Financial Accounting Standards Board

Two days in Washington D.C. kept caterers busy but produced a 2,126 word communique long on slogans and short on anything actionable. The G-20 statement (below) can be boiled down simply, as we tweeted,

G-20 statement: "if we all lie, same as nobody lying"

— zerohedge (@zerohedge) April 19, 2013

And just to add one more embarrassing detail for them, while section 4 discusses "Japan's recent policy actions," not only does Canada's finance minister James Flaherty believe they "didn't discuss the Japanese Yen," but Japan's Kuroda believes, comments on 'misalignments', "were not meant for the BoJ."

Some have attributed the resurrection of the financial markets (or more appropriately the banks) from the March 2009 lows to the IASB/FASB changes to factual to fantasy accounting. The Telegraph reports today that from PIRC's and the Bank of England's Financial Policy Committee that while banker bonuses continue to rise (for now), 'hidden' losses among UK banks could total GBP60 Billion (USD 90 Billion). HSBC topped the list with GBP10.4 Billion in bad debts that have yet to be written off and while the 'accounting' bodies are suggesting they will address criticism of this farce, as one analyst notes, they "can still make unprofitable lending appear profitable." Regulators expect to hear plans from lenders on how they intend to fill these holes before the end of the month to coincide either with the FPC’s meeting on March 19 or a statement scheduled for March 27. While outright recaps are unlikely, banks are expected to restructure and set out plans to raise their capital levels over the next couple of years. More fantasy...

What really strikes us is the universal belief by the majority of analysts, economists and commentators, that there is currently "no evidence" of an asset bubble.  This idea was further confirmed by Bernanke's testimony last week he explicitly stated: "I don't see much evidence of an equity bubble" In the long term it will ultimately be the fundamentals that drive the markets.  Currently, the deterioration in the growth rate of earnings, and economic strength, are not supportive of the speculative rise in asset prices or leverage.  The idea of whether, or not, the Federal Reserve, along with virtually every other central bank in the world, are inflating the next asset bubble is of significant importance to investors who can ill afford to once again lose a large chunk of their net worth. It is all reminiscent of the market peak of 1929 when Dr. Irving Fisher uttered his now famous words: "Stocks have now reached a permanently high plateau."  The clamoring of voices that the bull market is just beginning is telling much the same story.  History is repleat with market crashes that occurred just as the mainstream belief made heretics out of anyone who dared to contradict the bullish bias.

No, American Banks DON'T Need to Be Big to Compete with Bigger Foreign Rivals

The 2011 changes by the FDIC to the safe harbor for "true sales" may have been the end of "Too Big To Fail."

When one thinks of the US banking system, the one thing few consider these days is the threat of a liquidity shortage. After all how can banks have any liquidity strain at a time when the Fed has dumped some $1.7 trillion in excess reserves into the banking system? Well, on one hand as we have shown previously, the bulk of the excess reserve cash is now solidly in the hands of foreign banks who have US-based operations. On the other, it is also safe to assume that with the biggest banks now nothing more than glorified hedge funds (courtesy of ZIRP crushing Net Interest Margin and thus the traditional bank carry trade), and with hedge funds now more net long, and thus levered, than ever according to at least one Goldman metric, banks have to match said levered bullishness to stay competitive with the hedge fund industry. Which is why the news that at noon the Fed reported that Primary Dealer borrowings from its SOMA portfolio, which amounted to $22.3 billion, just happened to be the highest such amount since 2011, may be taken by some as an indicator that suddenly the 21 Primary Dealers that face the Fed for the bulk of their liquidity needs are facing an all too real cash shortage.

After digesting the opinions of the shills, shysters and scam artists, I am ready to predict that I have no clue what will happen during 2013. The fog of uncertainty is engulfing the nation, making consumers hesitant to spend and businesses reluctant to hire or invest. Virtually all of the mainstream media, Wall Street banks and paid shill economists are in agreement that 2013 will see improvement in employment, housing, retail spending and, of course the only thing that matters to the ruling class, the stock market. Even among the alternative media, there seems to be a consensus that we will continue to muddle through and the day of reckoning is still a few years off. Those who are predicting improvements are either ignorant of history or are being paid to predict improvement, despite the overwhelming evidence of a worsening economic climate. The mainstream media pundits, fulfilling their assigned task of purveying feel good propaganda, use the 10% stock market gain in 2012 as proof of economic recovery. The facts prove otherwise... Every day more people are realizing the con-job being perpetuated by the owners of this country. Will the tipping point be reached in 2013? I don’t know. But the era of decisiveness and confrontation has arrived. The existing social order will be swept away. Are you prepared?

