Pandit Says Citigroup Having Best Quarter Since 2007
Do we look like complete gits who will swallow anything that a Wall Street banker tells us?
OK, let me rephrase this:
Do the rest of us like complete gits who will swallow anything that a Wall Street banker tells us?
So the latest regulatory filings show that the big 5 banks exposure to risky financial instruments has exploded, which means that their potential losses have exploded, and so the possibility of being insolvent has increased.
I’m particularly concerned about when the lines cross, which is JPMorgan, and Citi, though it probably applies to Bank of America too, because this graph does not include the derivatives and other financial time bombs that it acquired when it bought Merrill Lynch.
Of course, Geithner and Summers just think that these assets are “artificially” depressed, and so the banks really are solvent…..Tools.
Calculated Risk’s semi regular review of credit conditions is showing a bit of a tightening. Nothing major, but when you start with awful, it’s worse.
That being said, it sucks to be Japan, as they just swung to their first trade deficit in a decade, and it’s a record too.
Meanwhile, the impending wave of impending loan defaults on commercial real estate appears to be starting in Cleveland and Detroit.
It is also looking like treasury bonds are falling, which means that yields are rising, implying that the markets are expecting interest rates to climb.
In energy, it appears that OPEC is looking at cutting production again, and it’s member states are not cheating on production quotas, or at least cheating on them less than is expected, so oil is up today.
In addition, the upward trend in gasoline prices over the past few months continues unabated.
In currency, we continue to see a flight to safety, which is driving the dollar up, and the Canadian dollar hit a 4½ year low against the USD.
So, someone, Chris Whalen, co-founder of Institutional Risk Analytics, is saying that Eddie Haskell Timothy Geithner will be gone by June, and that the banks are in far worse shape than Geithner and Summers will admit.
H/T The Big Picture
Freedom Bank of Georgia, of Commerce, GA, which makes 17 banks so far this year..
Additionally, the UK has nationalized Loyds Bank, raising its stake in the bank to 65 to 77% of the troubled bank in exchange for guaranteeing 260 billion pounds of their toxic assets.
The British regulators are also mandating specific types and amounts of loans, so we are talking a very real level of state control.
Bank of America is now fighting Andrew Cuomo’s subpoenas, because they claim that, “bonus disclosure will cause ‘grave’ harm, which, I believe is banker/lawyer speak for villagers with torches and pitch forks.
Can we just throw them all in a hole somewhere and be done with it?
I hear that there are openings at Guantanamo Bay.
Former Federal Reserve Chairman Paul Volker is saying that we need to go back to separate investment and commercial banks, a return to something very much like Glass-Steagall, which Phil Gramm and His Evil Minions™ got repealed at the turn of the century.
In the not-fed-chair-but-a-Nobel division, we have Myron Scholes saying that “blow up or burn” over-the-counter derivative trading markets if we are serious about fixing the financial crisis:
The markets have stopped functioning and are failing to provide pricing signals, Scholes, 67, said today at a panel discussion at New York University’s Stern School of Business. Participants need a way to exit transactions and get a “fresh start,” he said.
The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and let us start over,” he said, referring to credit-default swaps and other complex securities that are traded off exchanges. “One way to do that, through the auspices of regulators or the banking commissioners, is to try to close all contracts at mid-market prices.”
Alan “Bubbles” Greenspan must be turning over in his grave, or maybe he’s turning over in Ayn Rand’s grave, where he resides until the sun sets.
The vote was 234-191 to give bankruptcy judges to right to modify mortgages on primary residences in bankruptcy.
Not only will this help bankrupt home owners, but it gives other folks a stick to bring their banks to the table.
Happy dance.
Specifically, he is freaking out over the “let them eat cake” policies of Mssrs. Geithner and Summers with regard to the insolvent banking giants:
….Policy is stuck in a holding pattern.
Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.
Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.
He is referring, of course to Geithner’s insistence that the big sh%$pile has an “artificially depressed value”, and Ben Bernanke’s denial of zombie financial institutions, including AIG (!).
These, quite honestly delusional preconceptions have a very real cost, as the Nobel prize winning economist notes:
But this refusal to face the facts means, in practice, an absence of action. And I share the president’s fears: inaction could result in an economy that sputters along, not for months or years, but for a decade or more.
(emphasis mine)
Personally, I lay even more of this at the feet of Lawrence Summers than I do either Geithner or Bernanke: He was one of the most vociferous free-market mousketeers, and his professional life has been marked by failure and misery left in his wake.
Of course, Summers will come out of this clean, as he has mastered the art of failing up even more than Dick Cheney.
So, Annette Nazareth and Caroline Atkinson, have withdrawn their names from consideration for positions working in the department of the Treasury, and we have blame placed on Senate delays, and the Obama Administration’s thoroughly anal retentive vetting process.
I have no doubt that both of these issues figure prominently in some of the difficulties in staffing, though Obama is actually well ahead of the pace of recent transitions, but I think that there is another factor.
