Digging
You would think that after Jon Stewart’s merciless beatdown of him, and of CNBC, Jim Cramer would have the sense to know that he’d been beaten, and not get into a pissing contest with a comedian and what may be the best, and smartest, writing staff on TV.
But, you’d be wrong, and Mr. Cramer continues to call out John Stewart.
So Stewart, and and His Minions™ on the Daily Show respond.
So Cramer dressed himself up as a fish…..And jumped in a barrel……And handed Jon Stewart a gun.
This is shooting fish in a barrel.
Any questions?
Economics Update
The Manpower hiring survey has fallen to its lowest level in its history, and the survey started in 1962.
Meanwhile, a survey of economists say that the U.S. economy set should start to recover in the 2nd half of the 2009:
“Consumer spending and residential investment are expected to turn positive and begin boosting GDP growth in the third quarter of this year,” the newsletter Blue Chip Economic Indicators said, summarizing its survey of private economists.
I want what the economists are smoking, because we are seeing no signs of either right now.
The fact the even previously overheated China saw deflation in January indicates to me that this will be longer and deeper than they think.
Additionally, while wholesale inventories fell in January, wholesale sales fell faster, and house prices fell 3.5% in January, according to the Integrated Asset Services index, indicating that the contraction is accelerating.
There is also the fact that the meltdown of the US megabanks has gotten worse, with us regulators looking at more bailout money for Citi, and the notification that the Federal Home Loan Bank of Seattle said it has fallen short of one of its capital requirements.
Note that the FHLBs are where the mortgages are being written right now, so this means that things are going pear shaped in the mortgage market.
With all this going on, it’s no wonder that the 3-month LIBOR spread is up, indicating a tightening credit environment.
Some good news, though it means short term pain, which is that the Securities and Exchange Commission remains committed to reality based accounting, and so it will not abandon mark-to-market.
We also have oil rising on reports of OPEC production cuts, and the dollar falling on US bank worries.