On March 31st, David Sokol appeared on CNBC Squawk Box (to the most distraught Becky Quick we have ever seen) in an attempt to explain why his purchase of of Lubrizol Corp, prior to Berkshire Hathaway's purchase of the Company, was perfectly acceptable. In attempting to provide evidence of this“perfectly acceptable” practice David Sokol said a curious thing (17 minutes 15 seconds in):
I don’t believe I did anything wrong. Charlie Munger owned 3% of BYD before he asked me to go look at it.
Because we all know if everyone is doing it, then it isn't illegal or unethical. Especially if everyone is a member of the Berkshire inner circle. But if the SEC as is now widely reported, is about to make a public spectacle out of David Sokol (if not actually press civil charges because, well, the SEC doesn't actually pursue large scale securities fraud), shouldn't they be looking at ole' Charlie "Suck It In" Munger?
Several days ago, courtesy of an analysis by JPM's Michael Feroli, we quantified that the implied "rents" benefit to the US economy arising from squatters not paying mortgages is about $50 billion per year, or just about 0.4% of GDP. Today, thanks to 60 Minutes, this number is about to soar, because if anyone didn't know before that paying mortgages is for suckers, now virtually every single mortgage borrower, and there are about 48 million of them, will think long and hard before mailing out the next mortgage payment. And if not all, then certainly the 11.1 million underwater mortgages will be one step closer to throwing in the towel on feeding the mortgage monster. Considering that 4.6 million mortgages are currently delinquent for 30 days or more, look for this number to at least double as everyone who is underwater says no mas to a losing game. Which of course is precisely what the banks want: consider that the "rents" benefit is about to double to $100 billion per year, all of which will accrue to the banking system first, then one can see why a $20 billion settlement deal is not a bad investment for the bank to generate a 2.5x ROI in a few short months.
No QE3? Really? Oh yes, Zero Hedge 1, Goldman Sachs (who can possibly forget Goldman's shark jumping "New US Golden Age" report from December after all it took was one bad NFP print for Goldman to launch QE2 back in August?) 0 (here and here)
Goldman summarizes the key phenomena of the last week (inflation) and presents the most important items to watch for: "the post-payrolls week will be relatively light on macro data releases but of course we are heading for a number of central bank meetings against a background of a gradually deteriorating inflation-growth trade-off. Key will be the ECB on Thursday, though a 25bp hike is fully anticipated after the unwaveringly hawkish comments from a number of ECB officials. At the press conference we do not expect to hear an even more hawkish tone from Trichet. There is a lot of Fed speak with Bernanke and Yellen on schedule, among others, as well as the latest FOMC minutes. In last week’s key Fed speech Bill Dudley continued to sound quite dovish highlighting ample spare capacity in the economy still. "
For those wondering just why TEPCO and Japan in general have been in such as scramble to cover up as much of the reactor in a concrete sarcophagus, after up until now the utility had been perfectly happy to come up with one after another useless idea of delaying the inevitable moment of sarcophagation, here is Arnie Gunderson from Fairewinds and Associates explaining that now there is definitive proof, courtesy of Tellurium 129 and a order of magnitude higher concentration of Iodine 131 in Reactor 1, that the reactor is now undergoing sporadic events of recriticality: in other words, the fission reaction is recommencing on its own, and without any supervision, emitting undetectable neutron beams which are irradiating any and all personnel still on location. For the time being these recritical events are isolated, although courtesy of the whole premise behind a nuclear power plant, all it takes is for some form of critical threshold to be reached, and for a full blown self-sustaining chain reaction to result in Chernobyl part 2. If nothing else, we now know why the authorities are desperate to bury everything literally under the sand. Because at least a few thousands tons of concrete will provide a modest buffer for unprecedented amount of radiation before these hit the surrounding environment. Lastly, all those hoping that natural rod cooling is sufficient, and if the plant is left along long enough on its own, things will get better, are now proven wrong. We can only hope the outcome this time will be a tad more favorable than all the previously disastrously aborted attempts at restoring order.