It is a “fraudulent transfer” to transfer assets with intent to leave the transferor with inadequate capital... Thus every bank “sale” done for the purpose of reducing regulatory capital is, by definition, fraud – a form of bank theft. 

CNBC's Rick Santelli nails it once again by cutting through the idiocy and spin that is almost the entire mainstream media's view of the 'fiscal cliff' resolution. His point, among many he makes in this brief but compelling clip, is that the massive amounts of arm-twisting of the House Republicans not to add any Amendments was not about the 'economic turmoil' it might cause (as so many press wanted to report) but that "it would have riled up the stock market." The shouting Chicagoan explicitly states: "the Country, and Congress in particular, ...should never again use the stock market as their main barometer when addressing what's wrong with the country". Santelli drives his point home with examples from previous equity market downturns as he makes the critical point that it took 20 years to catch Madoff's ponzi scheme and he wonders how long we will remain dumbstruck by the Fed's printing presses, FASB, et al. into believing everything is good because stocks are going up. "Take a look at yourself in the mirror," he admonishes, but watch this 3-minute clip first for enlightenment!

There are seven items that will be on the radar screen of global investors in the week ahead. 1. There is confusion over Fed policy. Despite the leadership (Bernanke, Yellen and Dudley) demonstrating their unwavering commitment to use heterodox monetary policy in an attempt to promote a stronger economy in the face of household de-leveraging and fiscal consolidation, many have read the FOMC minutes to imply an early end to the $85 bln a month in long-term asset (MBS and Treasuries). That December meeting was historic not because it marked the beginning of the end of QE, but the exact opposite, the nearly doubling monthly purchases and the adoption of macro-economic guidance (6.5% unemployment and 2.5% inflation) before rates are lifted.

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.

Connecting the dots between my anecdotal observations of suburbia and a critical review of the true non-manipulated data bestows me with a not optimistic outlook for the coming decade. Is what I’m seeing just the view of a pessimist, or are you seeing the same thing? A few powerful men have hijacked our economic, financial and political structure. They aren’t socialists or capitalists. They’re criminals. They created the culture of materialism, greed and debt, sustained by prodigious levels of media propaganda. Our culture has been led to believe that debt financed consumption over morality and justice is the path to success. In reality, we’ve condemned ourselves to a slow painful death spiral of debasement and despair.

“A culture that does not grasp the vital interplay between morality and power, which mistakes management techniques for wisdom, and fails to understand that the measure of a civilization is its compassion, not its speed or ability to consume, condemns itself to death.” – Chris Hedges

The acquisition of CRBC by FMER provides a stark illustration of the fundamental conflict between the Fed’s “dual mandate” and its legal responsibility to supervise the nation’s banks. 

Falling interest rates are a feature of our current monetary regime, so central that any look at a graph of 10-year Treasury yields shows that it is a ratchet (and a racket, but that is a topic for another day!).  There are corrections, but over 31 years the rate of interest has been falling too steadily and for too long to be the product of random chance.  It is a salient, if not the central fact, of life in the irredeemable US dollar system. Irving Fisher, writing about falling prices (I shall address the connection between falling prices and falling interest rates in a forthcoming paper) proposed a paradox: “The more the debtors pay, the more they owe.” Debtors slowly pay down their debts and reduce the principle owed.  This would reduce the NPV of their debts in a normal environment.  But in a falling-interest-rate environment, the NPV of outstanding debt is rising due to the falling interest rate at a pace much faster than it is falling due to debtors’ payments.  The debtors are on a treadmill and they are going backwards at an accelerating rate. How apropos is Fisher’s eloquent sentence summarizing the problem!

Forty five years after the War on Poverty began, there are 49 million Americans living in poverty. That’s a solid good return on the $16 trillion spent so far. It’s on par with the 16 year zero percent real return in the stock market. We have produced a vast underclass of ignorant, uneducated, illiterate, dependent people who have become a huge voting block for the Democratic Party. Politicians, on the left, promise more entitlements to these people in order to get elected. Politicians on the right will not cut the entitlements for fear of being branded as uncaring. The Republicans agree to keep the welfare state growing and the Democrats agree to keep the warfare state growing -bipartisanship in all its glory. And the middle class has been caught in a pincer movement between the free shit entitlement army and the free shit corporate army. The oligarchs have been incredibly effective at using their control of the media, academia and ideological think tanks to keep the middle class ire focused upon the lower classes. While the middle class is fixated on people making $13,400 per year, the ultra-wealthy are bribing politicians to pass laws and create tax loopholes, netting them billions of ill-gotten loot. These specialists at Edward Bernays propaganda techniques were actually able to gain overwhelming support from the middle class for the repeal of estate taxes by rebranding them “death taxes”, even though the estate tax only impacts 15,000 households out of 117 million households in the U.S. The .01% won again.