CBC: Canada To Adopt the Cyprus Model of Depositor 'Bail-In' In Case of Bank Failure

The smugness of the Canadian politicians is reminiscent of the Bank of New Zealand. 

Perhaps that is what the political do when they are making plans for a gathering storm and they wish for everyone to remain on the beach in the meanwhile.

I could be wrong, but in my judgement nothing in the global banking system is safe if the massive derivative bubble collapses. 

It will not only take down the private banks, but quite a few sovereign countries as well.

I am of the opinion that in the States there will not be the same sort of 'bail in' but a 'print in' in which the Fed will supply as much money as is required, taking value from all who hold Dollars including foreign holders.  So in that sense, the US is 'safe.'  It is all the holders of dollars around the world who are not.

You may wish to take some protective measures if you have not done so already.   When the times comes, there will be no time.

Ottawa weighing plans for bank failures
By Neil MacDonald
April 3, 2013

Buried deep in last month's federal budget is an ambiguously worded section that has roiled parts of the financial world but has so far been largely ignored by the mainstream media.

It boils down to this: Ottawa is contemplating the possibility of a Canadian bank failure — and the same sort of pitiless prescription that was just imposed in Cyprus.

Meaning no bailout by taxpayers, but rather a "bail-in" that would force the bank's creditors to absorb the staggering losses that such an event would inevitably entail.

If that sounds sobering, it should. While officials in Ottawa are playing down the possibility of a raid on the bank accounts of ordinary Canadians, they chose not to include that guarantee in the budget language.

Canadians tend to believe their banks are safer and more backstopped than elsewhere in the world. The federal government enthusiastically promotes the notion, and loves to take credit for it.

It may well be true, even if Canada's six-bank oligopoly isn't terribly competitive, at least in comparison to the far more diverse American banking universe.

But in the ever-more insecure world that has unfolded since the financial meltdown of 2008, it is also increasingly clear that nothing is safe anymore, not even blue-chip bank stocks and bonds or even, in the case of the Cyprus bail-in, private bank accounts.

And now, Canada is making a bail-in official government policy, too...

Read the rest here.

Ritholtz: An Uncompromised View of Contemporary American Politics and Economics

The excerpts from this interview are to the point, and it is a rather sharp point at that.

I somehow missed them the first time around, probably due to a family illness, but someone sent this extended set of excerpts from the two interviews that Jonathan Miller did with Barry Ritholtz.

To say that Barry Ritholtz 'pulls no punches' is like saying that Joe Louis had a nice right cross.

Its a good read for a Non-Farm Payrolls Friday. Forgive me if you have already seen it.

Enjoy.

"I have libertarian friends who are always bitching about government. I always say to them, when a dog bites you in the ass... that's what dogs do - don't blame the dog. Look up the leash and see who is holding the handle. When you look at Congress - Congress is the snapping dog.

But they are somebody's bitch. You have to see who is holding the leash. Very often it is banks and Wall Street and the financial sector having Congress do its bidding. Most of the things that got us into trouble have been done at the bequest of the banks...

I don't want to say Congress are whores, that go to these corporate executives with knee pads and lip-gloss. Congress is corrupt. Politicians in both parties are worthless...They don't even hide how corrupt they are anymore. It just came out that one of the new guys had sent out a note to CFO's asking them what legislation they would like to see changed. They will do anything for any kind of campaign contribution... (Not coincidentally most politicians are also lawyers - Jesse)

To me, if you give up your virtue for money, you are a prostitute. Credit rating agencies are prostitutes...

There is no such thing as rogue traders. There are only rogue banks. If you are that grossly negligent that you have to be rescued by the government, then I guarantee you they are doing lots of other things wrong. If you have an entity that messed up so badly that it can't survive... how are you going to go out and run a marathon? Jamie Dimon is the next CEO who needs a humbling...

Putting Rubin, Summers and Geithner in power was the tragedy of the Obama administration. Obama and Bush were both given an opportunity to be transformational - a Churchill, a Roosevelt. Obama's problem was that he sought out the biggest asshole in America - Robert Rubin... (Note, he later recants and nominates Larry Summers - Jesse)

Greenspan has to go down in history as the worst Fed Chairman... (He has my vote - Jesse)

I look at bankers like 5 year olds - if you give a 5 year old a bowl of chocolate bars and say they can have one... As soon as you leave the room they will eat until they are sick. Bankers are no different. As soon as you say, 'You're a big boy... we trust you not to blow up the economy and send the world to the precipice...' They are so short-term focused, they will do whatever is necessary to get that bonus, and then will let the world go to hell and let it be someone else's problem. (History of the World, Part 3 - Jesse)

The whole run-up from 2003-2007 was make-believe, (Ponzi scheme, control fraud, take your pick - Jesse) based on risk not mattering. If risk doesn't matter, you mash your foot to the carpet and let the speedometer go up to 250. When the driver hits the wall he kills himself. The difference is the driver kills himself, but the bankers take everyone with them."

Jonathan Miller, Interview with Barry Ritholtz

The first decade of this century is founded on official corruption, control frauds, the madness of a people incited by the propaganda of fear and ideology, leverage, and the conscious mispricing of risk.  Everything else is commentary.

JPM Front Runs the Fed, Raises Dividend, Announces $15B Stock Buyback - MBA's Are Passé

At least two of the big US banks have decided to pre-release the news, intended for a formal release on Wednesday, that they have 'passed' their Fed stress tests.

Bending the rules and front-running the Fed is what Wall Street does best, and no one does it better than JPM. Do you think their traders were short the market? lol.

Note: Because of these pre-announcements and the objections of the other banks who were following the rules, the Fed has moved up their stress test results release to 4 PM today. Good boy, Ben. Have a cookie.

JP Morgan was first to announce their exorbitant privilege, as head boy, and the Fed's house bank. Bank of America quickly followed with their own sterling results, right after JPM announced theirs.

Perhaps this was Jamie's way of telling Mr. Koutoulas to put his 'open letter' on integrity in banking where the moon don't shine. And putting his titular regulator, Mr. Bernanke, in his proer place.

I was a little amused today to hear that business college students are eschewing MBAs in favor of degrees in Finance and Accounting. An MBA is designed to actually run a real business, which is just so yesterday.

Better to learn to financialize, and move money around the plate with the greatest of ease. That is the big thing, and the message that the bright minds of the Empire have taken to heart.

It is nice to see that the Fed has saved the Banks. But now, the rest will have to fend for themselves.

Bonus time!

Bloomberg
JPMorgan Chase Boosts Dividend, Unveils $15 Billion Buyback
By Greg Chang
Mar 13, 2012 3:07 PM ET

JPMorgan Chase & Co. (JPM) said it boosted its common stock quarterly dividend by 5 cents to 30 cents a share.

The lender also authorized a new $15 billion stock buyback program, of which up to $12 billion is approved for this year and up to an additional $3 billion is approved through the end of the first quarter of 2013.

JPMorgan said the Federal Reserve raised no objections to the proposed capital distributions.

Five More Failed Banks Cost US Government an Additional $334 Million in Losses

The losses from the mortgage securities frauds and the subsequent bubble collapse continue to debilitate the US financial system, particularly the regional banks, in a slow bleed costing the US government additional millions each week. The public relations campaign promoting the idea that the bank bailouts are done and successful, and that the US made money on this egregious abuse of public monies is patently false, and probably can be described as corporatist propaganda.

The banks continue to mount a campaign to resist reform and regulation. They are taking advantage of the weakness of the Obama administration in failing to reform the banking system through liquidations and managed bankruptcies, including indictments and investigations as was seen in the Savings and Loan scandal.

It is difficult to continue to assume good intentions in this administration, or even mere incompetence. The objections put up by Geithner and Summers to the appointment of Elizabeth Warren as the head of the new consumer protection agency shows how reactionary they continue to be, and resistant to fundamental reforms.

