European Sovereign Debt Levels to GDP Before and After the Bank Bailouts

What is even more clever than lining your pockets by ballooning the financial system into a great bubble by fraud and bad governance?

Getting the victims and bystanders to pay the price of your perfidy, and shifting the anger of the people to some unfortunates,  while 'reforming' the system to make it even more efficient at looting so that you can do it all over again.

No wonder that any movement that threatens the status quo in the least bit gets these white collared reivers and their pampered princes in such a lather.  It is important to make people think that no one else cares, and that they are alone.

Such a parcel of rogues in a nation.

"The sudden explosion of European sovereign debt is the direct and indisputable result of all our political parties deciding they would safeguard their mates’ and their own personal wealth (it is the top 10% who hold the bulk of their wealth in the financial products which would be destroyed in a bank collapse. NOT the rest of us!) by bailing out the private banks and piling their unpaid debts on to the public purse.

So whatever the trigger of the next crisis may be, they know any solution which saves the wealth and power of the over-class will have to involve piling new, private-bank bad-debts on to already indebted sovereigns and that, our leaders must be keenly aware, will not be easy to force on an already angry public. They know a whole range of the assurances they might like to give us about what must be done when the next crisis hits and how those things will undoubtably save us, will not be so easy to shove down people’s throats...

I think one of the cleverest things the 1% have done over the last few years is the way they have created a relentless public discourse, via their paid political front-men and women and their media empires, to insist on the need to ‘fix’ and protect the system, and the extreme danger to us all should the system not be ‘saved’. This has served as a perfect cover for making sure that not enough people have noticed that the system is, in fact, being gutted and replaced by something that better serves the interests of the 1%. We have not been fixing the banks, we have been feeding them."

Golem XIV, The Next Crisis Part One

“Why do you think we have a winner?,” President Snow asks while cutting a white rose.
"What do you mean?,” Seneca asks.
“I mean, why do we have a winner?,” Snow repeats, before pausing. “Hope.”
“Hope?,” Seneca replies slightly bewildered.
“Hope. It is the only thing stronger than fear. A little hope is effective, a lot of hope is dangerous,” Snow declares. “A spark is fine, as long as it’s contained. So, contain it.”

Suzanne Collins, The Hunger Games

Keiser Report Interviews John Titus of 'Bailout' Which Premieres on 16 May in Chicago

There is a fairly nice description of the 'credibility trap' in this very interesting discussion between Max Keiser and John Titus.

I had said in my major forecast from 2005 that at some point the Bankers would make the US an 'offer which they think that they cannot refuse.' The film references that sort of negotiation tactic. There is another crisis coming, and another offer which will involve more than just money.

Here is a link to the complete show 'Central Bank Monarchs' including the discussion with Stacey Herbert.

Financially Farcical Friday

Institutional Risk Analytics is one of the best weekly reads around.

Institutional Risk Analytics

"Washington has indeed fixed the solvency problems of the large zombie banks -- not with additional capital or stress tests, as many of us seem to think. Rather, the banks have been stabilized by turning them into GSEs via FDIC guarantees on their debt. Those banks which can end their dependence on federal guarantees will be the visible winners in the post stress test market, and valuations and spreads will reflect this divergence between zombies and viable private banks.

Seen from this perspective, Chrysler, General Motors and the large banks are GSEs rather than private companies, parestatales as they know them in Mexico. To talk about a rally in the equity of large US financials seems truly ridiculous, at least to us, especially true when you look at how the public sector subsidies being applied to the banks have distorted their financial statements."

"We hear from the Big Media, BTW, that Tim Geithner's growing corps of handlers directs media inquiries to Roubini for "an objective view" of the Secretary's handling of the financial crisis. One Democrat asks: Could it be Larry Summers to the Fed, Roubini to the White House?

And speaking of the fall of the elites, FRBNY Chairman Steve Friedman finally resigned yesterday, ending a scandalous period when the greater community of present and past employees of Goldman Sachs, JPMorgan Chase and other dealers was arguably in control of the most important arm of the US central bank. (Ending? With Dudley still in place? - Jesse)

The fact that the Board of Governors appointed former GS ibanker Freidman as a "C" class director, who are meant to represent the public interest and not be past officers of regulated banks, was scandal enough. But then, when GS formally became a bank holding company last year, the Board failed to remove Friedman when his conflict became acute. The Board also failed too to appoint another "C" class director, making it almost seem that the Board wanted to assist in the GS operation to influence the operations of a Federal Reserve Bank."

The Banks must be restrained, and the financial system reformed, before there can be a sustainable economic recovery.

Crony Capitalism and Incompetence Doom Obama Economic Plans Says Nobel Laureate

Nothing you have not heard here before, and frequently.

But this is a Nobel Prize winner in Economics saying it, and a Democratic appointee to boot.

"The people who designed the plans are either in the pocket of the banks or they’re incompetent."

That sounds like Larry Summers and Tim Geithner in a nutshell to us.

Joe Stiglitz is assuming that Crew Obama really WANT to fix the economy and serve their nation. It seems possible that, being out of power for so many years, the Democratic leaders are handing out favors to their campaign contributors and feathering their nests for the future.

Then they'll worry about the public welfare. Political reform, Chicago-style.

The banks must be restrained, and the financial system must be reformed, before there can be any meaningful recovery in the real economy.


Bloomberg
Stiglitz Says Ties to Wall Street Doom Bank Rescue
By Michael McKee and Matthew Benjamin

April 17 (Bloomberg) -- The Obama administration’s bank rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.

“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.” (That pretty much covers Larry Summers and Tim Geithner, respectively - Jesse)

The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street.

“We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said.

The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.”

Rather than continually buying small stakes in banks, the government should put weaker banks through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said. (Personally I'd give the bondholders a very high and tight haircut - Jesse)

Nobel Prize

Stiglitz, 66, won the Nobel in 2001 for showing that markets are inefficient when all parties in a transaction don’t have equal access to critical information, which is most of the time. His work is cited in more economic papers than that of any of his peers, according to a February ranking by Research Papers in Economics, an international database....

Bailing Out Investors

“You’re really bailing out the shareholders and the bondholders,” he said. “Some of the people likely to be involved in this, like Pimco, are big bondholders,” he said, referring to Pacific Investment Management Co., a bond investment firm in Newport Beach, California.