It is no secret that since the start of QE2 in November, the US Treasury has issued a gross $890 billion in debt in the form of various Bond, Bill and TIPS. This is cash that the US received in exchange for promises to pay interest and principal at maturity on various series of bonds. At the same time, over the past 5 months, there was $291 billion in debt maturity paydowns, or cash leaving the Treasury and going to those who are lucky enough to receive principal on US debt at maturity. That leaves a net of $589 billion in debt that was issued between November 1 and March 31: money used to fund the ongoing operations of the United States. This is all perfectly public and well-known. After all, every single auction is loudly announced by CNBC at 1 pm Eastern on auction days, with a breakdown between Direct, Indirect and Primary Dealer takedowns. Note that the Fed does not feature in this list of primary issuance bidders as that would be illegal, and would be monetization beyond even any semantic argument that the Fed does not, in fact, monetize. What is less known is that the true action in US Treasurys occurs in the secondary market, or that dominated by the Federal Reserve. Here is where the daily POMO takes place, where as we have noted on many, many, many occasions Primary Dealers promptly flip bonds purchased during a primary auction right back to the Fed. This is where the real source of Treasury funding comes from. And what many may not be aware of is that since the start of QE2, the Federal Reserve has purchased $491 billion of Treasurys in the Open Market (and $556 billion since the start of QE Lite). This $491 billion in indirect monetizations ultimately ended up funding government cash needs. In other words out of $589 billion in net issuance, the Fed has been responsible for 83.4% of the money needed to fund government transfer payments (among many other uses of funds) and keep the US consumer "strong", not to mention funding US defense, education, healthcare and every other aspect of US day to day cash needs. QE2 is supposed to end in precisely three months. During that time the Fed will fund another $400 or so billion in US cash needs. What happens after, nobody knows.
For all those who need a refresher of the scale issues at Fukushima, below we present a picture showing the scale comparison of a concrete pump and a destroyed nuclear reactor (in this case #4). A picture, in this case, is worth 1,000x scaling.
On this side of the rainbow, “How much money should an uncreditworthy entity be allowed to borrow?” is a rhetorical question. In Washington DC, it’s a topic of much rhetoric. In fiscal year 2009 Congress borrowed 53.5 cents of every dollar they spent. In FY2010 they borrowed 48 cents of every dollar (*check your numbers, Santelli). So they’ve borrowed and spent 3.5 Trillion to produce 255 Billion in GDP growth (7% efficiency!), never even bothered to pass a budget for FY2011, and still haven’t managed to get a single bankster put in jail. Now these whores are lecturing us about “moral obligations.” They also swear they’re gonna straighten up and fly right this time. There is one little detail they forgot to mention – no one actually wants to lend them money. Welcome to the last resort.
GOP To Propose $4 Trillion In Spending Cuts Over A Decade, While A Meager $30 Billion Threatens A Government ShutdownSubmitted by Tyler Durden on 04/03/2011 - 12:04
While the government wrangles over a whopping $30 billion in spending cuts for the 2011 budget (with fiscal 2011 already half way over), which threaten to shut down the government yet which we all know will be successfully addressed in the 11th hour, with a compromise of sorts confirming once again that both parties are incapable of dealing with the relentless climb in US government debt (and oh so eager to turn their back on campaign promises when faced with reality), which unfortunately is the only fuel driving the US economy, the GOP's Paul Ryan is expected to announce a whopper of a 2012 budget, one which trims a record $4 trillion in spending over the next 10 years. What this means is that the GOP is about do away with Obama's health care "revolution" and things are about to go back to the way they were. Not only that, but any hopes the Fed may have had that congressionally-mandated fiscal stimuli will take over the central bank's monetary boosts, can be put to rest, meaning that very soon the Chairman et al will be back to the drawing board debating just how much more cash needs to be injected in the economy next time around (as a rough guideline, we expect it will be about 75% of the next debt ceiling increase). And while we expect the current government shutdown crisis will be resolved within a few weeks on the back of promises of massive cuts over the next decade, which will never happen, the only thing to watch for is how big the debt ceiling increase will be when announced some time over the next 3-4 weeks. Everything else is smoke and mirrors.
You won't hear anything about it from the mainstream financial media or the Federal Reserve, but this chart is screaming "stocks are extremely overvalued." Although the mainstream financial media is touting low price-earnings ratios and permanently rising profits as the backdrop for a permanently bullish stock market, this chart reveals that stocks are more overvalued now than they were just prior to the Great Crash of 1929. Only the bubble of the dot-com era reached a higher extreme.
