Category: regulation

OK, So Fire Away

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In an interview with Katie Couric, Tim Geithner said that firing bank CEOs is an option if they are not properly managing their firms.

Bank of America CEO Ken Lewis is not properly managing his firm.

Even if you ignore the disaster that is Merrill Lynch, the purchase of the toxic waste dump known as Countrywide Mortgage was his doing, and an unmitigated disaster, what’s more, he’s been calling you, and the whole Obama administration a bunch of C%&$suckers, saying that he will repay the TARP money to be done with you…Only not right now, because BoA is a bit short on folding green at the moment:

In his latest media appearances, including an interview on CNBC, Lewis said that BofA would repay taxpayers for the $45 billion in TARP proceeds his bank received. Eventually. (Lewis also said he ”regrets” having taken that much, saying the bank took more than it needed, describing the total as ”his mistake.” From this vantage, seems like the government’s … but po-tay-to, po-tah-to, right?)

But he quickly added that the economy will have to rebound. And then several quarters will have to pass.

Seriously, it’s like that bit in Bull Durham, when Crash is ejected from the game for calling the ump a c%&$sucker.

You call the ump a c%&$sucker, and you are ejected.

Eject Ken Lewis, the self-important, pampered, anti-union, incompetent prima donna from the game, or ask for the full $45 billion back tomorrow, and initiate an investigation of how AIG unwound their swaps at 100%.

Video of interview here.

FASB Re-Enables Crooked Incompetent Bankers

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Under pressure from bankers, and their lackeys in Congress, the Federal Accounting Standards Board has relaxed mark-to-market rules.

This means that bankers can go back to creating more of the big sh$#pile, and calling it a pony:

Changes to fair-value, or mark-to-market accounting, approved by FASB today allow companies to use “significant” judgment in gauging prices of some investments on their books, including mortgage-backed securities. Analysts say the measure may reduce banks’ writedowns and boost net income. Firms could apply the changes to first-quarter results.

The FASB just got pressured to allow liars accounting again. This is a bad thing.

“Significant judgement”, my ass. Wall Street has no judgment at all.

Economics Update

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We have the weekly unemployment claims report, and it is not pretty, with 669,000 new claims, an increase of 12,000, the 4 week moving average was up 6,500 to 656,750, and the continuing claims hit 5,728,000, up 161,000.

Note that the initial claims number constitutes a 26½ year high, and continuing claims are at the 9th all time record level in 9 weeks.

Meanwhile, the credit news is not good, with Calculated Risk’s Credit Crisis Indicators somewhat improved, though still at pretty awful levels, but Moody’s downgraded $1.76 trillion in corporate debt in the first quarter of 2009, and both credit card charge-offs and home equity loan delinquencies have climbed to record levels.

In real estate commercial real estate defaults hit a new record, and the formerly unassailable real estate of Manhattan is sales volume falling 48%, though house prices rose in the UK for the first time since 2007.

Additionally, the Feds efforts to lower mortgage rates appear to be working, with the 30 year fixed mortgage rate hitting a new low.

In the meantime, auto industry analysts are doing handsprings over the March auto sales figures, because annualized sales figures rose to 9.86 million up from February’s rate of 9.12 million, though dealer incentives also rose 5%.

Your call as to whether an 8% increase of awful, the normal annual sales runs at about 16 million, is something to crow about.

In either case, other manufacturing had an uptick, with Chinese manufacturing increasing for the first time in 4 months, and US factory orders rising for the first time in 7 months.

In Yurp, the European Central Bank cut its rates by only 25 basis points (¼%), less than expected, and as a result the Euro strengthened vs the US dollar, though the ECB President has said that more rates might be forthcoming

In energy, the rising stock market (Dow above 8k for the first time in about 7 weeks) has driven oil higher.

File Under: I Used to Be Disgusted, Now I Try to Be Amused

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It appears that the Treasury Department is stonewalling the body charged with monitoring the various bank bailouts.

But “without a clearer explanation” about parts of the program, “it is not possible to exercise meaningful oversight over Treasury’s actions,” said Elizabeth Warren, a Harvard Law School professor who leads a special congressional oversight panel monitoring the TARP program. Her comments came in a Senate Finance Committee hearing on the bailout program.

Noting that TARP passed Congress six months ago, Warren said that her group has repeatedly called on the Treasury Department to provide a clear strategy for the program — and that “the absence of such a vision hampers effective oversight.”