Stiglitz said taxpayer losses are likely to be much larger than bank profits from the PPIP program even though Federal Deposit Insurance Corp. Chairman Sheila Bair has said the agency expects no losses.

“The statement from Sheila Bair that there’s no risk is absurd,” he said, because losses from the PPIP will be borne by the FDIC, which is funded by member banks.

Andrew Gray, an FDIC spokesman, said Bair never said there would be no risk, only that the agency had “zero expected cost” from the program.

Redistribution

“We’re going to be asking all the banks, including presumably some healthy banks, to pay for the losses of the bad banks,” Stiglitz said. “It’s a real redistribution and a tax on all American savers.”

Stiglitz was also concerned about the links between White House advisers and Wall Street. Hedge fund D.E. Shaw & Co. paid National Economic Council Director Lawrence Summers, a managing director of the firm, more than $5 million in salary and other compensation in the 16 months before he joined the administration. Treasury Secretary Timothy Geithner was president of the New York Federal Reserve Bank.

“America has had a revolving door. People go from Wall Street to Treasury and back to Wall Street,” he said. “Even if there is no quid pro quo, that is not the issue. The issue is the mindset.”
Stiglitz was head of the White House’s Council of Economic Advisers under President Bill Clinton before serving from 1997 to 2000 as chief economist at the World Bank. He resigned from that post in 2000 after repeatedly clashing with the White House over economic policies it supported at the International Monetary Fund. He is now a professor at Columbia University.

Critical of Stimulus

Stiglitz was also critical of Obama’s other economic rescue programs.

He called the $787 billion stimulus program necessary but “flawed” because too much spending comes after 2009, and because it devotes too much of the money to tax cuts “which aren’t likely to work very effectively.”

“It’s really a peculiar policy, I think,” he said. (Peculiar? Perhaps he meant the odor. - Jesse)

The $75 billion mortgage relief program, meanwhile, doesn’t do enough to help Americans who can’t afford to make their monthly payments, he said. It doesn’t reduce principal, doesn’t make changes in bankruptcy law that would help people work out debts, and doesn’t change the incentive to simply stop making payments once a mortgage is greater than the value of a house.

Stiglitz said the Fed, while it’s done almost all it can to bring the country back from the worst recession since 1982, can’t revive the economy on its own.

Relying on low interest rates to help put a floor under housing prices is a variation on the policies that created the housing bubble in the first place, Stiglitz said. (You got that right Joe - Jesse)

Recreating Bubble

“This is a strategy trying to recreate that bubble,” he said. “That’s not likely to provide a long-run solution. It’s a solution that says let’s kick the can down the road a little bit.” (They have been kicking this cow pie down the road for so long we're almost at the edge of the world - Jesse)

While the strategy might put a floor under housing prices, it won’t do anything to speed the recovery, he said. “It’s a recipe for Japanese-style malaise.”

Even with rates low, banks may not lend because they remain wary of market or borrower risk, and in the current environment “there’s still a lot of risk.” That’s why even with all of the programs the Fed and the administration have opened, lending is still very limited, Stiglitz said.

“They haven’t thought enough about the determinants of the flow of credit and lending.”

Here Comes Turbo Timmy's Troubled Toxic Asset Clearance Sale

Wall Street Journal
U.S. Sets Plan for Toxic Assets
By Deborah Solomon
March 21, 2009

WASHINGTON -- The federal government will announce as soon as Monday a three-pronged plan to rid the financial system of toxic assets, betting that investors will be attracted to the combination of discount prices and government assistance.

But the framework, designed to expand existing programs and create new ones, relies heavily on participation from private-sector investors. They've been the target of a virulent anti-Wall Street backlash from Washington in the wake of the American International Group Inc. bonus furor. As a result, many investors have expressed concern about doing business with the government in this climate -- potentially casting a cloud over the program's prospects.

The administration plans to contribute between $75 billion and $100 billion in new capital to the effort, although that amount could expand down the road.

The plan, which has been eagerly awaited by jittery investors, includes creating an entity, backed by the Federal Deposit Insurance Corp., to purchase and hold loans. In addition, the Treasury Department intends to expand a Federal Reserve facility to include older, so-called "legacy" assets. Currently, the program, known as the Term Asset-Backed Securities Loan Facility, or TALF, was set up to buy newly issued securities backing all manner of consumer and small-business loans. But some of the most toxic assets are securities created in 2005 and 2006, which the TALF will now be able to absorb.

Finally, the government is moving ahead with plans, sketched out by Treasury Secretary Timothy Geithner last month, to establish public-private investment funds to purchase mortgage-backed and other securities. These funds would be run by private investment managers but be financed with a combination of private money and capital from the government, which would share in any profit or loss....

Citigroup: Keeping Up With the Goldmans

What is ironic is that these stories of Citi extravagance are probably being leaked by other equally extravagant Wall Street players with big Credit Defaut Swap and short positions on Citi, hoping it breaks back down so they can get their own $10 million dollar offices.

The financial system is broken. The banks must be restrained. Speculation is no substitute for production, that creates real wealth. Speculation merely transfers wealth to the few from the many, until the blood tide rises.


Citi plans $10 million office refurb for executives
By Sam Mamudi
March 19, 2009

NEW YORK (MarketWatch) -- Citigroup Inc. plans to spend about $10 million on new offices for senior executives, according to a Bloomberg report Thursday.

The changes at the bank's headquarters in New York City will include a new office for Chief Executive Vikram Pandit.

The project is made up of 17 private offices, two conference rooms and open areas, reported Bloomberg.

Citi told Bloomberg that the refurbishment, which it began planning in June, will save the bank money in the long run.

Coup d'Etat by Crisis

"Necessity is the plea for every infringement of human freedom. It is the argument of tyrants; it is the creed of slaves." William Pitt (1759-1806)

Quite the dire, almost inflammatory piece from Time Magazine. It certainly paints Bank of America, Citigroup, General Motors, and AIG in a bad, almost villainous light.

It is time to for a real change. It is time to stop allowing the country to be held hostage by a relatively small number of financiers who have gamed the system and corrupted the regulatory and legislative process. It is time to stop allowing those deeply involved with the problem to manage the investigation and the solutions.

Put the money center banks into a managed restructuring, and stop calling it nationalization, which wrongfully suggests the British socialism of the post World War II era. We did not have to use that sort of language or raise these emotional issues when the Savings and Loan scandal was cleared.