At this point the majority of the population is transfixed by the biggest borrowers from the discount window. Yes, we know by now that the bulk of these were foreign banks, primarily Dexia and Depfa, but that is simply because only Bank Holding Companies, or depository institutions (and yes, last we checked Goldman deposit branches are still sorely missing), are allowed discount window access. Keep in mind that most banks were Investment Banks and not under the BHC umbrella until after the Lehman collapse. Which is why most banks only had access to the PDCF, which is how the Fed eliminated the loophole for emergency liquidity trickling down to everyone. The majority of US investment banks therefore accessed Fed rescue funding via the PDCF, of which JPMorgan and BofNY Mellon were intermediaries due to their position as the only two tri-party repo clearers and keymasters of the shadow banking mechanism. A quick glance at the PDCF confirms that all banks, pre their conversion to Bank Holdings Companies in the week following Lehman's failure, borrowed from the Fed, if not necessarily from the Discount Window (and yes, as Bob Ivry confirmed, Goldman did borrow directly from the Discount Window on at least five occasions post its "depository status" conversion despite Gary Cohn's perjury to the contrary even as Goldman repeatedly dipped in the PDCF both before and after Lehman's failure, even setting the precedent of first pledging defaulted bonds as collateral before any other solvent bank). Yet what we are more concerned by is not the mega borrowings: after all, it makes sense that if you need tens of billions you will go to the Fed. We are far more concerned by the banks for whom the marginal amount of cash was smallest. Below we present the 171 banks that had to access the Discount Window for the paltry sum of $1,000.00. That's right - these are the banks for whom the margin of failure is as low as one thousand dollars. Any readers who have cash deposited with these banks (many of whom have not yet been visited by the FDIC's Failure Friday phenomenon), are urged to immediately remove all funds and run, Forrest, run.
Courtesy of Open Culture, Inside Job, the scariest Wall Street "horror movie" ever produced can now be seen for free. Charles Ferguson's masterpiece is a must watch for anyone and everyone who has even a passing interest in the intersection of finance, economics, politics, corruption, crime, complacency and above all, the human inability to predict the future when the only driving force is pure greed. And as Open Culture notes, "Inside Job can be purchased on DVD at Amazon. We all love free, but let’s remember that good projects cost real money to develop, and they could use real financial support. So please consider buying a copy." We can only hope that more commentators ilke Ferguson will step up and present the criminal events leading to the greatest economic and market crash since the Great Depression.
Charles Ferguson, who deservedly won an Oscar for his must watch movie of 2010, Inside Job, which exposed such self-caricatures as Larry Summers, Napoleon Dynamite Sr, and Glenn Hubbard for the hollow shams they are, and who made waves by making the only logical statement at this year's Oscar celebration by asking why nobody on Wall Street had gone to prison, appeared on Charlie Rose in yet another must watch interview. Ferguson is once again given a chance to clarify his position on why nobody will likely ever go to prison for what amounts to the greatest generational and class heist ever witnessed: "Do you expect that there will be prosecutions for criminal wrongdoing coming out of what we now know?" The answer: "Whether there will be or not, is a function of political pressure because it is unfortunately disastrously, tragically clear that the Obama administration has no interest in doing anything about this." The reason, according to Ferguson for Obama's (lack of) action is: "there is a menu of answers: he is personally very conflict averse, to cold-blooded political calculation, to lack of experience and therefore insecurity in large very scale economic and financial matters, and therefore being a prisoner of his advisors. Perhaps some combination of all of those things..." In other words true lack of change that banker pocket change can believe in. As for what would take to fix the broken system we find ourselves in: "(i) change the role of money in elections, (ii) to pay regulators well, and (iii) have law enforcement that is necessary to enforce the laws we have." Alas the Inside Job director does not see any of these happening any time soon. Neither does anybody else.
The NYT has compiled a useful visual summary of the current assessment of the Fukushima radiation, distributed by either air, soil, water and food, compiled through the work of the International Atomic Energy Agency and others. The observable trade off is that while the impact of inland radiation has so far been muted courtesy of favorable wind direction and modest rainfall, the actual concentration of radioactivity in the sea and groundwater is rising at an exponential pace. How long before conventional wisdom realizes that radiation tens of thousands of times above normal contaminating the sea is very bad, while one day of northeastern winds will set off every seismic counter in Tokyo?
Tired of poring through thousands of PDF files from the Fed's Bloomberg FOIA release? Curious why Ron Paul said that he "was surprised and deeply disturbed ... to learn the
staggering amount of money that went to foreign banks" and is planning to hold a hearing over emergency loans to the branches of non-U.S.
banks? Then here is the excel file for you: the following publicly shared google docs spreadsheet contains the complete Discount Window loan origination data from March 14, 2008 through March 16, 2009. We offer it so that anyone who wishes to perform their own analysis on the primary data can do so (and needless to say banks noted as FORI in the markstat entity type are foreign borrowers).