Fail

New year window dressing was responsible for the micro yields on bill auctions pre-New Year. Or so the theory went. So why did we just have another effectively zero bill auction? And no, the Lehman scramble for risk-free parallel is oh so very inappropriate here - after all funds have to window dress their Dec. 31 2010 results... Granted, a little early. So we ask, again, who is buying stocks when real money is willing to accept zero returns to park their cash in "risk-free" equivalents. Liberty 33 - once again, the podium is all yours.

For some reason Zero Hedge is prone to take a great deal of heat (both directly radiated and reflected) whenever we opine on the (rather obvious to us) prospect that interest rates might actually (quelle surprise) rise in this environment.  Today, rather than engage in "we told you so" gloating, or endure the repetitive pleadings of commentators that this or that Treasury auction was really a success if you just look a little deeper at the figures, we'll just quote Bloomberg quoting other fixed income observers on today's auction of two years, in an article "ambiguously" titled "U.S. 2-Year Yields Highest Since October After $44 Billion Sale."

One of the numerous adverse side-effects of the horrendous policy decision to start bailing out each and every risky bank, and thus allowing no more risk in any investment (for the time being), has been the very simple observation that massively mispriced risk has gotten concentrated to an unparalleled degree among very few players. The population of Big Banks has been massively trimmed (Goldman thanks everyone for allowing them to have massive Fixed Income bid/ask spreads) and now a mere five banks account for the bulk of loans, deposits, and derivative exposure. When the economy is faced with another Lehman event at some point in the future, when bailing one of the Big 5 is no longer feasible, the delayed consequences which have so far been successfully swept under the rug, will come back in time and bury any positive legacy that the Man Of The Year may have created. One indication that this time may be sooner than most think comes out of the St. Louis Fed itself, which has released a paper titled "The evolving size distribution of banks" in which it highlights the expected: big banks are getting bigger, and are holding a record share of all rosky assets. When the asset repricing moment occurs, absent an apriori renewal of Glass-Stagall, look for the inevitable moment of complete House Of Cards collapse.

The passage of time, in addition to being subject to dilation through the effects of e.g., relative velocity, also suffers numerous perceptual contortions depending on the observer's particular state of mind. For the purposes of day to day affairs, most humans not at relative velocities to their immediate surroundings that reach a significant fraction of the speed of light, would find these subjective changes normally accounting for the largest perceived deltas in the passage of time ("a watched pot never boils, etc.") Of course, as with most of the laws of nature, the regina scientiarum and, if you believe their analysts, even the laws of thermodynamics, when it comes to the ratings agencies, all bets are off and mere humans unable to shift their perceptions into rates more in line with geologic observations will be doomed to frustration and folly. So it is this morning with Moody's, which has, ever so subtly, maybe warned of what might someday develop into conditions that, in exactly the right environment, could potentially result in a downgrade for the Aaa rated United States and the United Kingdom... maybe sometime around 2013 or so, maybe. (Proving once and for all that Moody's finally fired analysts John Cusack and Amanda Peet).

Cue loud music which gets everyone up on their feet ...

Courtesy of the SIGTARP's latest report, the events on November 6 and 7th, when Wall Street lackey extraordinaire Tim Geithner decided to pay $27.1 billion to make all of AIG's counterparties whole, have attained even more granularity. The main thing disclosed is just how willing Geithner was to extract absolutely no concessions from AIG's counterparties, and how after putting in a token effort, the best he could do was to just get UBS to agree to a contingent 2% haircut, which would only be effective if all the other counterparties agreed to the same. Of course, this approach failed, and the final "make whole" bailout was a foregone conclusion from the beginning. That Tim Geithner approached his duty of "preserving" taxpayer capital with such disdain, would be grounds for immediately termination for cause in any normal, non-banana society. Alas, America has long ceased being representative of one.

Even as Tim Geithner was boldly lying today on national TV, claiming that he abhors the concept of too big to fail, and condemns moral hazard, behind everybody's back he, together with the entire Obama administration, was trying to pass a law that would shift TBTF from a temporary program into officially canonized law. This is a scandal that has gotten little recognition in most of the MSM: in essence it guarantees that the massive mega banks like Goldman Sachs, BofA, and JPM will take on so much disproportionate risk the next time around (and with a moral-hazard encouraging Federal Reserve as risk regulator virtually guarantees their implosion) that not only will they blow up spectacularly once again, but that their bailout next time around will surely force America, already strapped with trillions of new upcoming debt courtesy of stimulus after stimulus, into sovereign insolvency.

"The middle class became a resource to be pulled from - "the turkey at the thanksgiving dinner" - the middle class has gotten shakier and shakier, it has become hollowed out. The middle class makes us who we are. The middle class gives us political stability. It is safe to walk our streets because we have a middle class. And every time we hollow [the middle class] out we take the risk that something of what we know as America begins to die. That's what scares me." - Elizabeth Warren

The government is STILL defending too big to fail on several ridiculous grounds.

"There is a sense when one reads sufficiently educated publications that a lot of people feel betrayed by financial and economic forecasts. One can argue whether some analysts foresaw what was about to unfold as early as 2006, but fact is most people had it completely wrong." - Nic Lenoir

As you have all read by now, Corus Bancshares went belly up on Friday adding yet another failed institution to the growing hall of shame. What makes Corus unique, however, is that they may have been the first failure with little to no delinquencies in their major loan portfolios.

There was a time when the US would not guarantee the existence of every bank in perpetuity. When weak organizations, with or without untenable balance sheets would have to adapt to survive or simply disappear. It was known as capitalism. And it was about to change completely. However before it did, in those fateful nights before Lehman was not given the taxpayer capital "get out of bankruptcy free" card that Hank Paulson and Ben Bernanke subsequently handed out with such abandon to all other financial firms, Dick Fuld attempted to warn Chairman Ben and Secretary Hank about what would happen if Goldman got its wish of destroying its number one competitor in fixed income capital markets.

The failure by HSKAX and HFRXEMN indices to generate any profits YTD indicates that traditional market neutral players are in peril of being markedly redeemed, or are currently in process. Who steps in to fill in the void is anybody's guess although some assumptions can be made.

Because nothing bad could ever possibly come of this...

"While [your] scare tactic may work in Chicago, it will not work to intimidate me or other Members of the United States Congress."

- Darrell Issa to Rahm Emanuel