I think that a number of people out there believe that Timothy Geithner, and be extension, Lawrence Summers, simply don’t get it with the banking crisis, and that they are wrong, and that they will continue to refuse to recognize the reality that a number of the gargantuan banks in the US are simply insolvent, and so they are refusing to do the sane thing, and put them in receivership. (or pre-privatization, nationalization, or whatever the frack you want to call it)
Simply put, they recognize that in the next 6-18 months, there is a real possibility that working with Timothy Geithner on their resume will look like working with Hank Paulson, and in any case, they want no part of a policy that they see as an train wreck.
Scary Pix Courtesy of Barron’s Econoday
So the unemployment rate jumped ½% in February, from 7.6% to 8.1%. and 651,000 jobs were lost.
Additionally, U6, the broadest measure of un and under employment is at 14.8%, and note that U6 is the statistic closest to the 20+% unemployment rates recorded in the great depression.
….
Delightful.
If that weren’t bad enough, 20% of all mortgaged properties are under water, and something around 1 in 9 mortgages are either in foreclosure or delinquent, so any turn around in residential real estate is are greatly exaggerated.
It also looks like the FDIC is asking Congress to lend it $500 billion, because its insurance fund is depleted.
We do have Baltic Dry Index, a measure of the demand for cargo shipping, one piece of good news, in that the just hit its highest level this year, which indicates more international trade.
Meanwhile, the jump in unemployment has driven the dollar down, and oil up.
When the Federal Reserve refuses to release data on the banks that it has loaned to and the hedge funds say that they might be ameniable to regulation so long as the information is not released to the public, that is the question that is raised.
If there had been transparency earlier, we would not be in the situation that we are now. Transparency and openness is the solution, not the problem.
Rick Santelli canceled on Jon Stewart at the last minute, so they laid a can of whup ass on Santelli and his network, CNBC.
Ouch!!! Just brutal.
(8:28 Duration)
The amount of outright lawbreaking that the was ignored by regulators is likely to be staggering, and it should be investigated, and prosecuted, to the fullest extant of the law.
If not, see here, but once again, we are seeing the effects of ignoring this 346 year old lesson, because investors have made bets on the failure of bonds that they do not hold through Credit Default Swaps (CDS), and in so doing, look likely to be driving otherwise solvent companies into bankruptcy:
Amusement-park operator Six Flags Inc. and automaker Ford Motor Co. may be pushed toward bankruptcy by bondholders trying to profit from credit-default swaps that protect against losses on their high-yield debt.
By employing a so-called negative-basis trade, investors could buy Six Flags bonds at 20.5 cents on the dollar and credit- default swaps at 71 cents. If the New York-based chain defaults, the creditors would receive the face value of the debt, minus costs. In a Feb. 27 note, Citigroup Inc.’s high-yield strategists put that profit at 6 percentage points, or $600,000 on a $10 million purchase.
….
It was recognized centuries ago that you should not be allowed to use insurance to do this, because it leads to fraud and panics, but the free market mousketeers decided that that was old thinking, and that they had no need for no stinking insurance regulations.
Former Merrill execs invested in Madoff funds.
I know that it’s a mark of failure that I derive pleasure from these folks losses, and yet I derive pleasure from these folks losses.
Busy day, so let’s start with the central banks: The Bank of England cuts rates by 50 basis points (½%), and is engaging in quantitative easing (printing money) in the form of buying £75 billion ($US 106 B), and the European cut its benchmark rate by 50 basis points to 1.5%, and is also looking at “further non-standard measures” (see quantitative easing).
Considering that the ECB has no charge except to manage inflation, this is extraordinary.
Unsurprisingly, the rates cuts have driven the dollar up.
In employment, first time jobless claims fell to 639,000, but the less volatile 4 week moving average rose to 641,750, the “highest since October 1982,” and productivity dropped 0.4% in Q4 of 2008.
Bumpy ride, folks.
On the brighter side Bonddad’s credit indicators show a thaw in lending over the past few months, and February retail sales beat expectations, though the numbers are still pretty bad.
In autos, GM is saying that there is “substantial doubt” about whether it can survive in an SEC filing, not a surprise, and implies Chapter 11, which further implies liquidation for Chrysler.
Mortgage rates rose last week.
Oil, meanwhile fell in response to the generally anemic economic news.
They all got over $10 million in 2008, and now they will be forced to testify.
Cool.
This is separate from cram downs, but the new rules announced by Geithner should be complimentary.
It’s a series of carrots to induce banks to negotiate, but I’d much rather see more sticks, because the problem that we have right now comes from being too accommodating to banks.
I knew that there were some proposals kicking around, but the idea has become mainstream enough that New York Stock Eexchange CEO Duncan Niederauer has gone public with his opposition.
It appears that Rep. Peter DeFasio’s (D-0R-4) proposal for a ¼% transaction tax on stocks and derivatives, in part to fund the bailout of the banking industry.
It’s a very good idea. ¼% is inconsequential to long term investors, but to speculator types, such as day traders, it makes their business model, and the problems that they bring, much less sustainable.
It exists in most of the rest of the world, and (IIRC) existed in the US until some point in the 1960s, so it’s not the end of the world that these folks forsee, though it might cut down a bit on their commissions from churning clients investments.