The “Transmission Mechanism” Is Broken. As the Fed debates what form of QE to launch on the world and whatever new communication strategies they are going to employ, maybe they should sit back and figure out why their policies seem to be doing so little. The Fed is clearly trying to stimulate the economy. As much as we disagree with many of their policies, we do believe their intentions were to boost the economy and not just help banks make easy money. In spite of their intentions, they have failed and we think it is because they are clinging to two flawed assumptions - the wealth effect and the fact that low rates for banks means low rates for banks' customers. The Fed should be going back and figuring out how to address the failure of the stock market wealth effect and of the bottleneck of the banks.
We are still waiting to see the final form of the "Grand Plan" and what novel ways the EFSF guarantees will be applied to save the day. At the risk of sounding incredibly stupid, I have this feeling that Europe didn't actually work on any details until this past week, and Germany is suddenly realizing how bad the details are for them. Is it possible that some politicians got so caught in the moment of "saving Europe" and "fighting the speculators" that they kept promising more and more, without thinking whether they could or should deliver? You would like to think they didn't, but since none of the politicians are detail oriented, most of their contacts at investment banks are high level, former bankers, rather than traders, it is quite possible they didn't realize what they had agreed to. If some new EFSF is created, all of the future bargaining power in Europe will be shifted from France and Germany to PIIS. (it is a shame Ireland wasn't named Shamrock, it would make the acronym so much better).
And now the political rags will really tear the American Jobs Act, ARRA and the administration, apart, because the Venn diagrams of Enron and Watergate just crossed and the point of intersection is called Solyndra. According to Reuters: "Solyndra LLC's chief executive and chief financial officer will invoke their Fifth Amendment rights and decline to answer any questions put to them at a Congressional hearing on Friday, according to letters from their attorneys obtained by Reuters." But, but, what do they have to hide? And how many times in the past has pleading the fifth not led to a prison sentence for someone? And, implicitly, and potentially, the commencement of impeachment hearings?
Krugman Dementia Alert: Former Enron Consultant Says Jim Rogers "Has Been Absolutely Wrong About Everything"Submitted by Tyler Durden on 11/06/2010 15:50 -0400
While we approach the topic of Paul Krugman with the same eagerness one approaches a clogged up, never cleaned, bathroom at a frat party that is about 50 years past its due date, (pretty much like Keynesianism) this one just put us over the top. In his latest pointless drivel on the economy, instead of reverting to his usual mode of praying to John Keynes, bitching at those who dare call for accountability and the punishment of all those, such as Krugman, responsible for what is now a $4 trillion taxpayer monetary bailout tab, and begging for trillions, then quadrillions, then quintillions, then an infinite amount of money, the Op-Ed writer has instead decided to start a mudslinging campaign against none other than Jim Rogers, the co-founder of George Soros' Quantum Fund, who has been pretty much spot on with his calls for decades.
The appearance of the Chair of the Congressional Oversight Panel, Elizabeth Warren, on Charlie Rose is a must watch. In addition to an in depth discussion of the the consumer protection agency, which despite all valiant attempts to the contrary, will likely end up under the Fed's jurisdiction, thereby making the world's most powerful cabal even more powerful, Warren touches on a variety of other issues, including the sovereign debt situation, commercial real estate, and the one concept at the heart of it all: the lack of impairments by stockholders (and certainly by debtholders) in what was a bankrupt financial industry. The world would not have ended had banks been forced to readjust their balance sheets: the outcome would have been far simpler - all those who had their collective net wealth associated with the balance sheets, and specifically the equity tranche, of firms like Goldman, JPM, Citi, BofA and Wells would have been wiped out. But why do that when not just they, but the entire government were willing to make it seems that a balance sheet reorganization is equivalent to liquidation. Once again, those at the top were more than happy to take advantage of the stupidity of the morts (whose great desire to be distracted by stupidity like primetime TV is well known to the financial-media complex) and in the process make themselves even richer, and more powerful. Now, we expect yet another blogger to come out with yet another book discussing this and every other deadbeaten horse issue out there. And with time amoral hazard itself will slowly become illegal, as everything, and we mean everything, succumbs to the decision making of the Federal Reserve's Politbureau. In the meantime nothing will change until democracy itself is reignited in this country.
