This morning before Congress Treasury Secretary Turbo Tax Tim said that the stress test results show that the 'vast majority' of US banks have more capital than they need.
Right. Most real banks, who do banking, have sufficient capital and have been well managed.
Its only the five or six largest money center banks that have trillions in bad debt and toxic derivatives that threaten to soak up all the available capital in the real economy.
Its the vast majority of banks who have been sound in their credit expansion and risk management who are paying the price through higher FDIC fees, along with the taxpayers, as Tim and Larry support the Wall Street oligarchs.
The action in the equity markets ahead of Tim's remarks was about as blatant as it gets. This is getting to be disgusting.
Market manipulation and rampant financial speculation with public funds will continue until we are confident that the economy has improved. When the electricity fails because of malinvestment in the real world economy, the Obama people can have public service community organizers deliver pamphlets door to door telling us how good things are becoming.
April 21 (Bloomberg) -- Treasury Secretary Timothy Geithner told a congressional panel that the “vast majority” of U.S. banks have more capital than needed.
He also said there are signs of thawing in credit markets and some indication that confidence is beginning to return.
“Indicators on interbank lending, corporate issuance and credit spreads generally suggest improvements in confidence in the stability of the system and some thawing in credit markets,” Geithner said in prepared testimony to the committee overseeing the Troubled Asset Relief Program.
Earlier today, Geithner said the program has enough money for bank rescues even under “conservative” estimates.
Geithner reiterated the Treasury’s view that about $135 billion is still available for bank rescues, out of $700 billion originally authorized by Congress.
The total includes about $590 billion that has been allocated so far for various TARP activities, leaving $110 billion remaining. Also, the Treasury expects $25 billion in repayments this year, leading to the total projection of $135 billion available.
“We believe that even under the conservative estimate of available funds described here, we have the resources to move forward implementing all aspects of our Financial Stability Plan,” Geithner said in a letter to Elizabeth Warren, the chair of the Congressional Oversight Panel.
May Have More
The Treasury first put forward these estimates in late March. In the letter, Geithner said it’s possible the Treasury may have even more money remaining, depending on how many banks repay TARP and whether the housing program uses its full allocation.
“Our projections anticipate only $25 billion will be repaid” over the next year, Geithner said. This figure is “lower than many private analysts expect,” he said.
Geithner’s letter comes on the same day as a separate report on the rescue program prepared by Neil Barofsky, the special inspector general for TARP. Barofsky said his office has six audits underway about various elements of the program.
One of these inquiries is looking into federal assistance to Bank of America, which has benefited from three different bank rescue programs, and Treasury’s decision to extend aid in connection with Bank of America’s acquisition of Merrill Lynch. The audit was expanded to include the other eight large banks that received TARP funding in October 2008, the report said.
The reporters on this story: Rebecca Christie in Washington
21 April 2009
Geithner: "Vast Majority" of US Banks Have More Capital Than Needed
Collapsing US Aggregate Demand Strikes Imports Hardest
Falling aggregate Demand and the weaker dollar have finally broken the back of the parabolic growth of imports and the US trade deficit.
As one can see, imports have been hit much harder than exports. This is why Japan and China will be struggling with their export driven GDPs.
This is the worst decline in retail sales in the post World War II era.
The US consumer has finally hit the wall. The folks in DC think they can crank this Frankenstein monster of reckless consumption back up again, given the right jolts of liquidity and spin.
To think that consumers will start borrowing and buying again without a meaningful change in the dynamic of their cashflows implying an increase in the median wage, is a hard to believe. Even for the reckless American consumer, this episode has been daunting to their over-confidence, and rightfully so.
Let's hope they don't just patch this bubble and blow it back up again. But it certainly appears as though Larry, Ben and Tim are going to try and take it to the limit one more time.
20 April 2009
17 April 2009
Crony Capitalism and Incompetence Doom Obama Economic Plans Says Nobel Laureate
Nothing you have not heard here before, and frequently.
But this is a Nobel Prize winner in Economics saying it, and a Democratic appointee to boot.
"The people who designed the plans are either in the pocket of the banks or they’re incompetent."
That sounds like Larry Summers and Tim Geithner in a nutshell to us.
Joe Stiglitz is assuming that Crew Obama really WANT to fix the economy and serve their nation. It seems possible that, being out of power for so many years, the Democratic leaders are handing out favors to their campaign contributors and feathering their nests for the future.
