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.

Fitch Downgrades Illinois and Warns of Further Actions as Budget Gap Widens

Illinois is financially the fifth largest US state with a 2008 GDP of approximately $633 Billion.

To put this in perspective, the 2008 GDP for the nation of Greece was approximately $357 Billion.

The largest state is California with $1.8 Trillion in 2008 GDP, roughly on a par with Russia, Spain, or Brazil,

The US is also considering accounting rule changes that will require the states to more accurately reflect and more fully fund their pension obligations for government employees.

The problem of States' debt is made more problematic by decreasing state tax revenues and the enormous demands of the US Federal government for more tax revenues on their citizens' incomes, and the crowding effect in markets by the record amounts of sovereign debt issuance which is largely short term and must be rolled over regularly.

The Bond Buyer
Fitch Downgrades Illinois to A-minus
By Yvette Shields
March 29, 2010

CHICAGO — Fitch Ratings late Monday downgraded Illinois’ general obligation rating one notch to A-minus and warned of possible further action by leaving the state’s credit on negative watch ahead of $1.3 billion of short- and long-term GO issuance in three deals over the coming weeks.

Gov. Pat Quinn had hoped that the General Assembly’s passage last week of pension reforms would stave off any negative rating actions and buy the state some additional time to address a nearly $13 billion budget deficit and liquidity crisis in the current legislative session.

But Fitch analysts said the state’s challenges are too severe and persistent. They believe it is unlikely the fiscal 2011 budget will “sufficiently address either the annual operating deficit or accumulated liabilities.”

The results of the current session will drive analysts’ decision as to whether Illinois holds on to its current rating level. Fitch dropped the state’s $23.4 billion of GO debt two notches down to its current level last July.

Fitch’s action follows Standard & Poor’s decision on Friday to place the state’s A-plus rating on negative CreditWatch. Moody’s Investors Service on Monday affirmed its A2 rating and negative outlook.

Bernanke Confronts the Kondratieff Winter at His Feast of Malinvestment

Here is some cultural diversion for a slow trading day.

Although this is not the best performance, it has subtitles in English which is a plus when trying to draw parallels for an audience unlikely to be fluent in Italian, or familiar with the libretto. This staging does not quite show it as vividly as some others I have seen, but at the end of the scene the ghost of the Commendatore drags Don Giovanni with him into hell. In this opera Leporello, the common man, escapes the fate of his master. In our analogy, I am afraid Don Bernanke may be dragging the common people along with him.

The SP is suspended in a tight range, with the big resistance at 1180 and support at 1155.

This is a holy week for Christians and Jews, and trading is light. The market is waiting for the Jobs Report on Friday, April 2. It would probably have been more appropriate to bring it on on April 1 (April Fool's Day).

I'm looking for a positive headline number of about 76,000, but it could be higher if they knock down the prior months in revision and move the jobs gains forward.

Discussion of market manipulation in the SP futures is becoming more open, with the noting of the propping in the SP futures becoming very pronounced. An exogenous shock could send the US equities markets into an air pocket. But those are tough odds to play.

The World Gold Council has finally acknowledged that China is becoming a big buyer of gold bullion, and this trend is likely to gain momentum. Despite their name, the WGC is the most timid and reserved of industry associations ever seen, often downplaying their own industry to a fault.

Memories of a Walk on the Appian Way, Some Years Ago

About 18 years ago during a trip to Rome with my wife, who was then pregnant with my son, I visited the room in which the English poet John Keats died of consumption, just off to the left of the Spanish Steps, looking down into the Piazza di Spagna. The year before I visited the house in Hampstead Heath at which he is said to have written, "Ode to a Nightingale."

Later that day we visited his gravesite in the Cimitero degli Inglesi, and read the inscription on his tombstone.

This Grave contains all that was mortal, of a Young English Poet, who on his Death Bed, in the Bitterness of his heart, at the Malicious Power of his enemies, desired these words to be Engraven on his Tomb Stone: Here lies One Whose Name was writ in Water.

I think we may afterwards have taken a bus, because I remember being vaguely scandalized at the disorder of the ticket process, which was apparently used only by tourists on their way to the catacombs. But at some point we reached the ancient wall of the city, and continued walking through the Porta San Sebastiano, south on the Via Applia in search of an old restaurant at which I desired to have our customary late lunch after a morning of rigorous walking. After a little while on the road we came to a small but very charming church, the Chiesa di Santa Maria in Palmis, but more commonly known as Chiesa del Domine Quo Vadis. I went inside, and to my surprise, this was the place referenced by Henryk Sienkiewicz in his famous book, Quo Vadis.

Old cities and places are full of a mixture of legend and history. I imagine that the story upon which the novel was based was one of those oral traditions that are handed down and embellished over time, not having been codified and fixed into a proper text, which as you may recall is how the Bible was brought together from a myriad of writings and authors.