Let's get this open sore cleaned, bound and stitched.

But one thing we might wish to keep in mind is that it may not be AIG, BAC, and C that are pulling the strings, that are at the center of this. They look more like patsies than prime motivators.

Transparency would be interesting in this case with regards to the CDS market and the derivatives markets.

Who has the most to gain and lose if Citi, Bank of America, and AIG are put into managed restructuring? Who has the most and biggest bets on their failure?

Let's have transparency of positions now. And we cannot afford to take anyone's word on this.

The real sticking point is not the shareholders or managers of these companies, although they may be making the most noise at this point.

We will be surprised, if transparency is actually provided, and new and independent regulators armed with the full array of investigative tools, dig into this mess to see where the strings lead, if we do not find many of them in the hands of the other major Wall Street banks, media giants, and corporate conglomerates, among others.

We will keep an open mind, but do not expect any light or serious new information to come from these Congressional Committees with their circus, show trial atmosphere.

Time to bring back Glass-Steagall and to enforce the Sherman Anti-Trust laws. Time to compel the three or four banks to unwind their trillions in opaque derivatives. Time to audit the Federal Reserve, and clarify their role in our system to them, and nail a copy of the Constitution to their front door.

We do not need or want fewer, bigger, more powerful banks as a drag on the real economy, taking a tax on each transaction whether it be through credit cards or fees or loans or subsidies.

Time for a real change. Time to remind Congress where the power and legitimacy of their offices resides. Time for the lobbyists, corrupt regulators, corporate princes and the enablers and motivators of this grand theft to find a place in an unemployment line or a witness stand.

We must demand action from the Congress and the Administration who we recently put in place through the elections to clean this mess up and then change the system that delivered it.

Contact the White House

Contact Your Senator

We do not want fewer, bigger banks exacting a fee on every commericial transaction in this country.

1. Bring back Glass-Steagall.

2. Clean up the derivatives mess, starting with J.P. Morgan.

3. Enforce the various anti-trust laws, enacting new ones where necessary, and break up the media and banking conglomerates.

4. Enact aggregate position limits in all commodity markets and transparency with immediate disclosure of all position over 5% in any market.

5. Effective restrictions and enforcement of naked short selling, price manipulation, reinstatement of the 'uptick rule,' the prohibition of regulated banks from engaging in any speculative markets either for themselves or as agents, and usury laws and regulation of all interstate financial transactions at the national level.

And for the sake of the country, establish a vision, a model, of what the system should look like in accord with the Constitution. And then strike out for it, as painful as that may be, and stop this management by crisis, and weaving a shroud for our freedom out of a web of endless fixes, concessions and necessities.

"If there must be trouble, let it be in my day, that my child may have peace." Thomas Paine

Time
AIG's Plan to Bleed the Government Dry
By Douglas A. McIntyre
Tuesday, Feb. 24, 2009

Management at AIG has calculated exactly how much money the Treasury and Fed will have access to after all of the TARP, financial stimulus, and mortgage bailout projects have been funded. The insurance company then plans to ask for whatever is left to fund its deficits so that it can stay in business, effectively making the federal government insolvent.

According to CNBC, AIG is about to post another huge loss. "Sources close to the company said the loss will be near $60 billion due to writedowns on a variety of assets including commercial real estate." The financial channel also reports that the need for capital may be so great that AIG might have to enter Chapter 11, something the government has spent over $130 billion trying to prevent.

Just like Detroit, Bank of America (BAC), and Citigroup (C), AIG is playing a game of chicken with Washington that the government does not feel it can afford to lose. Imagine what it would be like if all of these businesses failed at the same time.

It is actually worth imagining. The government has so many balls in the air between the financial systems and deteriorating parts of the industrial sector that it may not have either the capital or intellectual capacity to go around. The Treasury has just appointed a prominent investment banker to help oversee the mess in Detroit, but it would take an army of financiers to first comprehend and then advise on what should happen to GM (GM) and Chrysler. The period for comprehension is already in the past. The trouble in the auto industry has to be addressed in the next few weeks or its capacity to operate will go up in flames.

The government made noises about taking a larger position in Citigroup (C). Based on the market's reaction, not may analysts and investors believe that the action will solve much. The poison of bad investments is in the blood of the financial system. Quarantining Citigroup will not solve that problem. The Treasury and Fed will have to take a holistic approach which involves healing the entire financial system. It is not clear that can even be done. How it would be done is an even more complicated matter.

The Little Dutch Boy is running out of fingers. The water that threatens to swamp the international financial system is getting closer to breaching the walls and pouring in. A month ago that seemed inconceivable. Now the odds that the government will have to allow large operations like AIG go into bankruptcy are fairly high. The trouble with that is not what will happen to AIG. As the market found out with the Lehman Brothers bankruptcy, many of the firms that are doing business with a very large financial institution when it becomes insolvent can have transactions worth billions of dollars wither voided or devalued.

In the intricate global financial system, there is no such things as one big player going down in a vacuum.

The Word for This Week

Demagoguery refers to a strategy for gaining political power by appealing to the popular prejudices, emotions, fears and expectations of the public — typically via impassioned rhetoric and propaganda, and often using nationalist or populist themes, usually singling out a group or groups.

Also see Demagogue

The word for this week, and likely for this year, and the next.

No, not demagogue or demagogy. The Word for the Week is "them."

Why should we help them.

We are being dragged down by them.

Blaming them feels good. It makes one feel as if they were successful, not part of the problem.

It wasn't us, it was them.

They caused their own problems. They caused our problems. It is unfortunate but they would be better off somewhere else, out of sight, no longer an impairment or competition for scarce resources.

They are the scapegoats, usually singled out by the group or groups that caused the problems, and even those who benefited indirectly, made some money out of the bubble, less deservedly than they might like to imagine.

They are the weak, the poor, the defenseless, the different, the other.

And the circle of the ones that are considered them spreads wider and wider.

Because even those shouting and waving their fists in the crowds against them are also them to someone else higher in the power structure. Useless eaters is a relative objectification of the human.

And then someone will come and take them away, where they do not wish to go.

And then comes the descent into madness and destruction, for all.


One might ask, "But Jesse, you have inveighed against the Bankers on numerous occasions. How is that different? Aren't you a demagogue too, with just a different opinion?