American Banker
Failures on Two Coasts Stretch Toll for Year to 108
By Joe Adler
Friday, July 30, 2010

Five bank closures in four states Friday cost the federal government an additional $334 million in losses.

Regulators shuttered the $373 million-asset Coastal Community Bank in Panama City Beach, Fla., the $66 million-asset Bayside Savings Bank in Port Saint Joe, Fla., the $168 million-asset NorthWest Bank and Trust in Acworth, Ga., the $529 million-asset The Cowlitz Bank in Longview, Wash., and the $768-asset LibertyBank in Eugene, Ore. The failures brought the year's total to 108.

The hammered Southeast bore the brunt of the failure activity, as it has for so many Fridays since the financial crisis began. Twenty banks have been seized in Florida in 2010, while 11 have failed in Georgia so far this year.

The two Florida institutions that failed Friday went to one buyer: Centennial Bank in Conway, Ark. The acquirer agreed to take over Coastal Community's $363 million in deposits, Bayside Savings' $52 million in deposits and roughly all of the assets of both institutions.

The Federal Deposit Insurance Corp. agreed to share losses with Centennial on $303 million of Coastal Community's assets, and $48 million of Bayside Savings' assets. The two failures were estimated to cost the FDIC, respectively, $94 million and $16 million.

Meanwhile, the failure of NorthWest in Georgia was estimated to cost the agency nearly $40 million. The FDIC sold all of NorthWest's $159 million in deposits, and essentially all of its assets, to State Bank and Trust Co. in Macon. The acquirer agreed to share losses with the FDIC on about $107 million of the failed bank's assets.

Elsewhere, the FDIC sold all of The Cowlitz Bank's $514 million in deposits to Heritage Bank of Olympia, Wash., which paid a 1% premium. Heritage also acquired about $329 million of the failed bank's assets, and will share losses with the FDIC on about $161 million of those assets. The FDIC estimated the failure will cost $69 million.

Home Federal Bank in Nampa, Idaho, paid a 1% premium to assume all of LibertyBank's $718 million in deposits, and agreed to acquire $420 million of its assets. The FDIC and Home Federal will share losses on $300 million of those assets. The failure's cost was estimated at $115 million.

Europe Offers $957 Billion in Hope of Appeasing the Banks

The US SP futures are soaring almost 30 points, along with world equity markets, as the Europeans join the Americans in agreeing to monetize their debts by expanding their currencies. Make no mistake, no matter how they wrap this package and call it debt, it is the expansion of the money supply to prevent insolvency.

This does not cure the problems which remain, but rather provides time and latitude for the politicians to act. Discussion should begin at the IMF meeting on May 11, although this is unlikely to render any practical discussion of financial reforms, other than further debauching of the savings of the nations and their peoples.

These are dark days indeed that bring a false dawn that will quickly prove to be simply insubstantial.

The bribe has been given. Now there is the real work of reform and justice yet to be done. But will it be deferred and diluted in Europe as has been done in America.

NY Times
E.U. Details $957 Billion Rescue Package
By James Kanter and Landon Thomas Jr.
May 9, 2010

BRUSSELS - European leaders, pressured by sliding markets and doubts over their ability to act in unison, agreed on Sunday to provide a huge rescue package of nearly one trillion dollars in a sweeping effort to regain lost credibility with investors.

After more than 10 hours of talks, finance ministers from the European Union agreed on a deal that would provide $560 billion in new loans and $76 billion under an existing lending program. Elena Salgado, the Spanish finance minister, who announced the deal, also said the International Monetary Fund was prepared to give up to $321 billion separately.

Officials are hoping the size of the program - a total of $957 billion - will signal a "shock and awe" commitment that will be viewed in the same vein as the $700 billion package the United States government provided to help its own ailing financial institutions in 2008.

Early reaction from world markets was positive, with Japan's Nikkei index rising more than 1 percentage point after being battered last week.

In reaching the deal, European leaders were making yet another attempt to stem a debt crisis that has engulfed Europe and global markets. Underscoring the urgency, President Obama spoke to the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, on Sunday about the need for decisive action to restore investor confidence.

UBS Shareholders Vote to Hold Top Management Personally Responsible for Losses

This is the way to start putting some 'teeth' into financial reform.

Bank managers must be held accountable for their actions, preferably by shareholders. The Swiss are showing the way on this.

SwissInfo.CH
UBS has “witnessed a Waterloo”
By Time Neville
Apr 15, 2010

Swiss newspapers on Thursday morning were full of praise for UBS shareholders who voted to hold 2007 executives partially responsible for the bank’s near collapse.

Commentators say the decision not to exonerate former CEO Marcel Ospel and other top managers of allowing the bank to suffer record losses and reputational damage is nothing short of historic.

“Shareholders yesterday preferred honesty over immediate profit,” the Geneva-based Le Temps newspaper said in an article titled, “Shareholder courage”.

“It was a courageous and responsible decision.”

During the big bank’s annual shareholder meeting in Basel, some 4,700 stockholders representing 1.7 billion shares, voted by a margin of 53 per cent to reject recommendations by the current board to absolve executives from all responsibility for the bank’s staggering subprime losses that prompted a SFr 60 billion federal bailout.

The decision means former managers are now exposed to potential lawsuits.

“This is something that no one for a long time thought possible,” said Blick. “By standing up to the board, the owners of UBS have written economic history.”

Shareholder democracy

The Tages-Anzeiger newspaper said the vote serves as a “slap” to top executives and represents a turning point that the bank cannot deny.

“With this ‘no’ chairman of the board Kaspar Villiger and UBS have witnessed a Waterloo,” the paper wrote. “Although this means little to nothing in concrete terms, symbolically it means much.”

The paper went on to say the vote is a “triumph for shareholder democracy”, and notes it was the first time shareholders of a large public company succeeded in going against the will of the executive board “not only to send a signal” but also in doing so with a majority of votes.

“Imagine: Managers selling their own shares worth SFr150 million at high market conditions through the summer…and then presenting SFr50 billion in losses. To absolve them of that, that’s too much for even the most good-natured shareholder,” the paper said.

That may be true but it was no knee-jerk reaction, countered the Neue Zürcher Zeitung.

“By agreeing with most of the board’s recommendations – such as 85 per cent agreeing that the current UBS top brass should be absolved of responsibility – the majority of shareowners are implying they do not want to hobble the bank despite their displeasure.”

What next?

“And now?” asked Le Temps.

The NZZ says the bank would be “well advised” not to go back to business as usual.

The Tages Anzeiger argues that to “really draw a line under the past”, Villiger must consider whether to prepare a case against former managers. At best, it’s a job for a “neutral judge” to decide whether "the old UBS" broke the law, it said.

“That way, [Grübel and Villiger] can take care of the new UBS uninhibited.”

Le Temps says it seems “unimaginable” that the board would stick to the status quo, after a vote akin to “the mutiny of the Bounty”.

“Yesterday’s vote will have consequences beyond the bank,” it argued, saying the era of powerful shareholder democracy has been crowned “with spectacular force”.

“But be careful,” it warned. “Shareholder democracy can’t regulate everything, in particular in the banking realm, where the central question of systemic risk remains intact.”

The paper’s cross-town rival, the Tribune de Genève, put it more bluntly. It shot down an argument that Ospel and company would never go before a civil or criminal court because such a suit would be too expensive or an exercise in futility.

“Whatever!” it said. “The penalty imposed yesterday has a symbolic significance far greater than all the judgments of the convoluted world. Swiss economic democracy has finally succeeded in overthrowing a regime. For that it is thanked.”