Dr. Warren, this is not a but, it’s a feature.

Geithner is a former Federal Reserve Bank of New York president. Opacity and secrecy are how they think that it’s supposed to work.

That’s the whole idea behind the Federal Reserve system.

Where the Bailout Money is Going

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CNN has a handy interactive chart, though Bloomberg, using slightly different math, gives us a figure of $12.8 Trillion, or over 90% of last year’s GDP.

Meanwhile, as has been noted earlier, AIG has been cutting sweetheart deals with the banking giants, and now the GAO, the investigative branch of Congress, is saying that the Treasury Department is being too lax in its policies on repaying AIG counterparties, confirming once again that Tim Geithner is the large banks’, and large Wall Street firms’ bitch.

There is no need for AIG to pay off at 100¢ on the dollar here, and the insistence that they do so is an excuse to pump more money into insolvent banking giants.

OK, More Wheels Within Wheels

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We now have Barney Frank calling for laws giving resolution authority for systemically important firms, which means FDIC style receivership powers to, “take over and unwind the businesses of big non-bank companies”, which could apply to bank holding companies like Citi and BoA, as well as their banks, and Peter Boone and Simon Johnson (the former chief IMF economist who is calling for kicking the corrupt banking elites out) are suggesting that are suggesting that this is exactly what Geithner’s plan is.

Honestly, I do not think that the White House is sandbagging the Congress and the public over this.

As I have said before, past is prelude, and for Geithner and Summers to sign off on such a thing would run completely counter to their entire professional lives.

I hope that I am wrong, but I fear that I am not.

Kenneth Lewis Dead Pool

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I’ve kind of thought that the Obama administration’s ouster of Rick Wagoner was primarily a political ploy, but it has created a new question, with people asking why him, and not people like Bank of America’s CEO Kenneth Lewis, whose purchases of Countrywide and Merrill Lynch seem to be ample reason for his firing.

I’m hoping that someone in the White House actually intended this effect.

I don’t generally subscribe to the “Barack Obama has a plan, but it’s too subtle for us to see right now,” thing, but it does seem to me that, intentionally or not, the stage has been set for the firing of a bank president at one of the 5 or so banking giants out there.

It would be the a good thing to do, it would put the fear of God in these “masters of the universe.”

The reason that I am fingering Kenneth Lewis is that the other likely bank to be so target is Citi, but CEO Charles Prince was already forced out and replaced by Vikram Pandit, and BoA is the next sickest bank on the list.

Additionally, Lewis has been unrepentant in his attitude, continuing to (over) use the private jet, and chafing at the TARP restrictions, all while maintaining that he will send back the money “real soon now.”

The final reason for my suggesting that he might be forced out, in addition to my visceral dislike of him, is that he, and his bank, have aggressively lobbied against the EFCA (card check) legislation, and now directly calling for his ouster, which means that Obama picks up some labor credibility without having to go to the mat for the EFCA.

Now We Know Why Banks Were Profitable Last Month

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Because, using our tax dollars, AIG settled its accounts with the big banks at 100% on the dollar, even while they are refusing to pay on deals with smaller players.

So, not only are we funneling money to the big 5 banks through the TARP, and the TALF, and various Fed facilities, we are also shoveling money in through the back door by way of AIG’s Financial Products Division.

I now have a tough choice….Should I go long in pitchforks, or torches?

Friday Night Bank Closings: I’m Scared Now Edition

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Not by the total number of bank closings, there was only one, the Omni National Bank, Atlanta, GA, the 21st of the year. (Full List of closings).

Since I figure that there will be somewhere in the neighborhood of 100 bank closings this year, that is not a surprise.

What is a surprise is Calculated Risk’s report on regulatory actions in California, where 6 more banks have received a cease and desist order from the FDIC, and there are predictions that two thirds of banks in California will be operating under such orders by year’s end.

I honestly cannot imagine that the situation is better in other areas with the largest real estate bubbles, such as Florida, the Las Vegas area, Phoenix, etc.

Anatomy of a Right Wing Hysteria Campaign: HR 875

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HR 875 is a fairly innocuous bill, trying to make sure that food, both domestic and imported, is safer, but a campaign by the National Independent Consumers and Farmers Association (NIFCA), which opposes any regulation of food, and a couple of right wing conspiracy theorists, and suddenly the bill is an attempt by Monsanto to shut down every farmers market in the nation.