No. All banks are not bad. All who work at banks, even the biggest Wall Street banks, are not bad. Even all those who turned a blind eye to what went on around them are not bad, just weak, distracted, overwhelmed.

But there were prime actors in this tragedy. The first objective is to stop it, to reform the system, to end the imbalances. And it would be disingenuous to not notice that the big Wall Street Banks, and the rating agencies and accounting firms, were at the epicenter of the financial crises for the past ten years. They were the lobbyists, the financial engineers, the architects of fraud, the enablers of many frauds going back to Enron and beyond.

Cui bono? Who benefited the most?

It was not so much the poor slob acting foolishly on bad advice. It was the joker taking millions off the table time after time by gaming the system, and actively promoting the bubble culture and deep capture that knocked out the regulatory process and the rule of law.

And then the law can deal with individual transgressions, and the emphasis here is "individual." Not a lynching of the bystanders. A serious investigation with individual accountability and equal protection.

That is not demagoguery. That is justice, because it is based on law and individual actions.

Volcker's Vision of a Return to Narrow Banking

A return to 'narrow banking' is in the cards. This is the kind of bank which takes depositors funds and originates and services loans to its own customers.

These banks will be separate from investment banks and hedge funds, which will perform the speculation and packaging, and what can loosely be called financial engineering.

But look for much more uniform regulation and transparency to appear in these non-banking operations, and less acceptance for 'dark pools' and opaque market manipulation.

And for those who say we will lose this type of person to less regulated overseas venues, there will be a new attitude to cross border banking and restrictions on the activity of institutions that do not adhere to a uniform set of standards.

It will be an even greater step in the right direction if we can realize that this same sort of regime should prevail in overseas trade as well. There will be little taste for the toleration of sweatshops, child labor, and the virtual slavery that multinational business craves, and justifies with the most venal and shallow of arguments.

AP
Volcker sees crisis leading to global regulation
By Eileen Aj Connelly, AP Business Writer
Friday February 20, 6:29 pm ET

Volcker sees greater international cooperation on regulations growing from economic crisis

NEW YORK (AP) -- "Even the experts don't quite know what's going on."

Speaking to a number of those experts Friday, Paul Volcker, a top economic adviser to President Barack Obama, cited not only the lack of understanding of the global financial meltdown but the "shocking" speed with which it had spread across the world.

"One year ago, we would have said things were tough in the United States, but the rest of the world was holding up," Volcker told a conference featuring Nobel laureates, economists and investors at Columbia University in New York. "The rest of the world has not held up."

In fact, the 81-year-old former chairman of the Federal Reserve said, "I don't remember any time, maybe even the Great Depression, when things went down quite so fast."

He noted that industrial production is falling in countries across the globe faster than in the U.S., one result of the decline caused by the breakdown of unbridled financial markets that operated on a global scale.

"It's broken down in the face of almost all expectation and prediction," he noted.

Volcker didn't offer specifics on how long he thinks the recession will last or what will help start a recovery. But he predicted there will be some lasting lessons from the experience.

"I don't believe it will be forgotten ... and we will revert to the kind of financial system we had before the crisis," he said.

While he assured his audience of his confidence that capitalism will survive, Volcker said stronger regulations are needed to protect the world economy from such future shocks.

And he said he is concerned about the amount of power central banks, treasuries and regulatory agencies have acquired while trying to contain the meltdown.

"It is evident in the United States, and not just in the United States, the central bank is taking on a role that is way beyond what a central bank should be taking," he said.

Volcker stressed the importance of international cooperation in creating a new regulatory framework, particularly for major banks that operate across national boundaries -- the reverse of what's happened in recent years.

"The more international agreement we have on where we want to get to, the better off we'll be," Volcker said.

And while major banks should be more tightly controlled and less able to make the sort of risky bets that led to their current debacle, Volcker said there should also be more oversight of some kind for hedge funds, equity funds and the remaining investment banks.

He scoffed at the notion that those entities must be free to innovate -- stating that financial "innovations" like asset backed securities and credit default swaps have brought few benefits. The most important "innovation" in banking for most people in the last 20 or 30 years, he maintained, is the automatic teller machine.

Today's Non-Announcement From the Treasury

Unless we are missing something, The Plan (hereafter known as TP) does not disclose how the bad assets will be valued and the procedure by which they will be removed from the various banks' balance sheets.

Today's announcement appeared to be a Public Relations event in which the Obama Administration sought to distance TP from the tainted giveaway program for the banks which it was under Hank Paulson and the Bush Administration.

So again, we will have to wait, and the market has no resolution, and remains 'edgy.'

A noble endeavor perhaps, but this Administration risks being long on appearance and short on substance. We suspect there were no details because they are still being 'discussed' behind the scenes.

Again, from what we hear, it is the 'old guard' of Clintonistas versus the Obama inner circle. Larry Summers can be quite the hammer head, and Tim is just over his head. Perhaps he will grow into the job. Perhaps Larry will be fired (again) because of his political tin ear.

GM to Invest $1 Billion of its US Rescue Package in Modernization - In Brazil

Here is a nice example of how investing in nationless corporations, without conditions, does very little for your use of capital and your good intentions. Because in fact the US rescue package was not an investment, but a grant. We do not investment our tax receipts in private corporations. We provide relief, grants, subsidization. If the investment was a good commercial arrangement it would not require your public assistance funds.

If General Motors wishes to upgrade its facilities in Brazil, it ought to seek the money from profit-seeking private investment, or from the government of Brazil.

And anyone who believes that General Motors should be able to do whatever they wish with a grant from the public treasury is a either a fool or a fraud. And that same measure applies doubly to the packages for the Wall Street banks which are as much bribe as bailout.

On a related topic, there is a significant amount of 'Smoot Hawley II,' anti-protectionist rubbish talk swilling around the webs. If free trade did exist as the norm then it would be a good thing to uphold it. As it is, rogue players have turned that into a farce.

The problem with the industrial policy of the US is that we do not have one, whereas several other powers do and follow it, aggressively.

We stand for 'free trade' where other countries manipulate their trade policies and currencies to advance mercantilism that happens to be favored by many US corporate powers in search of cheap labor and the circumvention of environmental, health, child labor, and assorted public reform policies.