I have to admit that it was a moving experience, to visit the places where these things are likely to have occurred in whatever particular way. The scoffers have a little less swagger since Heinrich Schliemann found the site of Troy from the text of Homer. It reminds us that Keats, and Peter, and Nero, and Petronius, and so many other figures remembered were real people, making decisions with confusion, worries, concerns, fears, and the rest of the issues that we all have today.

Here is the relevant section from Synkewicz's book.

"About dawn of the following day two dark figures were moving along the Appian Way toward the Campania.

One of them was Nazarius; the other the Apostle Peter, who was leaving Rome and his martyred co-religionists.

The sky in the east was assuming a light tinge of green, bordered gradually and more distinctly on the lower edge with saffron color. Silver-leafed trees, the white marble of villas, and the arches of aqueducts, stretching through the plain toward the city, were emerging from shade. The greenness of the sky was clearing gradually, and becoming permeated with gold. Then the east began to grow rosy and illuminate the Adban Hills, which seemed marvellously beautiful, lily-colored, as if formed of rays of light alone.

The light was reflected in trembling leaves of trees, in the dew-drops. The haze grew thinner, opening wider and wider views on the plain, on the houses dotting it, on the cemeteries, on the towns, and on groups of trees, among which stood white columns of temples.

The road was empty. The villagers who took vegetables to the city had not succeeded yet, evidently, in harnessing beasts to their vehicles. From the stone blocks with which the road was paved as far as the mountains, there came a low sound from the bark shoes on the feet of the two travellers.

Then the sun appeared over the line of hills; but at once a wonderful vision struck the Apostle's eyes. It seemed to him that the golden circle, instead of rising in the sky, moved down from the heights and was advancing on the road. Peter stopped, and asked, --

"See thou that brightness approaching us?"

"I see nothing," replied Nazarius.

But Peter shaded his eyes with his hand, and said after a while,

"Some figure is coming in the gleam of the sun." But not the slightest sound of steps reached their ears. It was perfectly still all around. Nazarius saw only that the trees were quivering in the distance, as if some one were shaking them, and the light was spreading more broadly over the plain. He looked with wonder at the Apostle.

"Rabbi. What ails thee?" cried he, with alarm.

The pilgrim's staff fell from Peter's hands to the earth; his eyes were looking forward, motionless; his mouth was open; on his face were depicted astonishment, delight, rapture.

Then he threw himself on his knees, his arms stretched forward; and this cry left his lips, --

"O Lord! O Lord!"

He fell with his face to the earth, as if kissing some one's feet.

The silence continued long; then were heard the words of the aged man, broken by sobs, --

"Quo vadis, Domine?" (Where are you going, Lord?)

Nazarius did not hear the answer; but to Peter's ears came a sad and sweet voice, which said, --

"If you desert my people, I am going to Rome to be crucified a second time."

The Apostle lay on the ground, his face in the dust, without motion or speech. It seemed to Nazarius that he had fainted or was dead; but he rose at last, seized the staff with trembling hands, and turned without a word toward the seven hills of the city.

The boy, seeing this, repeated as an echo, --

"Quo vadis, Domine?"

"To Rome," said the Apostle, in a low voice.

And he returned.

Paul, John, Linus, and all the faithful received him with amazement; and the alarm was the greater, since at daybreak, just after his departure, praetorians had surrounded Miriam's house and searched it for the Apostle. But to every question he answered only with delight and peace, --

"I have seen the Lord!"

And that same evening he went to the Ostian cemetery to teach and baptize those who wished to bathe in the water of life.

And thenceforward he went there daily, and after him went increasing numbers. It seemed that out of every tear of a martyr new confessors were born, and that every groan on the arena found an echo in thousands of breasts. Caesar was swimming in blood, Rome and the whole pagan world was mad. But those who had had enough of transgression and madness, those who were trampled upon, those whose lives were misery and oppression, all the weighed down, all the sad, all the unfortunate, came to hear the wonderful tidings of God, who out of love for men had given Himself to be crucified and redeem their sins.

When they found a God whom they could love, they had found that which the society of the time could not give any one, -- happiness and love..."

Quo Vadis, by Henryk Sienkiewicz, 1905

It is too bad that it is not read much today, because it is a really charming book. I think it has been made into several movie versions. I liked the one with Klaus Maria Brandauer, although the earlier epic with Robert Taylor and Deborah Kerr is more famous and probably more popular. The novel was a worldwide best seller in its day from about 1906 to 1930. I remember at the time I read it in 1968 enjoying it because of the portrayal of T. Petronius, Nero's Arbiter Elegantiae, who is said to have written the first western novel, The Satyricon. Such as I was, the budding classicist and natural scientist, a new modern man as my teacher and mentor would say.

The world turns to such things, but especially during times of suffering and trouble, when the great men and the masters rise up once again and proclaim their dominion. Perhaps it, or some things like it, will have a revival when the madness is once again unleashed, and The New Rome falls, and the New Temple is sacked.

And where is the Emperor Nero now, the lord of the world, but a memory, returned to the earth as the dirt and dust beneath some young child's fingernails, to be plucked out and discarded with a 'tut tut' by an observantly doting mother.