Then they'll worry about the public welfare. Political reform, Chicago-style.
The banks must be restrained, and the financial system must be reformed, before there can be any meaningful recovery in the real economy.
Bloomberg
Stiglitz Says Ties to Wall Street Doom Bank Rescue
By Michael McKee and Matthew Benjamin
April 17 (Bloomberg) -- The Obama administration’s bank rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.
“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.” (That pretty much covers Larry Summers and Tim Geithner, respectively - Jesse)
The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street.
“We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said.
The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.”
Rather than continually buying small stakes in banks, the government should put weaker banks through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said. (Personally I'd give the bondholders a very high and tight haircut - Jesse)
Nobel Prize
Stiglitz, 66, won the Nobel in 2001 for showing that markets are inefficient when all parties in a transaction don’t have equal access to critical information, which is most of the time. His work is cited in more economic papers than that of any of his peers, according to a February ranking by Research Papers in Economics, an international database....
Bailing Out Investors
“You’re really bailing out the shareholders and the bondholders,” he said. “Some of the people likely to be involved in this, like Pimco, are big bondholders,” he said, referring to Pacific Investment Management Co., a bond investment firm in Newport Beach, California.
Stiglitz said taxpayer losses are likely to be much larger than bank profits from the PPIP program even though Federal Deposit Insurance Corp. Chairman Sheila Bair has said the agency expects no losses.
“The statement from Sheila Bair that there’s no risk is absurd,” he said, because losses from the PPIP will be borne by the FDIC, which is funded by member banks.
Andrew Gray, an FDIC spokesman, said Bair never said there would be no risk, only that the agency had “zero expected cost” from the program.
Redistribution
“We’re going to be asking all the banks, including presumably some healthy banks, to pay for the losses of the bad banks,” Stiglitz said. “It’s a real redistribution and a tax on all American savers.”
Stiglitz was also concerned about the links between White House advisers and Wall Street. Hedge fund D.E. Shaw & Co. paid National Economic Council Director Lawrence Summers, a managing director of the firm, more than $5 million in salary and other compensation in the 16 months before he joined the administration. Treasury Secretary Timothy Geithner was president of the New York Federal Reserve Bank.
“America has had a revolving door. People go from Wall Street to Treasury and back to Wall Street,” he said. “Even if there is no quid pro quo, that is not the issue. The issue is the mindset.”
Stiglitz was head of the White House’s Council of Economic Advisers under President Bill Clinton before serving from 1997 to 2000 as chief economist at the World Bank. He resigned from that post in 2000 after repeatedly clashing with the White House over economic policies it supported at the International Monetary Fund. He is now a professor at Columbia University.
Critical of Stimulus
Stiglitz was also critical of Obama’s other economic rescue programs.
He called the $787 billion stimulus program necessary but “flawed” because too much spending comes after 2009, and because it devotes too much of the money to tax cuts “which aren’t likely to work very effectively.”
“It’s really a peculiar policy, I think,” he said. (Peculiar? Perhaps he meant the odor. - Jesse)
The $75 billion mortgage relief program, meanwhile, doesn’t do enough to help Americans who can’t afford to make their monthly payments, he said. It doesn’t reduce principal, doesn’t make changes in bankruptcy law that would help people work out debts, and doesn’t change the incentive to simply stop making payments once a mortgage is greater than the value of a house.
Stiglitz said the Fed, while it’s done almost all it can to bring the country back from the worst recession since 1982, can’t revive the economy on its own.
Relying on low interest rates to help put a floor under housing prices is a variation on the policies that created the housing bubble in the first place, Stiglitz said. (You got that right Joe - Jesse)
Recreating Bubble
“This is a strategy trying to recreate that bubble,” he said. “That’s not likely to provide a long-run solution. It’s a solution that says let’s kick the can down the road a little bit.” (They have been kicking this cow pie down the road for so long we're almost at the edge of the world - Jesse)
While the strategy might put a floor under housing prices, it won’t do anything to speed the recovery, he said. “It’s a recipe for Japanese-style malaise.”
Even with rates low, banks may not lend because they remain wary of market or borrower risk, and in the current environment “there’s still a lot of risk.” That’s why even with all of the programs the Fed and the administration have opened, lending is still very limited, Stiglitz said.
“They haven’t thought enough about the determinants of the flow of credit and lending.”