SP Futures Reach Apex of Fraud As Earnings Season Arrives and Bank Accounting Dodgy as Ever, Doing God's Work

"At what point shall we expect the approach of danger? By what means shall we fortify against it? Shall we expect some transatlantic military giant, to step the Ocean, and crush us at a blow?

Never! All the armies of Europe, Asia and Africa combined, with all the treasure of the earth in their military chest; with a Bonaparte for a commander, could not by force, take a drink from the Ohio, or make a track on the Blue Ridge, in a trial of a thousand years.

At what point, then, is the approach of danger to be expected? I answer, if it ever reach us it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide." Abraham Lincoln

Earnings season begins again this week in the States.

Investors remain skittish despite rosy predictions for earnings. This may be because of the suspicion that there are continuing misrepresentations of the true financial picture being permitted by the regulators, the ratings agencies, and the accountants.

For example, Bloomberg reports that if Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo were taking the appropriate reserves against loan losses, it would virtually wipe out all their expected profits for 2010. And I suggest that this loss estimate is likely to be conservative. But of course this is not going to happen in the land of 'extend and pretend.'

Reserves against losses? We don't need no stinking reserve, not while we have the Federal Reserve.

So don't get all short this market just yet, and provide grist for the mill as it might just grind higher. The good guys don't win until they get on their horses and do something. Wait for a key breakdown, probably triggered by some disclosures.

Misrepresentation of the facts and figures abounds. Through the years I noticed a common denominator amongst the kleptocracy and slippery sons of privilege: when the going gets tough, they cheat, even more than usual. And they become righteously indignant if you call them on it. As one pampered son said to me, "If the professors are not smart enough to stop me, why should you care?"

That is how they got through university, and how they get through life. They cheat on their taxes, on their wives, their community, their civic obligations, their business dealings, their friends, and even themselves. And they spend a lot of time and money stuffing the hole in their being with possessions, both things and people, to create the illusion of substance and self-worth. And so often they have learned this from their parents either through abuse or example. There must surely be a special place in hell for anyone who twists such a pathetic half-life out of the gift of a child.

Someone sent me the series currently playing on HBO, "The Pacific." They knew I would be interested because my father was one of those kids who, right after high school graduation, took their first trip away from home, from Cherry Point to Tokyo via hell. Its a brutal series, but worth watching if you want a less romanticized version of what war is like, without the self-indulgence excess of the anti-war movies. I enjoyed the exposure they give to John Basilone, the only NCO to win both the Medal of Honor, and the Navy Cross posthumously, in WWII. I used to attend the church in his hometown of Raritan, NJ where they still have a parade in his memory every year.

That experience and the Great Depression made all our fathers and uncles as tough as nails, reminiscent of the character in the movie Gran Torino. My father wasn't pretty. He was rather rough around the edges with a hard shell, did not suffer fools gladly, and had a truly remarkable command of rough language, as I understand is the custom among Marine Corps sergeants. But he always stood his ground, and did the right thing even when it hurt, out of a sense of duty, honor and pride. And he made sure that I knew that being honest, and honorable and truthful was the right thing, the only thing, to do. And I thank him for it. I am glad he is no longer around to see this triumph of the privileged, and the submission of the many, in a country that he loved. Semper Fi, dad.

Bloomberg
Bank Profits Dimmed by Prospect of Home-Equity Losses
By Dakin Campbell and David Henry

April 12 (Bloomberg) -- Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. may have to set aside an additional $30 billion to cover possible losses on home-equity loans, an amount almost equal to analysts’ estimates of profit at the three banks this year.

The cost of these reserves was calculated by CreditSights Inc., a New York-based research firm whose prediction almost four years ago proved prescient after banks reported unprecedented mortgage-related writedowns. Recognizing the home- equity loan losses is unfinished business from the housing bubble, CreditSights said in a March 29 report.

Potential writedowns on the loans are casting a shadow over earnings, as analysts try to determine how much, and how quickly, loan-loss expenses will decline from the industrywide peak reached in June 2009. Banks led by New York-based JPMorgan begin reporting first-quarter results this week....

Banks Come Back For Another Bailout in Ireland While the US 'Manages Perceptions'

The whole notion of bank bailouts is a tremendous injustice when not accompanied by personal bankruptcy and civil and criminal prosecution for those banks managers who created them and are found guilty of fraud.

In addition, the owners of the banks, whether through debt or shares, should be wiped out and the bank placed in a proper receivership while its books are sorted out.

The US is an accounting mirage. The notion that it will make money from its stake in Citi is a sleight of hand. The enormous subsidies to the banks both in terms of direct payments, indirect payments through entities like AIG, and subsidies such as the erosion of the currency and the deterioration of the real economy, will never be repaid.

The real model of how to handle a banking crisis is in the Scandinavian nationalization of the banks, or even better, the disposition of the Savings and Loans in the US. during that crisis.

This pragamatic approach, its cheaper just to pay them all off than to sort them out, is a child of the Rubinomics of mid 1990's in the States, in which it was determined to be better to prop up the stock markets, often by buying the SP futures, than it was to allow the market to reach its level, and then deal with the financial carnage of a market crash. Here is a review of a paper by Rubin's protege, and some might say the government's Thomas Cromwell, Larry Summers.

From the Horse's Mouth: Lawrence Summers On Market Manipulation In Times of Crisis

The fourth position, which Summers calls pragmatic, in his own words, “is the one embraced implicitly, if not explicitly by policymakers in most major economies. It holds that central banks must always do whatever is necessary to preserve the integrity of the financial system regardless of whether those who receive support are solvent or can safely pay a penalty rate. This position concedes that some institutions may become too large to fail. While lender-of-last-resort insurance, like any other type of insurance, will have moral hazard effects, I argue that these may be small when contrasted with the benefits of protecting the real economy from financial disturbances”

This is the very essence of the Rubin doctrine. Pragmatic circumvention of the Constitution and the laws of the land by means of market manipulation and government subsidies cloaked in secrecy, misrepresentation, and a public relations campaign.

In addition to this paper, Mr. Summers is also the author of a paper Gibson's Paradox which seems to prescribe the manipulation the price of key commodities including gold in order to influence longer term interest rates. Indeed, we hear that in some recent FOIA act returns there were refusals to disclose papers from the Fed purporting to set out the 'new gold policy of the US' with many charts and pages of text. Indeed, what is the real policy of the US? I thought it was to allow it to sit, unaudited, in Fort Knox and the various Reserve Banks, while leasing it out to some extent.

And while as Obama's current Economic Advisor is talking a good game, the facts seem to indicate that the US is still pursuing a policy of managed perceptions, accounting deceptions, and old fashioned insider dealing and other forms of corruption that always accompany government, but reach a feverish pitch in times of crisis. It is the establishment's form of looting.

As we can easily see, this policy has spawned a series of tremendous financial bubbles in tech, and housing, and now credit, and corporate debt, and the dollar itself, which will eventually veer completely out of control into the improbability of hyperinflation. Inflicting pain on the common taxpayers for the transfressions of the financiers is beyond moral hazard.

The Banks must be restrained, the financial system reformed, and the economy brought back into balance, before there can be any sustained recovery.

Guardian UK
Ireland Poised for New Bank Bailout
By Jill Treanor
29 March 2010 18.58 BST

Irish taxpayers face pouring billions more euros into their troubled banking sector on what is being dubbed "bailout Tuesday".

The government is expected to take bigger stakes in Allied Irish Banks and Bank of Ireland as the property lending spree that took place before the 2007 credit crunch continues to knock holes in their battered balance sheets.

But while the Irish taxpayer faces taking on a greater burden from the banking sector – perhaps as much as €16bn (£14bn) – the US began to prepare to sell off its 7.7bn shares in Citigroup, into which the authorities pumped $24bn of cash during the 2008 banking crisis. Those 7.7bn shares were worth $32bn last night - implying a profit for the US treasury if the share price can withstand the sale of such a huge amount of shares.

