Archive - Oct 6, 2012

For those curious how the Fed's ongoing takeover of the US bond market looks like, below is a visual update.

Back in October of 2010, when we first exposed Bank of America as massively underreserved for putback, Rep and Warrant and various other forms of litigation, we predicted that once the precedent is set for ever escalating litigation against transgressions banks committed in the Old Normal (the biggest of which was the worst M&A deal of all time: BofA buying Countrywide and with it hundreds of billions in contingent liabilities), very soon banks would be swamped with a tsunami of litigation. And after all, it's only "fair" - the banking industry would not exist if its wasn't for the Fed and government's bailout and backstop of tens of trillions in liabilities at the peak.  Now it's time for some "wealth redistribution" - only instead of said government-funded wealth tricking down to the common man, the only social group set to benefit are America's lawyers. Fast forward two years to October 2012, and what we predicted is precisely what has happened. As the chart below shows various "environment charges" aka charges related to mortgage put-backs, legal and foreclosure related issues, have soared to a record 16% of pre-provision earnings. As Goldman calculates, this is reducing EPS and returns by an average 17%! Where it this "profit" going? Mostly to various class cation suit organizing law firms and to pay for $800/hour legal retainers.

There is a popular belief in the Middle East that Washington’s foreign policy, particularly as it relates to this precarious region, is largely driven by America’s dependency on, and insatiable appetite for Arab oil.  One can make a good argument for that. Had Syria been a major oil producing country chances are the US would have already dispatched military forces to impose a pax Americana and to put a stop to the horrific fighting that has been slowly, but without any doubt, ripping Syria apart and dismantling the infrastructures that make the Syrian state what it is today. Even if the war was to end today it would take years for Syria to return to its pre-war position from an economic and military perspective.

Just because the middle east did not have enough countries and/or terrorist organizations shooting at random things, in outright attempts of provocation or otherwise, here comes Israel to join the party. From Reuters: "The Israeli air force shot down a drone after it crossed into southern Israel on Saturday, the military said, but it remained unclear where the aircraft came from. "An unmanned aerial vehicle was identified penetrating Israeli air space this morning, and was intercepted by the Israeli Air Force at approximately 10 a.m. (0700 GMT)," the military said in a brief statement. Soldiers were searching the area where the drone was downed - in the northern part of the Negev desert - to locate and identify the drone, the statement said. The Negev desert is near Israel's southern borders with the Gaza Strip, Egypt, Jordan and the occupied West Bank."

History has shown us countless times that centrally-­?planned, command style economies do not produce long-­?term economic growth. We’ve seen this will the Soviet Union, the UK, the US-­?since the Tech Crash, and today in China.

Spain was already experiencing a banking crisis as well as a sovereign crisis. It’s now on the verge of a constitutional crisis (as well as its ongoing sovereign and banking crises).