16 April 2009
Second Largest US Commercial Retail Real Estate Company Files for Bankruptcy
This is the tip of the iceberg, still the early stages of failures in the real economy which has been distorted beyond all reason by the outsized financial sector, a failed regulatory regime under the influence of Wall Street, and reckless financial engineering by the Fed.
AP
Mall operator General Growth Properties files for Chapter 11 bankruptcy
Alex Veiga, AP Real Estate Writer
Thursday April 16, 2009, 3:14 pm EDT
LOS ANGELES (AP) -- The nation's second-largest shopping mall owner, General Growth Properties, filed for Chapter 11 bankruptcy protection Thursday in a tough bargaining move to restructure its $27 billion in debt.
General Growth, which owns more than 200 malls including four in Colorado, said shoppers at its malls will not be affected by its bankruptcy filing.
The Chicago-based company is paying the price for its aggressive expansion at the height of the real estate boom. General Growth, like many homeowners during the frenzy, bought several properties at top dollar and now is finding lenders unwilling to refinance.
The real estate crisis has been slow to affect the market for retail, hotels and office buildings. But the delinquency rate for commercial loans, while still relatively low, is creeping up and could deepen the economic recession.
"While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11," Chief Executive Adam Metz said in a statement.
The news sent the real estate investment trust's stock down 16 cents, or 15 percent, to 89 cents in midmorning trading. The stock traded last spring as high as $44.23.
The move by the General Growth had been widely anticipated since the fall, when the company warned it might have to seek bankruptcy protection if it didn't get lenders to rework its debt terms. Efforts to negotiate with its creditors ultimately fell short late last month.
Chapter 11 protection typically allows a company to hold off creditors and operate as normal while it develops a financial reorganization plan.
The company had about $29.6 billion in assets at the end of the year, according to documents filed with the U.S. Bankruptcy Court in the Southern District of New York.
The company noted that some subsidiaries, including its third party management business and joint ventures, were not part of the bankruptcy petition.
General Growth said it intends to reorganize with the aim of cutting its corporate debt and extending the terms of its mortgage maturities. The company has a financing commitment from Pershing Square Capital Management of about $375 million to use to operate during the bankruptcy process.
Last month, General Growth said it got lenders to waive default on a $2.58 billion credit agreement until the end of the year.
But its Rouse Co. subsidiary failed to convince enough holders of unsecured notes worth $2.25 billion as of Dec. 31 to accept a proposal that would let the unit avoid penalties for being behind on its debt payments and give it some time to refinance its debt load.
In February, the company reported lower-than-expected fourth-quarter funds from operations and a dip in revenue amid weaker retail rents.
The company has suspended its dividend, halted or slowed nearly all development projects and cut its work force by more than 20 percent. It also has sold some of its non-mall assets.
15 April 2009
This Is Your Economy on Credit Crack - and Heading for a Crack-Up
Here is a clear and simple explanation of why we may have already passed the point at which the Fed and Treasury will have no choice but to substantially devalue the bonds and reissue a 'new US dollar' as part of a managed default on our sovereign debt.
Ben's Un-shrinkable Balance Sheet
Delta Global Advisors
April 14, 2009
As he stated again clearly today, the Chairman of the Federal Reserve has deluded himself into thinking that when the time comes, he will be able to shrink the size of the Fed's balance sheet and reduce the monetary base with both ease and impunity. He also has deluded himself into thinking inflation will be easily contained.
It is very important that he does not fool you as well.
The Fed believes low interest rates should not be the result of a high savings rate, but instead can exist by decree, a conviction which has directly led consumers to believe their spending can outstrip disposable income.
The result of such thinking has been a rise in household debt from 47% of GDP in 1980 to 97% of total output in Q4 2008. As a result of this ever increasing burden, the Fed has been forced into a series of lower lows and lower highs on its benchmark lending rate. Keeping rates low is an attempt to make debt service levels manageable and keep the consumer afloat. Problem is, this endless pursuit of unnaturally low rates has so altered the Fed's balance sheet that Mr. Bernanke will be hard-pressed to substantially raise rates to combat inflation once consumer and wholesale prices begin to significantly increase.
Banana Ben Bernanke has grown the monetary base from just $842 billion in August 2008 to a record high of $1,723 billion as of April 2009. But it's not only the size of the balance sheet that is so daunting; it's the makeup that's becoming truly scary.
