Countrywide

We have discussed Dallas Fed's Richard Fisher's money-where-his-mouth-is perspective on the world before and the (sadly) non-voting member is among UBS' Art Cashin's most respected and candid of the FOMC. A glance through the transcripts that Art highlights below should both make readers sick at the constant pollyanna-ish nature of Fisher's comrades and perhaps more confident that his insights will be listened to more astutely 'the next time' as he noted at the time "No amount of rewriting of history will exonerate us". Once again, after reading these transcripts, do we really believe that central bankers are omnipotent? or incompetent?

Over a year ago we noted that when it comes to Bank of America "earnings", items which traditionally are classified as non-recurring, one-time: primarily litigation and mortgage related charges, have now become recurring, and all the time, courtesy of the worst M&A transaction of all time - the purchase of Countrywide and its horrifying mortgage book. Today, this is finally being appreciated by the market where even the pompom carriers have said that it is time to start ignoring the endless addbacks and focus on actual earnings. The same cheerleaders have also, finally, understood that the primary source of "profitability" at this lawsuit magnet of a company, is nothing other than the accounting trick known as loan loss reserve releases - not actual profits but merely bottom line adjustments whose purpose is to mitigate the impact of quarterly charge offs on loans gone horrible bad. Remember that Bank of America has some $908 billion in total consumer loans and leases, and every day hundreds of millions of these go 'bad' and ultimately have to be discharged, offset by "hopes" that the future will improve. This hits both the balance sheet and the P&L. So, if one steps back and ignores the non-recurring, one-time noise, what emerges? A truly frightening picture.

Bank of America just reported yet another quarter marked by a bevy of "one-time" charges, which have now become normal course of business, even as NIM declined Y/Y, and sales and trading revenues declined sequentially. Loan loss reserve releases of $900 million more than offset the declining Noninterest income, and contributed to a positive pre-tax net income number. The biggest threat continue to be private Rep and Warrant outstanding claims which increased by almost 42 billion in the quarter to a total of $12.3 billion.

• WSJ picks up on excess "deposits over loans" theme, reaches wrong conclusion: Wads of Cash Squeeze Bank Margins (WSJ)
• SAC Is Bracing for Big Exodus of Funds (WSJ)
• Japan unveils Y10.3tn stimulus package (FT)
• China’s Inflation Accelerates as Chill Boosts Food Prices (BBG)
• Berlusconi Denies Responsibility for Italy Crisis (BBG)
• Fed hawks worry about threat of inflation (Reuters)
• And then the lunatics: Fed easing may not be aggressive enough: Kocherlakota (Reuters)
• BOJ Likely to Take Easing Steps (WSJ)
• Draghi Shifts Crisis Gear as ECB Focuses on Economy Inbox (BBG)
• Argentina Bondholders Lose Bid to Get State-Court Review (BBG)
• Regulators Find Major Euribor Shortcomings (WSJ)
• Basel III Punishes Dutch Over Risk That Isn’t (BBG)
• Bondholders in Crosshairs as Merkel Travels to Cyprus (BBG)

When it comes to the main sovereign story of 2011 and 2012, namely the endless bailout of Greece, now in its third iteration, the conventional wisdom is that courtesy of the near elimination of the country's private sovereign debt and the fact that its official foreign debt held by benevolent taxpayer funded globalist powers (IMF, ECB, EFSF) has been mostly converted into a zero-coupon, perpetual piece of paper, the country is fine. After all it has no debt interest expense to finance, and the only shortfall it has to plug is that created by its primary budget deficit (which as we showed earlier is "improving" on a year over year basis not because the economy is improving, but because the Greek government is simply refusing to pay its bills). So there is nothing more to do but sit back and wait while the economy slowly recovers, the unprecedented internal imbalance with Germany is gradually aligned, are the unemployment rate drops, (while hoping that the population does not die out first) right? Wrong.   Moments ago Kathimerini reported that in 2012, the amount of non-performing loans has exploded by a laughable amount, rising some 50% from December 2011, when it was "only" 16% and stood at 24% last month. And therein lies the rub, because as Kathiermini prudently notes, the "bad loans come to a considerable 55 billion euros. This means that the sum of NPLs already exceeds the total funds set aside for the recapitalization of the local credit system, which amounts to €50 billion."

Oops.

Just when you thought the seemingly endless rabbit hole of Wall Street-Washington corruption, cronyism, co-option, crime and kickbacks may have finally come to an end, here comes the House Ethic Committee to pronounce that no ethics breaches were found among House members in its investigation involving the scandal surrounding Countrywide "VIP loans" and the "Friends of Angelo." And in just doing so, the House effectively cleared itself of any wrongdoing and that's it, case closed - move along... Move along.

Bigger Tax Payer Bank Bailouts Cometh? If You Think Taxes Are Gonna Be Higher You Ain't Seen Nothing Yet! I welcome one and all to show me how it will not be so.

Investors in the TBTF banks need to understand that the business model for this industry has changed.  Thank Liz Warren

We couldn't have said it better: "Bank of America blocks users from accessing websites that present certain risks to the bank."

Farce #1: “Market value” and “free markets” have become a joke.

Farce #2: Private, self-assigned, fake value is being traded for public money at 100 cents on the dollar.

Farce #3: Printed money is backed by nothing.

Farce #4: We have a “free” enterprise system dominated by monopolies that force people to buy inferior goods and services at exorbitant rates.

Farce #5: High-level financial crimes, no matter how egregious or widespread, are not being prosecuted.

Farce #6: Risk is gone. Now there is only liability borne by citizens.

Farce #7: Productivity has been supplanted by parasitism.

You read about it here first (here and here). Now it is time for the sellside (whose products your soft dollars so generously fund) to wake up to what is happening next week.

The Fed has never met a large bank merger that it did not like and has never been willing to deny such an application by a bank holding company, especialy a BHC that houses a primary dealer. 

So now that Vikram Pandit has exited stage right from the CEO position at Citigroup, a number of people have asked me about the Zombie Dance Queen.  

Before the campaign contributors lavished billions of dollars on their favorite candidate; and long after they toast their winner or drink to forget their loser, Wall Street was already primed to continue its reign over the economy. For, after three debates (well, four), when it comes to banking, finance, and the ongoing subsidization of Wall Street, both presidential candidates and their parties’ attitudes toward the banking sector is similar  – i.e. it must be preserved – as is – at all costs, rhetoric to the contrary, aside. Obama hasn’t brought ‘sweeping reform’ upon the Establishment Banks, nor does Romney need to exude deregulatory babble, because nothing structurally substantive has been done to harness the biggest banks of the financial sector, enabled, as they are, by entities from the SEC to the Fed to the Treasury Department to the White House.

• Japan grapples with own fiscal cliff (Bloomberg)
• Japan Protests After Four Chinese Vessels Enter Disputed Waters (Bloomberg)
• Asian Stocks Rise as Exporters Gain on China, U.S. Data (Bloomberg)
• An obsolete Hilsenrath speaks: Fed Keeps Rates Low, Says Growth Is Moderate (WSJ)
• ECB Said to Push Spain’s Bankia to Swap Junior Debt for Shares (Bloomberg)
• Spain’s Bad Bank Seen as Too Big to Work (Bloomberg)
• China postpones Japan anniversary events (China Daily)
• Carney Says Rate Increase ‘Less Imminent’ on Economy Risk (Bloomberg)
• Credit Suisse to Cut More Costs as Quarterly Profit Falls (Bloomberg)
• Obama offers a glimpse of his second-term priorities (Reuters)
• Draghi defends bond-buying programme (FT)