Inevitably, and this is what the corporate spinmeisters do not wish you to know, is that unrestrained 'free trade' will conflict and be used to undermine domestic policy and civic standards to the lowest common denominator of human misery and exploitation in the world.

We are playing by the rules of soccer in a game of lacrosse.

Follow Up On February 10: GM has subsequently stated that the head of GM in Brazil was misquoted or mistaken, and that the billion dollars is coming from local sources.

GM Says Not Sending Any Money to Brazil

Latin American Herald Tribune
General Motors to Invest $1 Billion in Brazil Operations -- Money to Come from U.S. Rescue Program
By Russ Dallen

SAO PAULO -- General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.

According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to "complete the renovation of the line of products up to 2012."

"It wouldn't be logical to withdraw the investment from where we're growing, and our goal is to protect investments in emerging markets," he said in a statement published by the business daily Gazeta Mercantil.

Meanwhile, he cut the company's revenue forecast for this year by 14% to $9.5 billion from $11 billion, as the economic crisis began to cause rapid slowdowns in sales.

GM already announced three programs of paid leave, and Ardila added that GM Brazil "is going to wait and see how the market behaves in order to know what decision to take" with regard to possible layoffs.

For Ardila, the injection in Brazil's automobile sector of 8 billion reais ($3.51 billion) recently announced by the federal and state governments of Sao Paulo "has already begun to revive sales," which fell by 12% in October.

The executive said that the company will operate a "conservative" scenario in 2009 with an estimated production of 2.6 million units, and another more "optimistic" that contemplates sales of 2.9 million.

This year sales will reach 2.85 million vehicles, which represents a growth of 15% over last year.

JP Morgan's Bonuses

This is an interesting essay from the Truth In Options blog. It raises issues of stealth bonuses to the JP Morgan executives and an interesting coincidence in stock price and option grants.

J.P. Morgan's Abusive Executive Bonuses

As readers will recall, J.P. Morgan received the first large bail-out from the New York FED of $55 Billion, guaranteed by Bear Stearns' worthless assets, to prop up its own liquidity position and buy Bear Stearns stock.

J.P. Morgan also recently received another $25 Billion in TARP payments from the Treasury.

This article is about how J.P. Morgan's executives , instead of receiving easy to detect cash bonuses, received very large bonuses in the form of Stock Appreciation Rights (SARs) and Restricted Stock Units. These equity compensation securities are not easy to understand or value by other than experts in the field....

Read the rest of this here: J.P. Morgan's Abusive Executive Bonuses

The Banks Are Making an Offer They Think that the People Cannot Refuse

Better we tie off the bleeding wound now, nationalize the banks, and start again with an honest financial system, than pay one more cent of blackmail tribute to this den of thieves.

They would use our own money to buy us.


Bloomberg
Stiglitz Criticizes Bad Bank Plan as Swapping ‘Cash for Trash’
By Simon Kennedy

Feb. 1 (Bloomberg) -- Nobel laureate Joseph Stiglitz said any decision by President Barack Obama to establish a so-called bad bank to rid financial companies of toxic assets risks swelling the national debt.

Obama’s administration is moving closer to buying the illiquid assets currently clogging bank’s balance sheets and preventing them from boosting lending, people familiar with the matter said this week.

That amounts to swapping taxpayers’ “cash for trash,” Stiglitz said yesterday in a panel discussion at the World Economic Forum in Davos, Switzerland. “You shouldn’t chase good money after bad. We’re talking about a national debt that’s very hard to manage.”

Stiglitz, a professor at Columbia University in New York and a former adviser to President Bill Clinton, says the plan would leave taxpayers paying for years of excess lending by banks. It would also deprive the government of money that would have been better spent shoring up Social Security, he said.

Whether a bad bank would accelerate an end to the financial crisis split delegates attending the Davos talks. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said such an operation would help if “executed well.” Billionaire investor George Soros said in an interview that “it’s not the measure that would turn the situation around and enable banks to lend.”

Obama Plan

Obama said yesterday he’s readying a plan to unlock credit markets and lower mortgage rates. Under the initiative, the government would buy some tainted securities and insure the banks against losses on the rest.

“Soon my Treasury secretary, Timothy Geithner, will announce a new strategy for reviving our financial system that gets credit flowing to businesses and families,” Obama said in his weekly radio address.

Stiglitz drew criticism from panel participant Angel Gurria, head of the Organization for Economic Cooperation and Development, who says a bad bank is necessary for lending to resume.

“I agree about the moral, ethical fallout, but you’ve got to face the music and someone has to take the loss,” said Gurria, Mexico’s former finance minister. “It’s the only way to jumpstart the economy.” (Blackmail. Injustice. Infamy - Jesse)

Bank losses worldwide from toxic U.S.-originated assets may double to $2.2 trillion, the International Monetary Fund said in a report released Jan. 28.

John Monks, general secretary of the European Trade Union Confederation, told the same audience that governments are getting “close to straining the patience of the public and voters” by repeatedly extending lifelines to banks.

Philippines President Gloria Arroyo urged Obama to make a quick decision on his plan.

“We want Americans to do something,” she said at the session, which was called “Rebooting the Global Economy.” “We can discuss what to do but the worst thing is to do nothing.”

US Financial Rescue Plan Delayed to Second Week in February

Did Turbo Tim misplace "The Plan?"

Check Hank's locker. Zimbabwe Ben has a copy.

Or are they just giving the frat boys some extra time to 'arrange their affairs?'


Economic Times
US financial rescue plan delayed a week: Report
1 Feb 2009, 0639 hrs IST

WASHINGTON: The announcement of President Barack Obama's financial rescue plan will be pushed back a week to the second week of February, media reported on Saturday, citing administration sources.

"Administration aides are saying that they want to get the details right, that there are a lot of moving pieces, and so it's going to take an extra week," a news channel said. Administration officials are weighing elements to include in the plan, including whether to restrict executive compensation, how to get credit markets flowing and how to deal with the foreclosure crisis, channel said.

Efforts to get the first installment of the $700 billion bailout initiative were rushed, resulting in difficulties, and the Obama administration believes that "getting these details right might make sense," channel said.

President Barack Obama said earlier in the day the plan would be announced soon and would help lower mortgage costs for homeowners and spur the flow of credit to businesses and households.

Are We Ready to Try Market Capitalism?

'When I use a word,' Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less.'