In Ireland, though, the crisis is yet to abate as the economy weakens and the government follows through on an austerity budget that has imposed cuts in public sector pay after €11bn was injected into the banks.

Shares in Allied Irish Banks closed down 19% in Dublin at €1.37, ahead of announcements when the National Asset Management Agency, a toxic loan body, is due to provide details on the price for taking on the bad loans. Financial regulators will also set out the size of the capital cushions the banks will have to hold in preparation for future losses.

The Irish government took control of Anglo Irish Bank last year and holds stakes of 16% in Bank of Ireland, which runs the Post Office bank in the UK, and 25% of Allied Irish.

Local speculation is focused on the government stake rising to more than 70% in Allied Irish and more than 40% in Bank of Ireland while building societies EBS and Irish Nationwide may also need taxpayer involvement as the authorities continue to tackle the losses caused by bad lending.

Boehner Tells Bankers to Stand Up to Those Senate Punks

"O heaven,...put in every honest hand a whip to lash the rascals naked through the world." William Shakespeare, Othello

Senate Minority Leader John Boehner told the American Bankers Association to 'stand up to those punks' in the Senate who want to regulate them. He said 'staffers' but that is because professional courtesy prohibited him from saying 'Senators.'

Perhaps Mr. Boehner feels a burst of confidence since Timmy and Ben and Larry have his back. And of course the bankers to whom he was speaking already have 25 lobbyists fighting against reform for every Congressman in Washington, and buckets of cash to spread around.

Actually, the only ones who seem to be underrepresented and in trouble in Washington these days are the American people.

The Dodd bill has its good points, but contains some bizarre twists. The ruling that the Fed would only supervise banks of over 50 billion seems particularly bizarre. Mr. Hoenig of the Kansas City Fed objected to this today. As well he might, since his district contains NO banks worth more than $50 billions, and he would be presumably out of a job.

This is classic Democrat blundering. Spend many months negotiating and seeking partnership with people who would just as soon place their hands in a meat grinder as make any reasonable compromise, and then toss off some bizarre legislation seemingly out of nowhere, after having made a big deal out of wishing to be 'bipartisan.' The Democratic party seems leaderless.

One thing for which I will give credit. Mr. Obama has certainly united his country -- in believing that he is one part corrupt Chicago politician and two parts a rather ineffective waffler who mistakes campaign-style speaking for leadership and timidity for consensus building.

Leadership in the real world is measured by getting the job done, and being recognized as effective by your own people and your key stakeholders, inspiring them with confidence and the ability to do even more than they might have imagined.

The American President reminds me of a corporate executive at a company which had recently acquired mine who was clearly over his head in his current position. When asked why he did not meet his commitments, he replied without hesitation, "My people are incompetent." What was particularly galling is that he had been allowed to assemble his own team, and been given adequate time to build his plan and objectives. He missed most of them, badly but did manage to exceed his expenses.

Mr. Obama inspires most people with disappointment, dismay, confusion and despair. He has managed to alienate a good chunk of his electoral base while gaining nothing. To win is not to be elected; to win is to succeed in your goals and the expectations which you have set with your constituents.

Still, as unattractive as the Democratic leadership may be, there is nothing uglier than a politician soliciting money from fat cat businessmen, and few can be as smarmy as a Republican in heat for cash.

Dealbook
Boehner to Bankers: Stand Up to ‘Punk’ Staffers
March 18, 2010, 9:18 am

Opponents of Senator Christopher J. Dodd’s financial regulation overhaul bill are talking tough, telling bankers how displeased they are without mincing words.

Representative John A. Boehner, the Republican House minority leader, told members of the American Bankers Association on Wednesday that they need to be unafraid to stand up to whom he called “punk” Senate staffers, according to MarketWatch.

And even the head of the Office of the Comptroller of Currency took a swipe at the consumer protection aspects of the bill, according to The Financial Times.

Mr. Dodd, the chairman of the Senate Banking Committee has already been hearing from Republican senators who are unhappy with his decision to forge ahead without first reaching bipartisan consensus. Now House Republicans, according to Mr. Boehner, are arguing that Mr. Dodd’s proposal is too far apart from the financial regulation overhaul bill the House passed in December.

Here’s what Mr. Boehner said, according to MarketWatch:

“Don’t let those little punk staffers take advantage of you and stand up for
yourselves,” Boehner said. “All of us are hearing from our friends and
constituents on lack of credit, you can’t get a loan, the more your government
takes and taxes, the more regulations you have to comply with the more cost you
have there and less amount you are going to have available to loan to
customers....”

And remember, 36% of American Congressmen are also lawyers.

Dodd's Chief Counsel Was Trading In Financial Stocks During Financial Crisis

Fed Vice-Chairman Kohn to Retire

I do not think this is anything like a 'principled resignation' from the Fed which we had seen when Larry Meyer and Jerry Jordan resigned. Meyer was a noted inflation hawk, and Jordan was probably the closest thing to an Austrian economist at the Fed. These resignations occurred in 2002, just before Greenspan began to spear-head the monetary reflation that led to the housing bubble and this latest financial crisis.

After all, Don Kohn has been at the Fed since 1970, although he only joined the Board of Governors in 2002. He is certainly in line for retirement.

As you may recall, Mr. Jordan has occasionally raised his voice in outrage at some of the dicier Fed dealings since then, such as the trading in Goldman stock by the Chairman of the NY Fed, Turbo Timmy's boss, while they were in the process of providing them billions of dollars in public assistance.

By October 26, 2009, Mr. Friedman’s paper profits on the shady trade were $5.4 million, reported Bloomberg News. “It’s an outrage,” said Jerry Jordan, former president of the Cleveland Fed. “He needed to either resign from the Fed board or from Goldman and proceed to sell his stock.” Bloomberg News comments: “suspicions that the fix was in for Goldman Sachs have been fanned by the firm’s political connections.”Wall Street Bailout: History's Largest Theft? - Oct. 28, 2009

Don Kohn has always struck me as more of a 'company man,' coming from the Alan Blinder school of Public Service:

"The last duty of a central banker is to tell the truth to the public."

He tended to pander to Wall Street, and was among the first to attempt to try and take moral hazard off the table as a consideration in bailing out the big banks. Citizen Kohn

It will be interesting to see what kind of a truthteller Mr. Obama will nominate to take his place. Christina Romer's name has been mentioned. Janet Yellen is being groomed for something. With Kohn's departure, Ben remains the only macro-economist, with the remainder of the Governors from the banking profession. This certainly seems to disqualify Mr. Geithner, who is neither economist nor commercial banker, but a kind of bureaucrat.

If it is Timmy, I may not be able to hold down solid food for a few days. I wonder if Larry Summers would take second place. If so, watch your back Ben. If not any of them, then a Chicago crony would be likely. Rahm? Yikes!

A more obscure economist perhaps? Obama is said to be looking for an inflation 'dove.' Brad DeLong has previously stated on his blog that Alan Greenspan never made a policy decision which which he disagreed. Krugman carries more weight, and is also a dove, and certainly his own man.

It is a shame that Robert Reich has no place in this Democratic Administration. He would have been a better Treasury Secretary than Timmy, but again, perhaps less pliable for the banks. My own choice for Governor at least would be a maverick like Janet Tavakoli or Yves Smith. It would be nice to have someone on the board who understands the more innovative aspects of the financial markets from a practical perspective. And of course the meetings would probably be much more interesting given their willingness and ability to ask the right questions.

And we can only wonder what new financial patent medicines wrapped in black boxes that Zimbabwe Ben may have in his cabinet of curiousities.

Reuters
Fed Vice Chairman Kohn to leave in late June
By Mark Felsenthal
March 1, 2010

WASHINGTON, March 1 (Reuters) - Federal Reserve Vice Chairman Donald Kohn, a 40-year veteran of the U.S. central bank, will step down in late June, giving President Barack Obama a chance to reshape the institution.