Well, it’s not. Go read the article for the full scoop.

Remember When I Said that Cap and Trade Sucks

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Well, it looks like the Europeans are wising up to the China option of creating false offsets for greenhouse gasses:

The European Union, frustrated that its 11,000 factories and power plants are failing to adequately reduce greenhouse-gas pollution, will seek tighter emission rules that may raise the price of burning fossil fuels.

The 27-nation bloc wants to curb access to a program run by the United Nations that rewards companies more for funding emission-reduction projects in China and India than for decreasing their own gas output in Europe. New limits are needed to force extra pollution cuts at home, the EU said in proposals for climate talks starting in two days in Bonn.

My original post on the subject.

New EU Scraps Net Neutrality

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It appears that the new EU telecommunications rules are likely to scrap network neutrality completely.

The big incumbent Telcos there are very much in support of this, because milking money out of their monopoly is really their only skill, same as in the good old USA, and the regulators believe that the market will cure everything, “This approach is backed by the European Commission, which argues that if consumers feel their content is somehow being compromised, they will switch to other providers.”

Because competition in such matters has worked so well in the most free market telco environment in the industrialized world, where the speeds are the slowest, and the rates are highest, and ISPs lie about their policies.

Why Cap and Trade Sucks

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Because if there is a sign that a regulatory strategy is ill conceived, it is when you end up paying farmers not to grow crops, and this appears to be one of the new cash crops for the American farmers.

This is a fraud foisted on the American consumer and the environment, much like the construction of unneeded hydroelectric plants in China for carbon credits on the European cap and trade system is a fraud on the European consumer and the environment.

The solution, which is cheaper for the consumer, and keeps the Wall Street types from gaming the system, is the straight carbon tax.

Senator Whitehouse Shows Us Why It’s Better to Elect a Democrat Than the Best Republican

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Case in point, Lincoln Chaffee, defeated for the Senate by Sheldon Whitehouse in 2006, and now Whitehouse is putting forward a bill to protect consumers from abusive credit card companies.

Among its provisions in his Consumer Credit Fairness Act:

  • Lenders (not just credit cards, but also payday loans, auto loans, layaway, and overdraft charges) would be prohibited from making claims in bankruptcy if their interestrate were more than the yeild of the 30 year bond interest rate +15%.
  • The interest rate would be figured including all charges and penalty fees.
  • Removal of the means test for bankruptcy that was included in the 2005 “screw the consumer” bankruptcy law.

Electing Democrats make a difference.

OK, I May Be Wrong About Geithner

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Kevin Drum just raised an interesting point about what Geithner has been doing so far

If, several weeks ago, you had charged a task force with figuring out how to successfully nationalize a big bank, what do you think they’d say you had to do? Three things, at least: (1) you have to figure out a widely acceptable way to value the toxic assets on bank balance sheets, (2) you have to set up a fair and consistent test for evaluating bank solvency based on those values, and (3) you need to make sure you have the legal authority to take over a huge, multinational financial conglomerate in an orderly way. Is it just a coincidence that these are precisely the things Tim Geithner has set in motion over the past month? I wonder.

It’s an interesting point, and just today, while testifying before Congress, Geithner called for the power to place large bank holding companies into government receivership, backed up by Ben Bernanke.

So Mr. Drum’s thought that recent activities of Geithner and Bernanke, and by extension President Obama being a ploy is a possibility, though but I’m inclined to agree with Yves Smith the proprietoress of Naked Capitalism, whose beat is economics, and who knows more about economics, and the major players the economic community, than either Drum or me, and she thinks that the Office of Thrift Supervision (OTS)already has the authority to place AIG in receivership, and already answers to him.

Additionally, she notes that his request for additional power does not include any request for a receivership protocol, and concludes that this request is actually an attempt to give him more power to shovel more taxpayer dollars to the financial industry.

I would also note that Geithner, and his mentor, Larry Summers, have a history that stretches back decades, and there is nothing in what they have done, or are doing now, which would indicate that they would be inclined to do this…ever!

So, while Kevin Drum has an interesting wheels within wheels theory, I am more inclined to go with Nobel Prize winning economist Joseph Stiglitz, and simply say that Geithner’s plan is robbing US taxpayers.

But that’s my gut, and my sense that past is prologue.