`The question is,' said Alice, `whether you can make words mean so many different things.'

`The question is,' said Humpty Dumpty, `to be master -- that's all.'

The refrain from Wall Street these days is "I worked hard for that bonus."

Lots of people work hard. Most of the people we know, probably many of the readers of this blog, could give lessons in working hard to these Wall Street whizkids.

A waiter or waitress works hard, very hard. But they don't get huge tips when they dump hot soup in the customer's lap.

You don't get paid for how hard you work, you get paid for how much value you add for your customers and your shareholders. If you work on commission and bonus your pay is intended to vary with performance, not by how much you can grab off the table before the police arrive.

The pay structure on Wall Street looks less like a profit based enterprise and more like organized crime.

What starts as a valuable component, a method of efficiently allocating capital for a small fee, becomes an oversized drain on the process it is intended to serve.

There is nothing wrong with capitalism and competitive markets and a healthy meritocracy. It is probably the most efficient and effective means of creating wealth and managing businesses.

We should try that system now that the cult of pay for privilege, interconnected frauds, rule by empty suits, and crony capitalism has failed.

Economic Times
For CEOs, thirst for bonuses may be in their DNA31 Jan 2009, 1151 hrs IST

NEW YORK: Why do CEOs need extravagant perks even when they are firing staff and pleading for taxpayer bailouts? It may just be in their makeup, experts say.

It takes arrogance and narcissism to become leader of a Fortune 500 company. Those same traits, however, have become their undoing during the deepest recession in decades. (If their narcissism is particularly acute they might become a Senator instead - Jesse)

U.S. President Barack Obama has noticed, telling reporters on Thursday he was outraged by a New York State report that $18.4 billion in Wall Street bonuses were paid in 2008 as taxpayers rescued the crumbling financial system.

"That is the height of irresponsibility. It is shameful," Obama said. (And as recent denizen of Congress he has a refined palate for shameful irresponsibility, which has been the primary product from Washington DC in recent years. - Jesse)

New York State Attorney General Andrew Cuomo, who is investigating Wall Street bonuses, welcomed Obama's comments.

"While Wall Street melted down, top executives believed that, unlike the rest of the country, they still deserved huge bonuses," Cuomo said. (And Congress took increasing pay raises, and a private pension system, and superior healthcare, while the median wage stagnated and the middle class dwindled - Jesse)

For Bob Monks, a former executive who has written nine books on corporate governance, the reason is that the rich and powerful simply love their toys.

"It's a boy thing. Sort of, 'Mine's bigger than yours.' It's really childish," said Monks, a shareholder rights activist and the subject of a book called "A Traitor to His Class." (It is not childish, for that is a slander on children. It is pathological. It is an addiction, a compulsion, a sickness that transcends the occasional petulance of childhood - Jesse)
Monks related a story about flying on someone's corporate jet. The host was devastated when, upon landing, he saw that while he planned for a limo to be waiting at the airport another captain of industry had a helicopter take him to town.

"I thought my guy was going to die. ... It's entirely about people's self-image." (It is about a sense of personal worthlessness. Some people have a huge hole in the center of their being, and and a compulsion to fill it up with things and people, to try to make themselves feel whole, but it can never satisfies, and they are ravening - Jesse)
Longtime advocates of shareholder rights were handed a gift in November when Detroit auto executives flew to Washington on corporate jets to ask for billions of dollars in taxpayer money, sparking a public outrage.

More recently, it became known that former Merrill Lynch CEO John Thain spent $1.2 million remodeling his office last year, including $1,405 for a trash can. Merrill Lynch is owned by Bank of America, which consumed $45 billion of taxpayer money through bailouts.

Then on Tuesday, Citigroup canceled plans to buy a $50 million executive jet after a White House rebuke.

"People don't become head of Merrill Lynch without having a certain sense of self-importance. Once they arrive at that position, they have all kinds of toadies tell them what geniuses they are, then of course they begin to feel their lifelong feelings of self-importance have been confirmed," said Charles Goodstein, a psychoanalyst and professor at New York University School of Medicine.

Defenders of executive perks say generous compensation is needed to retain talent. (Generous, not extravagant. There is a direct proportion between the emptiness of the suit and the extravagance of the trappings. There are only a few Steve Jobs; most of the others are verbally adept, highly cunning, political animals. For the most part it is the myth of the "Great Man." A surprisingly large number of them are frauds. The problem is the system does not manage them, eliminate them. It pays for the office, not for the performance. - Jesse)
Sometimes it's jets but can also include home security systems, country club memberships, sports tickets and financial advice. The value of these benefits is considered income, so CEOs also sometimes get another perk: company help in paying their taxes. (Set the tax rates so bloody high that they might consider competing on something more useful, like the performance of their companies - Jesse)
"I was CEO of a bank once and it's not rocket science. You need the same skill set as somebody running a hardware store in a medium-sized town," Monks said. (For many corporate managers the most difficult of the job is protecting the business from overpaid corporate goons with nothing better to do than to subvert the good of the business to their own personal ends in some of the most imaginative ways possible. And in high tech startups, the most intractable problem is trying to keep the VCs from destroying the company with their clumsy attempts at stealing the business. - Jesse)

Steve Thel, a former lawyer with the Securities and Exchange Commission and now a professor at Fordham Law School, blames compliant board members who often come from the same privileged world and can get paid hundreds of thousands of dollars for attending a few meetings each year. (The Boards are bastions of the fraternity of empty suits and the brotherhood of professional courtesy -Jesse)

"It's endemic to the system. The last administration didn't think there was any structural flaw. Now across the political spectrum people feel that Wall Street executive compensation is out of control," Thel said. (The former president is the epitome of a thin veneer of privileged arrogance covering a deep well of incompetence. - Jesse)
He predicted Congress would pass legislation granting minority shareholders more say on pay and possibly introduce higher taxes on some parts of executive compensation.

"A year ago it was absolutely unthinkable that this would be heard in Congress," Thel said.

Goldman Sachs Says the Banks Now Need At Least $4 Trillion in Bailouts

Can we get an estimate that assumes we nationalize Goldman Sachs, Morgan Stanley, Citigroup, and J.P. Morgan, place them in receivership, selectively default on their derivatives, sell all their assets, and criminally prosecute their executive management from the year 2000 under the RICO statutes?