In a letter to Obama released on Monday, Kohn, who has served as the Fed's No. 2 since June 2006, said he will depart when his current term as vice chairman expires on June 23.

"The Federal Reserve and the country owe a tremendous debt of gratitude to Don Kohn for his invaluable contributions over 40 years of public service," Fed Chairman Ben Bernanke said in a statement.

Kohn, 67, began his career at the Kansas City Federal Reserve Bank in 1970 and rose through the ranks to become one of the more influential vice chairmen in the central bank's history.

He has served on the Fed's Board of Governors since August 2002.

His departure would leave three seats vacant on the normally seven-person Fed board in Washington, giving Obama broad latitude to shape the Fed at a time lawmakers are considering lessening its power after the most damaging financial crisis in generations.

Members of the Fed board are nominated by the president, but subject to confirmation by the U.S. Senate.

Among possible replacements, the president may be considering Christina Romer, a prominent economist who currently heads the White House Council of Economic Advisers.

Another possibility might be Fed Governor Daniel Tarullo, a lawyer and expert on banking regulation appointed by Obama, who could shepherd the bank into a greater focus on financial oversight and consumer protections. (Editing by Chizu Nomiyama)

The Bernanke Deception and the Stirring of American Populism

Chris Whalen captures an interesting aspect of change that not only the august US Senators are missing, but most of the mainstream media in the States as well, at least judging by the discussions on their Sunday political shows. All of them seem equally out of touch, arrogantly aloof and insulated from the mood of the nation.

It is interesting also to hear the financial princes growling from lofty Davos about 'Obama's outburst' regarding the Volcker Rule and the impertinence of the Americans in daring to set national regulations for their banks.

Is this an historic moment? Are the people challenging the rule of a burgeoning financial elite, which is puzzled at the sudden rebellion against their enlightened rule?

I think that the answer might be yes, and this is what Ron Paul alluded to in his video regarding 'revolutionary changes.'

And one can only marvel at the way in which the Democrats are committing political suicide after being handed the reins of power with an overwhelming majority, out of what appears to be sheer, almost incomprehensible arrogance and fundamental incompetence. Watching the toad Geithner testify is painful beyond expression.

Will the Americans lead the storming of the Banking Bastille? And will the cowed Brits dare to defy their ubiquitous surveillance cameras and raise their voices for change?

Surely a politician's worst nightmare, a crisis gone wrong. This is the point at which the people ought to be laying down their liberty for the security of a return to credit lending, and a banking system that defers from crashing their markets.

I also have to wonder how the politicians forget the lessons of the past, and the downfall of once mighty leaders of popular governments. It is never about the first offence, the original act itself which may seem trivial.

What brings down governments is the cover up, the conflicts of interest, the pettiness of tone deaf arrogance, and the ensuing loss of confidence.


Fed Deception of Congress Regarding AIG

"Even as the Senate prepares to vote on the Bernanke nomination, Rep. Darrell Issa (R-CA) has asked the Chairman of the House Committee on Oversight and Government Reform to subpoena AIG-related documents from the Fed, documents which apparently prove that Chairman Bernanke played a major role in deciding to bail out AIG and, indirectly, Goldman Sachs (GS) and other large bank dealers.

In a January 26, 2010 letter obtained by The IRA, Issa claims that Bernanke overruled a recommendation by Fed staff that AIG be allowed to declare bankruptcy "just like Lehman Brothers" and instead authorized the bailout of the crippled insurance giant over the objections of Fed staff in Washington. The Fed appears to be withholding these documents from Congress until after the Senate votes on the Bernanke nomination.

Rep. Issa, the ranking member of the Committee, refers to a statement by Senator Jim Bunning (R-KY), whose staff has been examining these same documents under strict rules of confidentiality imposed by the Fed's staff, to the effect that Chairman Bernanke overruled the recommendation of his staff and pushed the bailout of AIG. How can the Senate vote on the Bernanke nomination when the Fed is refusing to comde clean on AIG?

Members of the Senate need to ask themselves a question: With the current disclosure by the Fed, what further revelations will surface regarding the central bank, AIG and the bailout of the large New York banks between now and November?

So given the above, why is Chairman Bernanke seemingly en route to confirmation? Why do members of the Senate seem to indifferent to the mounting popular anger at Chairman Bernanke and the Fed? There are several reasons the Senate is making a major political and economic miscalculation in its appraisal of Ben Bernanke's role at the Federal Reserve. The most significant is that Senators think that the Federal Reserve and the bailouts are not voting issues, because there are no traditional organized constituent groups that lobby around them.

Staffers who frame issues for Senators do not know that Fed and its profile in American politics has changed in a way reminiscent of the days of President Jackson and the battle over the Second Bank of the United States. After all, issue groups have an incentive to mislead incumbent Senators in a way biased towards the interest of incumbent financial interests. This is a terrible mistake for the political health of any Senator who wants to get reelected in 2010 or 2012. The bailouts happened from 2008-2009, and voters now understand them and loath them. And this applies equally to Democrats and Republicans in the Senate.

Look at how the Fed and AIG are changing the dynamic for incumbent GOP Senators. Republicans are seeing bailout-themed primary campaigns, where incumbents like Utah Senator Bob Bennett and Arizona Senator John McCain are explicitly attached to the bailouts. As noted above, democrats saw losses in Virginia, New Jersey, and Massachusetts. And Brown voters in Massachusetts showed significant dissatisfaction with Democratic ties to Wall Street. But the same populist wave will carry away Republicans as well.

Bottom line: A "yes" vote for Chairman Bernanke raises the likelihood of defeat for every member of the Senate standing for election in 2010 and 2012. And in any event, the rising tide of popular unhappiness with Washington and Wall Street promises to remake the American political landscape in a way not seen in the post WW II era. The comfortable assumption of stability in American political life is about to be replaced by instability and change, but that is what democracy is all about."

Political Risk: The Bernanke Nomination and the Return of American Populism - Institutional Risk Analyst

Treasury Cancels Plans to Sell Citi Stake After Failed Equity Offering Stings Shareholders

The shareholders of Citigroup should be furious at the greedy and reckless actions of Citi's management in diluting their shares in order to obtain a freer hand in granting themselves fat bonuses.

Tonight's equity offering failed to bring in a sufficient price, serving up a significant 20% discount to existing holders of the stock.

And the de facto largest shareholders of Citigroup, the US taxpaying public and all holders of US Federal Reserve Notes, took quite a paper loss on their holdings because of Tim and Larry's miscalculations regarding the market's willingness to swallow more large chunks of questionable debt riddled equity from the US zombie banks.

Tim decided that because of this failed offering, the Treasury will cancel its plans to unload your 33% of Citi's shares, preferring to consider the quick flip a longer term investment, as failed trades are often wont to become.

And in retrospect, Timmy's decision to convert the government's preferred stock to common stock is looking to be exceptionally.... stupid, or fishy, or all of the above.

Never fear. We are sure that the Obama Administration can reach out to the Working Group on Markets to put a bid under those shares at some future date, perhaps with help from puffed up government estimates of the vitality of the US economy as a wind at its back.

Technically, Citi can pay back the TARP money from the proceeds. Can they have the gall to do that and pay themselves bonuses this year to boot, which is the basis for this exercise in dilution in the first place? This shows the farce that the Obama financial reforms really are. Nothing has changed except that big bank losses were transferred to the public debt, and the excess of the US financial sector continues with government support.

Financial engineering to maintain an imbalanced status quo, even with the mighty Zimbabwe Ben at the helm, is always and everywhere an economic morass, a Vietnam of moral hazard, and a political tarbaby of increasingly distasteful policy decisions. All for the sake of a wealthy few, the rapacious predatory class, an economic elite that traffics in betrayal and the breaking of oaths.