Step Aside Greece: How Gustavo Piga Exposed Europe's Enron In 2001 - Focusing On Italy's Libor MINUS 16.77% Swap; Was "Counterpart N" A Threat To Piga's Life?Submitted by Tyler Durden on 02/28/2010 15:21 -0400
It is not often that one finds smoking gun reports which refute all claims, such as those by EuroStat and Angela Merkel, in which the offended parties plead ignorance of the fiscal inferno raging around them, kindled by lies, deceit, and blatant mutually-endorsed fraud, and instead, now facing themselves in the spotlight of public fury, put the blame solely on related party participants, such as, in a recent case, Greece and Goldman Sachs. Yet a 2001 report prepared by Gustavo Piga, in collaboration with the Council on Foreign Relations and the International Securities Market Association, not only fits that particular smoking gun description, but the report itself was damning enough of another country, a country which used precisely the same off-market swap arrangement to end up with an interest expense of LIBOR minus 16.77% (in essence the counteparty was paying Italy 16.77% of notional each year as a function of the swap mechanics), in that long ago year of 1995. The country - Italy (for confidentiality reasons referred to in the report as Country M), was at the time panned as the Enron of the European Union due to precisely this kind of off-balance sheet arrangement by the Counsel of Foreign Relations. The counterparty bank: unknown (at least in theory, since the swap was highly confidential, and was referred to as Counterpart N), but considering the critical similarities in the structuring of the swap contract to that used by Greece in 2001, and that ISMA cancelled Piga's press conference discussing his findings out of fear for the academic's life, we can easily venture some guesses as to which banks value their recurring counterparty arrangements more than human life.
A few days ago we made some observations on the just-announced nearly $4 trillion 2011 budget. The key point was that while the ugly numbers already looked like a superglued Frankenstein monster without a Kardasian botox treatment, or even simple lipstick, it would have been truly disastrous had the administration done what Peter Orzsag threatened he would do 2 years ago, namely bring the GSEs, Freddie and Fannie, on the government's balance sheet. How this is not the case yet is simply stunning: the GSEs enjoy not only the constant "bid of first refusal" courtesy of the Fed's MBS QE program, but an explicit Treasury guarantee that has no ceiling as of last Christmas eve. Bloomberg's Jonathan Weil today came to the same conclusion, although being a Bloomberg employee he was characteristically much more crass, uncouth and downright cynical than the paragon of respected journalistic patois that is the establishmentarian concept known as Zero Hedge. In an attempt to awake the morts out of their stupor, a pandering Weil uses such cheap tricks as hyperventilating allegory, sarcasm, and hyperbole when saying that "[b]y all outward appearances, it seems
Obama and his budget wizards decided that including the
liabilities at Fannie and Freddie would be too much reality for
the world to handle. So they left the companies out, in a trick
worthy of Enron’s playbook, except not quite so hidden." Obviously, Bloomberg has an uphill struggle if its ever wishes to reach profitability (in the trillions of dollars that is... billions is so fin de pre-bailout siecle). We also fear for Weil's job prospects should he ever wish to find an occupation at such a highly respected place, where not only is there a 4 syllable word minimum but no sentences ever end in prepositions, as the Reuters blogosphere. Ironically, Bloomberg did redeem themselves somewhat later today, when in a Tom Keene interview, Goldman policy advisor Arthur Levitt is caught on tape performing more of the same hyperventilating, and in doing so blasting the administration, using the same Enron-esque analogy, when analyzing the paradox of the GSEs and the sovereign balance sheet.
The one most promising legacy out of the greatest corporate con early in the last decade, which by the way was Enron for those of you who may not have been born yet, will undoutedly be its lobbying power. As Politico notes: "Possible successors to Bernanke include three people currently advising Obama on the economy, former Fed chief Paul Volcker, Larry Summers and Christina Romer. Kohn was traveling in Europe at the end of the week on Fed business, but strategy on the Bernanke confirmation was being led by former Enron lobbyist Linda Robertson, who is viewed as an effective advocate for the banking chief on Capitol Hill." One con lobbying for another con: what a swell summation of the sad state of affairs in this once great country.
While some China Bears are busy publicizing prediciton of an utter Dubai or Enron-like collapse in China, Beijing is actually in the process of rebalancing its economy and an overheated real estate market. And gold is poised to benefit the most from this shift.
Former Managing Director of Goldman Sachs: Accounting Fraud of the Too Big to Fails May Be Worse Than EnronSubmitted by George Washington on 12/02/2009 18:32 -0400
It made frontrunning, but I have been re-reading this post by Rortybomb like hypontized.
Explains the government's fascination with acronyms instead of the real names for the different plans: “Forney Perpetual Loop”, “Ricochet”, “Ping Pong”, “Black Widow”, “Red Congo”, “Get Shorty.”
Everyone should read this post.