Reuters
Bank Bailout Could Cost Up to $4 Trillion: Economists
29 Jan 2009 04:35 PM

The cost of restoring confidence in U.S. financial firms may reach $4 trillion if President Barack Obama moves ahead with a "bad bank" that buys up souring assets.

The figure far exceeds even the most pessimistic estimates of how great the loan losses might be because there is so much uncertainty about default rates, which means the government may need to take on a bigger chunk of bank debt to ease concerns.

Goldman Sachs economists said ideally the public sector would step in to remove the hardest-to-value assets, which would alleviate nagging worries about future losses and hopefully help get lending going again.

"Unfortunately, with an unprecedented meltdown in mortgage credit and a deep recession in the broader economy, there is a great deal of uncertainty about the value of almost every asset," they wrote in a note to clients.

Obama and his economic advisers are expected to lay out their policy plan as early as next week. One idea that seems to be gaining traction is setting up an entity to buy troubled assets and hold them until they mature or resell them.

The hope is that once banks get rid of those bad loans, they can attract private investors, get back to the business of lending, and help revive the economy.

Vice President Joe Biden said Thursday that Treasury Secretary Timothy Geithner was considering all options to restart normal lending, but that no decisions had been made.

Goldman Sachs estimated that it would take on the order of $4 trillion to buy troubled mortgage and consumer debt. That number could shrink if the program were limited to only certain loans or banks, but it could also grow if other asset classes such as commercial real estate loans were included. (How much would it cost if we put Goldman and Morgan Stanley into receivership - Jesse)

New York Sen. Charles Schumer has said that a number of experts thought that up to $4 trillion may be needed to buy the bad assets, an estimate that a Senate aide said was based on informal conversations with people in the industry.

The Wall Street Journal said government officials had discussed spending $1 trillion to $2 trillion to help restore banks to health, citing people familiar with the matter.

At $4 trillion, that would be the equivalent of nearly 1/3 of U.S. gross domestic product. If the government had to fund that amount by issuing additional debt, it would intensify investor concerns about massive supply scaring off demand.

Depending on how the plan is structured, the government may not have to put up the full amount, and since the majority of people are still paying their mortgages and credit card bills, there is a reasonable expectation that taxpayers would recoup a substantial portion of the cost.

However, the potential loss is huge, and if more public money is needed to boost capital even after the bad assets are removed, the total would undoubtedly climb.

The International Monetary Fund said Wednesday that worldwide losses on U.S.-originated loans may hit $2.2 trillion, well above its October estimate of $1.4 trillion. It said banks in the United States, Europe and elsewhere probably needed to raise $500 billion to cover losses coming this year and next.

Cutting Out a Zero

For U.S. lawmakers who are already taking grief from voters over a $700 billion bailout approved last fall, passing another big spending measure carries significant political risk.

At the same time, Obama's team wants to take action that is bold enough to fix the problem once and for all, hoping to avoid the sort of ad hoc approach that has been criticized for adding to investor uncertainty.

Time is not on Obama's side. The more the economy weakens, the longer the list of potentially dodgy debt grows. That is why he faces enormous pressure from Wall Street to act fast.

The government would not necessarily have to spend the full $4 trillion to buy the assets. If it follows the model used in a Federal Reserve program to support consumer and small business loans, the government could potentially put up just 10 percent of the total.

Spending $400 billion would certainly be more palatable to Congress than $4 trillion. It may not even require that much additional funding. Economists estimate that perhaps $250 billion of what remains in the $700 billion bailout fund could be devoted to the "bad bank."

That money could buy bad assets, which would then be repackaged and sold to investors to raise more money which could then by recycled to buy more assets.

Stephen Stanley, chief economist at RBS Greenwich Capital, said although that sounds similar to the sort of financial engineering that spawned the credit crisis in the first place, it would be structured so that the central bank or whichever agency oversees the program is last in line to take losses.

"If things turn out so bad that the Fed ends up on the hook for $1 trillion in losses, then the financial sector, the economy, and everything else will be dead anyway," he said.

Merrill Lynch Execs Paid Themselves $15 Billion on $21.5 Billion in Losses in 2008

No wonder John Thain was sacked. On the surface it appears that he and his management were 'hiding' or at best unaware of enormous losses that were only revealed after they were purchased by the Bank of America, and the recipient of enormous amounts of government funds.

And to make matters worse, they continued to pay themselves huge salaries and bonuses for the year despite those losses.

It will be interesting to see if there is any meaningful investigation of this. We doubt it very much. The Democratic leadership have shown themselves to be a lot of noise and little meaningful action so far, and almost all the Republicans are outrageous hypocrites. Such is the state of the deep capture of the government.

The problem with Wall Street is that there is reward without commensurate risk, pervasive fraud and the misstatement of numbers without the appropriate discovery and deterrence, and a lack of responsible accountability and disclosure to the American people.

Any 'solutions' from the government that fail to address these fundamental problems are not only doomed to failure, but probably represent a looting of public funds by powerful special interests.

If you are holding US dollars and financial assets you are paying for this with an indirect tax on your wealth.


The Wall Street Journal
Merrill paid employee bonuses before sale to Bank of America
LiveMint.com
Thu, Jan 22 2009. 5:30 PM IST

Despite Merrill reporting a massive loss of $21.5 billion in the fourth quarter of 2008, the report noted that the company had “set aside $15 billion for 2008 compensation

London: Collapsed banking entity Merrill Lynch accelerated the payment of bonuses to employees just days before closing its acquisition by the Bank of America, says a media report.

“Merrill Lynch took the unusual step of accelerating bonus payments by a month last year, doling out billions of dollars to employees just three days before the closing of its sale to Bank of America,” the Financial Times has reported.

The daily pointed out that the timing is notable because the money was paid as Merrill’s losses were mounting and Ken Lewis, BofA’s Chief Executive, was seeking additional funds from the government’s troubled asset recovery programme to help close the deal.

Last week, the US Federal government had pumped in another $20 billion into Bank of America mainly to absorb losses incurred from the buyout of Merrill.

This is in addition to $25 billion which it ploughed each into Bank of America and Merrill last year, respectively.

Despite Merrill reporting a massive loss of $21.5 billion in the fourth quarter of 2008, the report noted that the company had “set aside $15 billion for 2008 compensation, a sum that was only 6% lower than the total in 2007, when the investment bank’s losses were smaller”.