Such is the tangled web we weave, when first we practice to deceive.

Gentlemen, start your presses...

Reuters
U.S. delays its $5 bln Citi sale after weak pricing
By Dan Wilchins and David Lawder

NEW YORK/WASHINGTON, Dec 16 (Reuters) - The U.S. Treasury delayed a plan to sell its $5 billion of Citigroup Inc (C.N) shares after a stock offering by the bank attracted weak demand and priced at a much lower-than-expected $3.15 a share.

The bank sold $20 billion of stock and convertible bonds to repay funds it owes to the government so it can avoid the executive compensation restrictions that came with multiple U.S. bailouts.

But raising that capital came at a steep cost to shareholders, whose shares are worth 20 percent less than their closing level on Friday, before the bank announced its plan for repaying funds to the government.

"It's a terrific deal for Citigroup's managers, who can get paid more, and a terrible deal for shareholders. The company paid a huge price for this capital," said Sean Egan, principal at ratings agency Egan-Jones Ratings.

Citigroup was the third major U.S. bank to launch a multibillion-dollar share sale in December and the multitude of share sales likely dampened demand, analysts said.

"Buyers are in control of the process now," said Blake Howells, director of research at Becker Capital Management in Portland, Oregon.

The share sale price is less than the $3.25 price at which the government bought them earlier this year as part of an emergency rescue of the No. 3 U.S. bank, shrinking the paper value of the government's 7.7 billion shares to $24.2 billion. That stake was originally worth $25 billion and in October was worth nearly $40 billion.

Treasury "is not going to sell at a loss. That's the bottom line," a source familiar with the situation said.

The U.S. decided not to sell any shares at this time, and has agreed not to sell Citi shares for 90 days, the bank and the Treasury said. The government owns about one-third of Citigroup's shares.

The U.S. government still plans to sell its Citigroup shares within the next year, a Treasury spokesman said.

The government's decision not to sell shares was an about-face from Monday, when Citigroup said the government would sell up to $5 billion of shares alongside the bank's offering....

The Bankers Summit and Some Significant No-Shows

Some White House Banking summit.

A one on one with Jamie Dimon and a few second tier, TARP-bound moneylenders.

John Stumpf of Wells Fargo is running late but surely on his way. Tied up signing some last minute foreclosures. The opening topic must be how to spin 26% credit card interest rates as a consumer benefit.

Ken Lewis of Bank of America is there. LOL. Trying to pick up an unemployment check and cop a plea.

It appears that Goldman's Lloyd Blankfein, John Mack of Morgan Stanley, and Dick Parsons of Citgroup will not be able to make the meeting today with The One regarding executive pay and the failure to lend by the Wall Street Welfare Queens.

The excuses are not the usual: end of year performance reviews, too busy with the office redecorators, trying to settle the tab at Scores, on hold with the Neiman Marcus trophy-wife and office-chippy department, making plans to fix the Superbowl.

The boys were flying commerical to show their solidarity with the homeless people who fly coach, and are encountering traffic delays on their flights out of New York to Washington. Reagan National Airport is closed by fog. It doesn't get much more symbolic than that. Are Dulles and BWI are closed too? No. Jeez, these guys don't bother with alternate plans to visit the White House?

"We're sorry Timmy, but frankly the President DID call him a 'fat cat' last night on 60 Minutes. Did you really expect our guy to show up for coffee today like nothing happened? Larry had assured us that he knows his place. Besides, it worked better when he came up to see us the last time anyway."

It would be cool to be sitting at the gate with Lloyd. Think he is schmoozing there with the people? "Bagels and coffees for the terminal, on me."

Jamie did not condescend to act the plebe, and flew down in his corporate jet. And we do think Vikram was particularly ballsy in sending a delegate, executive figurehead, with a note that he is too busy negotiating the repayment of TARP in order to secure those year end bonuses for the troops.

Note to Lloyd and John and Dick, if you are traveling commercial from NYC to Washington in the winter, you take the train. And if flying you leave early or come down the night before, with dinner at The Palm. I recommend the peas and onions as your side. Carville hangs at the bar sometimes. He's a fun kind of guy.

It is always iffy when flying into National in the winter, except on Oligarch Express. Even Senators know that, and their feet barely touch the ground when they walk.

The Wall Street boys don't bother to show up for a command performance at the White House on some lame travel excuse, except for house banker and Treasury Secretary to be Jamie. Lloyd doesn't need to be Treasury Secretary because he already has one.

This is too good. You can't make this stuff up.

More Than 150 Publicly Traded US Banks Are In Serious Trouble

This analysis by Bloomberg is based on some fairly modest economic assumptions. Most of the banks in question are state and regional banks that have not enjoyed the largesse of the Fed and Treasury like the free-spending, Wall Street money center banks, who are sharply curbing lending and raising rates on credit cards and other revolving debt aggressively even for customers with excellent credit and no history of non-payment.

As you might suspect, even the worst of the banks with large percentages of non-performing loans all claim to be 'well capitalized' by regulatory standards.

If as indicated more of the smaller banks fail, we will be left with a few, larger, more potentially lethal financial institutions.

The Obama Administration policy decisions, particularly the programs and reserves decision enabled in October 2008, appear to be favoring Wall Street heavily, monetizing debt for the Primary Dealers and the Wall Street market players, while choking off the consumer and the state and regional banks.

Policy decisions have impact, especially when they have the weight of the Federal Reserve, the Treasury, the Congress, and a powerful President behind them. The question becomes are they the right policy decisions? How were they crafted?

Regretfully, most of them were done behind closed doors, with little public discussion or scrutiny, crafted by an army of lobbyists, campaign donors, and crony capitalists galore.


Bloomberg
Toxic Loans Topping 5% May Push 150 Banks to Point of No Return
By Ari Levy

Aug. 14 (Bloomberg) -- More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full.

The biggest banks with nonperforming loans of at least 5 percent include Wisconsin’s Marshall & Ilsley Corp. and Georgia’s Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michigan’s Flagstar Bancorp. All said in second- quarter filings they’re “well-capitalized” by regulatory standards, which means they’re considered financially sound.

“At a 3 percent level, I’d be concerned that there’s some underlying issue, and if they’re at 5 percent, chances are regulators have them classified as being in unsafe and unsound condition,” said Walter Mix, former commissioner of the California Department of Financial Institutions, and now a managing director of consulting firm LECG in Los Angeles. He wasn’t commenting on any specific banks.

Missed payments by consumers, builders and small businesses pushed 72 lenders into failure this year, the most since 1992. More collapses may lie ahead as the recession causes increased defaults and swells the confidential U.S. list of “problem banks,” which stood at 305 in the first quarter.

Cash DrainNonperforming loans can eat into a company’s earnings and deplete cash, leaving banks below the minimum capital levels required by regulators.... “This is a fairly widespread issue for the larger community banks and some regional banks across the country,” said Mix of LECG, where William Isaac, former head of the Federal Deposit Insurance Corp., is chairman of the global financial services unit.

Ratios above 5 percent don’t always lead to failures because banks keep capital cushions and set aside reserves to absorb bad loans. Banks with higher ratios of equity to total assets can better withstand such losses, said Jim Barth, a former chief economist at the Office of Thrift Supervision. Marshall & Ilsley and Synovus said they’ve been getting bad loans off their books by selling them...

‘Off the Charts’

“These numbers are off the charts,” said Blake Howells, an analyst at Becker Capital Management in Portland, Oregon, referring to the nonperforming loan levels at companies he follows. Banks are losing the “ability to try and earn their way through the cycle,” said Howells, who previously spent 13 years at Minneapolis-based U.S. Bancorp....