Historically speaking, the composition of the Fed's balance sheet has been mostly Treasuries. And the Federal Open Market Committee would typically raise rates by selling Treasuries from its balance sheet into the market to soak up excess liquidity. However, because of the Fed's decision to purchase up to $1 trillion in Mortgage Backed Securities (and other unorthodox holdings), it will not be selling highly-liquid US debt to drain reserves from banks. Rather, it will be unwinding highly distressed MBS and packaged loans to AIG. Not to mention the fact the Fed would have to break its promise of being a "hold-to-maturity investor" of such assets.
Moreover, not only are the new assets on the Fed's balance sheet less liquid but the durations of the loans are being extended. According to Bloomberg, the Fed is contemplating extending TALF loans to buy mortgaged backed securities to five years from three after pressure it received from lobbyists and a failed second monthly round of auctions. That means when it finally decides it's time to fight inflation, the Fed will find it much more difficult to reverse course.
But because of the extraordinary and unprecedented (some would say illegal) measures Mr. Bernanke has implemented, only $505 billion of the $2 trillion balance sheet is composed of U.S. Treasury debt. Today, most Fed assets are derived from the alphabet soup of lending programs including $250 billion in commercial paper, $312 billion of Central Bank liquidity swaps and $236 billion in mortgage-backed securities.
Thus, our economy has become more addicted than ever to low interest rates. But because bank assets will now be collecting income at record low rates, when and if the Fed tries to raise rates it will only be able to do so on the margin. If Bernanke raises rates substantially to fight inflation, banks will be paying out more on deposits than they collect on their income streams. Couple that with their already distressed balances sheets and look out!
Additionally, not only do the consumers need low rates to keep their Financial Obligation Ratio low, but the Federal government also needs low rates to ensure interest rates on the skyrocketing national debt can be serviced. Our projected $1.8 trillion annual deficit stems from the belief that the government must expand its balance sheet as the consumer begins to deleverage. In fact, both the consumer and government need to deleverage for total debt relief to occur, else we're just shuffling debts around and avoiding a healthy deleveraging entirely.
In order to have viable and sustainable growth total debt levels must decrease, savings must increase and interest rates must rise. But that would require an extended period of negative GDP growth-a completely untenable position for politicians of all stripes. Ben Bernanke would like you to believe inflation will be quiescent and he can vanquish it if it ever becomes a problem. Just make sure you don't invest as though you believe him.
14 April 2009
Goldman Sachs Buries Losses to Beat the Estimates
That canny crew at Goldman Sachs does it again.
Last night in a surprise move Goldman announced their earnings early, showing a surprising profit of $1.8 billion, beating the Street estimate handily. The bulk of their profit purportedly came from speculative trading for their own accounts, using 'cheap FDIC guaranteed funds.'
Goldman also took the opportunity to announce a new stock issue designed to allow shareholders to help them pay back their government TARP funds. Since Goldman is putting aside 50% of its profits for employee bonuses even now, while they are still holding government subsidies, the reasons for this are obvious.
What was not reported last night is that Goldman had changed their reporting periods to begin the 1st quarter in January 2009 when they declared themselves to be a bank holding company. Prior to that, their fiscal 2008 year ended on November 30.
This made the month of December 2008 an 'orphan month' that was ignored in the financial headlines.
Goldman took this opportunity to realize some hefty writedowns in that December one month report, to the tune of approximately $1.3 Billion in pre-tax losses.
So, to earn an impressive $1.8 Billion in the first quarter, Goldman disposed of their losses in a largely ignored December filing. This facilitated their share offering with the 'wonderful earnings news' which Matt Miller of Bloomberg referred to approximately every five minutes as "blowing away their numbers."
However, this morning, Matt did mumble something about Goldman "maybe not blowing away their numbers."
Goldman did nothing illegal in their management of their earnings, both in the way in which they parsed the losses into a 'stub month' which was ignored, or in their decision to time an early announcement of 'exceptional profits' with a stock offering. But the financial press handled this badly, and considering the huge debt and forebearance Goldman owes to the government and the public it was not befitting a major institution with strong ties to the Obama administration.
The only thing getting blown away around here are the shareholders, taxpayers, and anyone else who buys what Wall Street in general is selling these days.
The banks must be restrained and the financial system reformed before we can have a genuine economic recovery.