“The bulk of 15 billion dollars compensation was paid out as salary and benefits throughout the course of the year,” the report said. Further, attributing to a person familiar with the matter, the report said that an estimated $3 to $4 billion dollars was paid out in bonuses in December.

Merrill and the Bank of America shareholders had approved the takeover on 5 December. “Three days later, Merrill’s compensation committee approved the bonuses, which were paid on 29 December,” it added.

Congressional Budget Offices Estimate TARP Losses at $64 Billion

Congressional Budget Office
Troubled Asset Relief Program (TARP) Report

CBO is required by law to report semiannually on OMB’s assessment of expenditures under the Troubled Assets Relief Program (TARP). Today, CBO released the first of these reports. (For more on the TARP program, this blog post from October includes CBO’s analysis of the financial rescue legislation).

Through December 31, 2008, the Treasury disbursed $247 billion to acquire assets under that program. CBO valued those assets using discounted present-value calculations similar to those generally applied to federal loans and loan guarantees, but adjusting for market risk as specified in the legislation that established the TARP.

On that basis, CBO estimates that the net cost of the TARP’s transactions (broadly speaking, the difference between what the Treasury paid for the investments or lent to the firms and the market value of those transactions) amounts to $64 billion—that is, measured in 2008 dollars, we expect the government to recover about three quarters of its initial investment.

The Office of Management and Budget’s (OMB’s) report on the TARP, issued in early December, only addressed the first $115 billion distributed under the program. CBO and OMB do not differ significantly in their assessments of the net cost of those transactions (between $21 billion and $26 billion), but they vary in their judgments as to how the transactions should be reported in the federal budget.

Thus far, the Administration is accounting for capital purchases made under the TARP on a cash basis rather than on such a present-value basis—that is, the Administration is recording the full amount of the cash outlays up front and will record future recoveries in the year in which they occur. That treatment will show more outlays for the TARP this year and then show receipts in future years.

Bank of America to Receive Additional $138 Billion in Government Assistance

The situation must have been rather dire indeed. They did not even wait for the weekend.

Its a nice amount of government aid for a single company. Too bad GM is not a bank.

Some animals are more equal than others.


Bloomberg
U.S. Gives Bank of America $138 Billion Lifeline
By Scott Lanman and Craig Torres

Jan. 16 (Bloomberg) -- The U.S. government agreed to invest $20 billion more in Bank of America Corp. and backstop $118 billion of its assets to help the lender absorb Merrill Lynch & Co. and prevent the financial crisis from deepening.

The government agreed to the rescue “as part of its commitment to support financial market stability,” the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. said today in a e-mailed joint statement.

Hours earlier, the U.S. Senate voted to allow the release of $350 billion in financial rescue funds, the second half of the $700 billion Troubled Asset Relief Program enacted Oct. 3 by President George W. Bush.

The U.S. already had injected $15 billion into Bank of America, the country’s biggest lender, and another $10 billion to Merrill to bolster the combined company against the global credit crunch.

Bank of America will absorb the first $10 billion of losses in the pool, of which the “large majority” of assets were assumed by the company in the Merrill purchase, the government said. The Treasury and FDIC will share the next $10 billion of losses.

The Fed will backstop assets with a loan after the government’s first $10 billion in losses, the agencies said.

Future Losses

The asset pool includes cash assets with a current book value of as much as $37 billion and derivatives with maximum potential future losses of as much as $81 billion, according to the term sheet provided by the government.

Separately, the FDIC said it plans to propose changing its bond-guarantee program for banks to cover debt as long as 10 years, from the current three-year maturity. The FDIC will soon propose rule changes to the Temporary Liquidity Guarantee Program, today’s statement said.

“The U.S. government will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks,” the joint statement said.

Shares of Bank of America plunged 18 percent yesterday, sliding to $1.88 to $8.32 in New York Stock Exchange composite trading after hitting $7.35, its lowest level since February 1991.

The bank moved up its fourth-quarter report to today at 7 a.m. New York time.

Bank of America Requires Significantly More Government Aid, Gives New Life to Nationalisation Rumours

Apparently some of the rumours and early reports may be true, at least with regard to the troubles at the Bank of America.

Just off the Bloomberg wire at 3:30 EST, Bank of America is formally requesting financial assistance and guarantees from the government to complete its acquisition of Merrill Lynch, according to 'people familiar with the matter.'

A later report on CNBC cites the amount of $200 billion to be requested in a new bailout tranche.

Los Angeles Times
Nationalization rumors slam Citigroup, Bank of America
By Tom Petruno
11:09 AM PST, January 15, 2009

The hottest rumor on Wall Street today was that the government was planning to effectively nationalize Citigroup Inc. and Bank of America Corp., perhaps as early as this weekend.

That talk has devastated many financial stocks, and hammered the broader market for a second straight session -- although buyers have been returning in the last half-hour.

The nationalization rumors were put to Federal Deposit Insurance Corp. Chairwoman Sheila Bair at an appearance in New York today, and her non-denial answer wasn’t likely to make investors feel better.

"I’d be very surprised if that happened," she said, according to Bloomberg News.

Some investors weren't sticking around to find out if the rumor was true: Citigroup fell as low as $3.36 early in the session and about 11 a.m. PST was off 43 cents to $4.10.

Bank of America fell as low as $7.35 and was off $1.56 to $8.64 about 11 a.m PST.

The Dow Jones industrial average was off as much as 205 points but has pared that to a loss of 43 points at 8,156.

The Dow’s closing low in the fall market collapse was 7,552, reached on Nov. 20.

The latest dive in the financials began early this week on fears that some of the biggest players have become bottomless pits for government capital, as bad loans continue to mount.

Those fears soared late Wednesday on news reports that Bank of America, which got $25 billion under the financial-system bailout Congress approved in October, was negotiating another capital infusion from the Treasury.

Ryan Larson, head trader at Voyageur Asset Management in Chicago, said the rumor today was that the government would take control of Citigroup and Bank of America via a "nationalization in AIG style" -- referring to insurance giant American International Group. The government took a 79.9% stake in AIG last fall in return for loans and capital injections to keep the company afloat.

AIG shares now trade for about $1.40.

The nationalization rumors may just be so much hysteria, but they show how faith in the financial system has again frayed badly. The average big-bank stock has plunged 24% just since Dec. 31.