The Next Wave of the Financial Crisis Is Coming (And Why)

These excerpts from the most recent TARP Congressional Oversight Panel Report make the risks in the US financial system abundantly clear.

Do you think that the Congress has the will and the ability to act on their recommendation, with the men currently in positions of power on the key Committees? Do you believe that the Obama Administration is capable of reforming itself and effecting genuine change with so many Wall Street denizens forming their policy?

"In order to advance a full recovery in the economy, there must be greater transparency, accountability, and clarity, from both the government and banks, about the scope of the troubled asset problem."

We are persuaded that the government is waiting for the next wave of failures, or some exogenous event of catastrophic proportion, to provide their rationale to take new aggressive action.

But while the financial oligarchy is in control of the men in power, we doubt that these will be the right steps for the majority of Americans, the US economy, and its debt holders.

"There are a thousand hacking at the branches of evil to the one who is striking at the root."
Henry David Thoreau

Congressional Oversight Panel - August 11 Report - The Continued Risk of Troubled Assets

"...But, it is likely that an overwhelming portion of the troubled assets from last October remain on bank balance sheets today.

If the troubled assets held by banks prove to be worth less than their balance sheets currently indicate, the banks may be required to raise more capital. If the losses are severe enough, some financial institutions may be forced to cease operations. This means that the future performance of the economy and the performance of the underlying loans, as well as the method of valuation of the assets, are critical to the continued operation of the banks.

...If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value. Banks will incur further losses on their troubled assets. The financial system will remain vulnerable to the crisis conditions that TARP was meant to fix.

...Part of the financial crisis was triggered by uncertainty about the value of banks' loan and securities portfolios. Changing accounting standards helped the banks temporarily by allowing them greater leeway in describing their assets, but it did not change the underlying problem. In order to advance a full recovery in the economy, there must be greater transparency, accountability, and clarity, from both the government and banks, about the scope of the troubled asset problem. Treasury and relevant government agencies should work together to move financial institutions toward sufficient disclosure of the terms and volume of troubled assets on institutions‟ books so that markets can function more effectively. Finally, as noted above, Treasury must keep in mind the particular challenges facing small banks.

This crisis was years in the making, and it won‟t be resolved overnight. But we are now ten months into TARP, and troubled assets remain a substantial danger to the
financial system.

...Nonetheless, financial stability remains at risk if the underlying problem of troubled assets remains unresolved."

The banks must be restrained, and the financial system reformed, and the economy brought back into balance, before there can be any sustained recovery.

Visit msnbc.com for Breaking News, World News, and News about the Economy

US Consumer Demand Off a Cliff as the Crisis Deepens

As we said, we would be taking a closer look behind the headline GDP numbers recently released. The advantage of procrastination is that eventually a capable person will chart up the data which you have been studying. So thank you to ContraryInvestor for his excellent charts. His site is among the best, and we read it regularly.

The big story is the collapse of the US consumer, unprecedented since WW II, and possibly the Great Depression. This is apparent in the numbers despite the epic restatement of GDP having just been done by the BLS in their benchmark revisions.

If the Fed and Treasury were not actively monetizing everything in sight, we would certainly be seeing a more pronounced deflation as prices fall WITH demand. And if they continue, we may very well feel a touch of the lash of that hyperinflation that John Williams is predicting. We still think a stiff stagflation is more likely, but are allowing that the Fed and Treasury may indeed be 'just that dumb enough' to trigger something less probable.

Until the consumer returns to some semblance of health, there will be no sustained recovery. It really is that simple.



The Fed will have to stop artificially draining credit supply by paying such a high rate of interest on reserves. They know this. It will stimulate lending, even to less worthy borrowers. But this is not a cure. It is one of the paths to more inflation, fresh asset bubbles, and the devaluation of the dollar. And 'stimulus' handouts are no better. Healthcare reform is a step in the right direction. The US consumer pays far too much for the same (or less) level of care in most of the developed nations. But that is not enough.



The cure will be to increase the median wage, and to stop the transfer of the national income to fewer and fewer hands. For that is how the system is set up today. It is not the result of 'free markets' but a sustained transfer of wealth through regulatory and tax policies, and a pernicious corruption of the nation most significantly starting in 1980, although a case has been made for 1913.

It is an ironic echo that our inexperienced, badly advised President seeks to place more and broader powers into the hands of the Federal Reserve and its owners, the banks, in the spirit of Woodrow Wilson.

Obama needs to bring in fresh thinking. Volcker and Stiglitz would be a step in the right direction, but it is ironic that they are much older than the Bobsey twins, Geithner and Summers. Bobsey being, of course, Bob Rubin. They should be sacked.

The problem as we see it is that Obama is hopelessly over his head, and failing badly. His stump speeches to admiring crowds, as the most recent in Elkhart, Indiana, ring increasingly hollow. Granted his situation is difficult to say the least. He reminds us increasingly of Jack Kennedy in his first year in office, and his manipulation by 'handpicked advisors.' Remember the Bay of Pigs? He did manage to find his own voice, and was beginning to make his own way. There is still some hope that Obama can find his, but the trend is not hopeful.

Look for several third party candidates to rise in the next election, as both the Democrats and the Republicans fail to deliver an honest performance for the country. The problem is that at least one of them will be a toxic choice, probably the one that is most narrowly financed.

It does not look hopeful at this moment in history. But tomorrow is another day.

Goldman Sachs Set for Record Profits, Largest Bonuses Ever

As they say in the States, "in your face."

Or just some 'getting out of town money' ahead of a financial collapse?

The outsized financial sector, with its exorbitant fees, represents a serious tax and a growing threat to the real economy.

We may have, at best, the illusion of a recovery based on the increasing monetary inflation and monetization of debt as shown in the money supply figures, as compared to real GDP growth. Price, Demand and Money Supply

It will be a selective recovery at best, and damaging to the political fabric of the United States. It is a drain on the world economy while the US dollar is the reserve currency.

It is seigniorage on a grand scale, unprecedented tax on productivity not seen since the decline of colonialism, perhaps even feudalism.

Until the financial system is reformed there can be no sustainable recovery.

The Guardian
Goldman to make record bonus payout
Surviving banks accused of undermining stability

Phillip Inman
The Observer
Sunday 21 June 2009

Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms.

A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm.

Staff in London were briefed last week on the banking and securities company's prospects and told they could look forward to bumper bonuses if, as predicted, it completed its most profitable year ever. Figures next month detailing the firm's second-quarter earnings are expected to show a further jump in profits. Warren Buffett, who bought $5bn of the company's shares in January, has already made a $1bn gain on his investment.

Goldman is expected to be the biggest winner in the race for revenues that, in 2006, reached £186bn across the entire industry. While this figure is expected to fall to £160bn in 2009, it will be split among a smaller number of firms.

Barclays Capital, Credit Suisse and Deutsche Bank are among the European firms expected to register bumper profits, along with US banks JP Morgan and Morgan Stanley following the near collapse and government rescue of major trading houses including Citigroup, Merrill Lynch, UBS and Royal Bank of Scotland.

In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff, much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London.

Critics of the bonus culture in the City said the dominance of a few risk-taking investment banks is undermining the efforts of regulators to stabilise the financial system.

Vince Cable, the Liberal Democrat treasury spokesman, said: "The investment banks more than any other institutions created the culture of excessive leverage, excessive risk and excessive bonuses that led to the downfall of the financial system. Now they are cashing in and the same bonus culture has returned. The result must be that we are being pushed to the edge of another crash."

Goldman Sachs said it reviewed its bonus scheme last year and switched from a system of guaranteed rewards that were paid over three years to variable payments that tied staff to the firm. It told employees last year that profit-related bonuses would be delayed by 12 months.

Until the release of its first quarter profits in April, it seemed inconceivable that a firm owing the US government $10bn would be looking to break all-time records in 2009.

David Williams, an investment banking analyst at Fox Pitt Kelton, said: "This year is shaping up to be the best year ever for investment banks, or at least those that have emerged relatively unscathed from the credit crisis.

"These banks are intermediaries in the bond markets where governments and companies are raising billions of pounds of new money. There is also a lack of competition that means they can charge huge sums for doing business."

Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

Ten Year Note Yield

While a steeper yield curve is good for the financial sector and those other folks who borrow short and lend longer term, it does no good if those higher rates choke off growth in the real economy. that is an overlooked detail in the Bankers' grand plans for financially engineering a recovery. This is a nation by the Banks, for the Banks, and of the Banks and their demimonde in Washington and the media.

It reminds this blogger of days gone by, when Jesse was a boy programmer writing assembler level code for IBM mainframes and other tedious tasks befitting his junior status.

A group of systems guys had been working long hours to bring up a large mainframe running VM 360 including the operating system, the peripherals, the FEP and coms, storage for a major university.

When they finally got all the bugs worked out and the system was up they quite seriously celebrated their success, saying: "Now if only we could keep the users off the machine all our problems would be solved."

Indeed. Watch the consumer along with the bond and the dollar, for those are the weakest links. From where we sit, the consumer has rolled over and won't be getting up anytime soon ahead of a rising median wage or some other sort of income increasing faster than their expenses and debt servicing.

And the rest of the world appears to be gorged on US debt and their reserve currency, at least the non-official segments that still care about spending and profit in the real world.

Purchase Accounting Rules Set to Deliver $29 Billion Profit Windfall to JP Morgan and Other Banks

"It's Not the People Who Vote that Count; It's the People Who Count the Votes."
Josef Stalin

One of the many benefits of being a leading citizen of the Potemkin economy and a silent partner with the Treasury and Federal Reserve.

There is an analog to this in the tech sector, in which some companies may choose to write down the value of their components and subassembly inventories in fat quarters, and then take them as an improvement to their Cost of Goods Sold (COGS) in lean quarters, to boost EPS even as the top line revenues are flat to down.

And as for merger accounting, there are several companies showing excellent and consistent results using that rolling paintbrush of accounting embellishments.

Things are not always as they appear, especially when viewed through magic lantern of Wall Street.


RTTNews
JPMorgan likely to reap $29 Bln windfall on WaMu bad loans purchase
5/26/2009 8:29 AM ET

(RTTNews) - JPMorgan Chase & Co. stands to reap a $29 billion windfall due to an accounting rule that lets JPMorgan transform bad loans it purchased from Washington Mutual Inc. into income, the Bloomberg reported Tuesday.

Last year, the Seattle-based Washington Mutual, or WaMu, collapsed after it faced $19 billion of losses on soured mortgage loans and its credit rating was slashed, leaving it with insufficient liquidity to meet its obligations.

On September 25, 2008, JPMorgan Chase & Co. acquired all deposits, assets and certain liabilities of Washington Mutual Inc. for about $1.9 billion from the Federal Deposit Insurance Corporation, or FDIC.

The New York-based JPMorgan reportedly has used purchase accounting, which allows it to record impaired loans at fair value, marking down $118.2 billion of assets by 25%. JPMorgan took a $29.4 billion write down on WaMu's holdings, mostly for option adjustable-rate mortgages and home equity loans.

The purchase-accounting rule provides banks with an incentive to mark down loans they acquire as aggressively as possible. One of the benefits of purchase accounting is after marking down the assets, one can accrete them back in, which is said to be favorable over the long run.

Now, as borrowers pay their debts, the bank reportedly says it may gain $29.1 billion over the life of the loans in pretax income before taxes and expenses.

JPMorgan aside, Wells Fargo, PNC Financial Services Group Inc., and Bank of America Corp. are also poised to benefit from taking over home lenders Wachovia Corp., Countrywide Financial Corp. and National City Corp., the report said citing regulatory filings.

Regional Federal Reserve Banks Think the Geithner-Bernanke-Summers Plan Is Failing the Real Economy

Torches on the right, and pitchforks on the left.

Have a happy Memorial Day weekend to all our readers in the States. US markets will be closed on Monday.

Perhaps a reminder that the freedom won by those who came before us at so dear a price should not be dealt away so easily out of fear and greed.

"But, in a larger sense, we can not dedicate - we can not consecrate - we can not hallow - this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us - that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion - that we here highly resolve that these dead shall not have died in vain - that this nation, under God, shall have a new birth of freedom - and that government of the people, by the people, for the people, shall not perish from the earth."

CentralBankNews.com
Why the regional feds are up in arms
22 May 2009

A number of presidents of regional Federal Reserve banks and senior staff have recently expressed dissent from the official line taken by the US authorities in managing the banking crisis.

This development may surprise central bankers in other countries, used as they are to enforcing conformity among officials of their organisation to the official line. It would be astonishing, for example, if several governors of euro-area central banks were to suddenly challenge Jean-Claude Trichet's handling of the crisis or the crisis management policies of governments of euro member states. Collective responsibility and cover-ups are the watchwords in Europe.

The heads of the district fed banks are particularly concerned with the inequities and inefficiencies arising from official protection of banks deemed too big to fail.

Hoenig speaks out -

In April, Tom Hoenig, president of the Kansas City Fed, said that actions that had been taken in an attempt to protect the largest US institutions from failure risked "prolonging the crisis and increasing its cost."

Support for firms considered too big to fail had provided them with a competitive advantage and subsidised their growth with taxpayer funds. They were, he said, not only too big but also "too complex and too politically influential to supervise on a sustained basis without a clear set of rules constraining their actions."

To those who might be surprised at such forthright criticism from a senior official, he reminded his listeners that the 12 regional banks were set up by Congress "specifically to address the populist outcry against concentrated power on Wall Street." He added: "Its structure reflects the system of checks and balances that serves us well at all levels of government, and it is the reason I am here today able to express an alternative view."

- Lacker protests

A few weeks later another senior Federal Reserve official also asserted that the implicit guarantee that the government would step in and save those institutions deemed too big to fail was a key cause of the current economic malaise.

Speaking at the Asian Banker Summit in Beijing on 11 May, Jeffrey Lacker, president of the Richmond Fed, said that the existence of the financial safety net created incentives for too-big-to-fail institutions to pay little attention to some of the biggest risks.

"Their tendency to underprice such risk exposures reduces market participants' incentive to prepare against and prevent the liquidity disruptions that are financial crises, thus increasing the likelihood of crises."

It was, Lacker said, "worth noting that some large firms that appear to have benefited from implicit safety-net support were heavily involved in the securitisation of risky mortgages."

Lacker said that the implicit belief that some institutions were too big to fail had built up over the years in response to a series of events and government actions involving large financial institutions.

- and Stern maintains his criticism

Gary Stern, the president of the Minneapolis Federal Reserve has also been a vociferous critic of the Fed's bank bailouts. Writing with Ron Feldman, the senior vice president for supervision, regulation and credit at the Minneapolis Fed, for a book entitled Towards a New Framework for Financial Stability (published by Central Banking Publications), Stern said that the Fed was right to come to Bear's rescue, but criticised the decision to expand its safety net as "not subtle or implied." "Uninsured creditors of other large financial firms may now have heightened expectations of receiving government support if these firms get into trouble," he said.

More recently, in a statement to the Committee on Banking, Housing and Urban affairs on 6 May, Stern returned to the subject: "If policymakers do not address TBTF [too big to fail], the United States will likely endure an inefficient financial system, slower economic growth, and lower living standards than otherwise would be the case."

Gary Stern is retiring as he turns 65 in a few months, the mandatory retirement age for senior officials in the reserve banks.

Contrary to public perception, the 12 regional Fed banks are not government agencies. Nor are they private banks. Each is owned by member commercial banks.