Treasury Department

IBM Or Amazon: Whom Will The CIA Choose?

Over the weekend we pointed out one of the more disturbing facets of the Snowden espionage affair: the covert, if massive (and very lucrative) symbiosis between private companies, who have explicitly opened up all private client data contrary to privacy disclosures, and a secretly uber-inquisitive government. We asked: "The reality is that while the NSA, which is a public entity through and through, is allowed and expected to do whatever its superiors tell it (i.e., the White House), how does one justify the complete betrayal of their customers by private corporations such as Verizon and AT&T? This may be the most insidious and toxic symbiosis between the public and private sector in the recent past." But while the quid was finally made public (if known by many long ago), the quo wasn't quite clear. It now is - the answer, as as always, is money. And not just any money, but in this specific case taxpayer money paid to either Google or Amazon by none other than the Central Intelligence Agency, or CIA for short. Lots of it.

GSE Privatization, Or "Fed Magic" - Here Are The Alternatives

Between Fairholme's back-up-the-truck in GSE Preferreds (demanding his fair share of the dividend), the crazy oscillations in the common stock of FNMA, and the ongoing debacle of what to with the government's implicit ownership of the US mortgage business, tonight's news from Bloomberg - that a bipartisan group of U.S. senators is putting the final touches on a plan to liquidate Fannie Mae and Freddie Mac (FMCC) and replace them with a government reinsurer of mortgage securities behind private capital - is hardly surprising. Details are few and far between except to note that the proposed legislation, which could be introduced this month, would require private financiers to take a first-loss position. The new entity, to be named the Federal Mortgage Insurance Corp (or FEDMAGIC), would seek private financing to continue existing efforts to help small lenders issue securities. The 'old entity' - where existing equity and debtholders would seemingly reside would contain the existing MBS portfolio and be put in run-down mode. The following from BofAML provides a possible primer and pitfalls (we think the endgame is very unlikely to be positive for holders of the capital structure below subordinated debt) of this approach.

'Liberty Reserve' And Why Some Money Launderers Are "More Equal" Than Others

There are countless examples of rampant criminality and corruption as well as blatant evidence of a two-tier system of justice in America today.  Too many to note or write about, but in this case we want to focus on this concept of “money laundering” in light of the recent shutdown of Liberty Reserve.  The crackdown on Liberty Reserve has nothing to do with “money laundering.”  It’s about a cartel of “too big to jail” banks and the fraud financial system they operate eliminating any players that try to encroach on their turf.  That isn’t capitalism, or socialism and it certainly isn’t anything close to freedom.  It is a parasitic, oligarch created feudalistic structure that must be done away with.  We often hear people say “we never learn from our mistakes.”  Incorrect.  People learn from their mistakes when there are consequences to their actions.  Of course criminals don’t learn from their mistakes when there are no serious consequences to their crimes.

BNP Warns On Japanese Repression: Echoes Of The 1940s Fed

In the 1940s, the Fed adopted pegging operations to protect the financial system against rising interest rates and to ensure the smooth financing of the war effort. In effect, the Fed became part of the Treasury’s debt management team; as the budget deficit hit 25% of GDP in WW2, it capped 1Y notes at 87.5bps and 30Y bonds at 2.5%. From the massive bond holdings of its domestic banks to its exploding public debt, Japan today faces a situation very similar to the US in the 1940s. When the long-term rate climbs above 2%, the BoJ will probably adopt outright measures to underpin JGB prices to prevent turmoil in the financial system and a fiscal crisis - and just as Kyle Bass noted yesterday, they are going to need a bigger boat as direct financial repression in Japan is unavoidable.

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...understand the national threat that is our fragmented and perverted equity market microstructure that is driven by such esoteric order-types such a Post No Preference Blind Limit Order created through the buddy system of exchange/order volume producer.

White House Explains: Obama Didn't Know What He Knew When Everyone Else Knew What He Should Have Known

Here is The Hill with the White House's official explanation for what happened: "White House officials were notified of a Treasury Department inspector general report on the IRS but elected not to tell President Obama about it." In other words, neither the IRS was not aware of what is going on (recall the countless "I don't knows" and "I don't recalls") and apparently, neither was the president. And in fact, it was someone else's executive duty to make the decision what the chief executive of the nation is and isn't allowed to know.

White House Damage Control Script Jeopardized By New Disclosures

It has been a tough weekend for the President. First, the CEO of the Associated Press states the government's seizure of AP phone records was "so broad and so secret," among other factors, "that it was an unconstitutional act," adding that it had already had a chilling effect on newsgathering and press freedom. Add to that James Goodale's comments (the leading force behind the release of the Pentagon Papers and first amendment lawyer), that President Obama is "worse for press freedom than Nixon" and things are not going well. But, the problems did not stop there as the Wall Street Journal reports that while President Obama claims not to have been made aware of the IRS indiscretions until May 10th it seems the White House's chief lawyer learned weeks ago that an audit of the IRS likely would show that agency employees inappropriately targeted conservative groups. The President's response so far is that "we’re not going to participate in is a partisan fishing expedition."

President Obama Demands Justice For "Intolerable And Inexcusable" IRS Behavior

We can picture the scene of abject horror at the revelations the President read about the actions undertaken by what must surely have been a rogue element in the IRS. However, as the AP (ironically) reports, Obama believes some IRS employees failed to apply the law fairly and impartially. The blame, it would seem, is being laid at "lax managers'" feet for allowing this practice to continue for 18 months. Jack Lew has been asked to hold those renegades responsible and to ensure it never happens again - or else. Where's Fabrice Tourre when you need him?

Frontrunning: May 13

  • Hilsenrath: A Top Contender at the Fed Faces Test Over Easy Money (WSJ)
  • Yen drops further as G7 avoids criticizing Japan (Reuters)
  • Markets missed Flaherty’s clues on next Bank of Canada chief (G&M)
  • Republicans turn screws over Tea Party tax probes (FT)
  • Dual-track Libor replacement lined up (FT)
  • Risks to China recovery seen as factory output underwhelms (Reuters)
  • Barack Obama’s goal of universal healthcare could be set back significantly by Texas Governor Rick Perry (FT)
  • Gold Bears Pull $20.8 Billion as BlackRock Says Buy (BBG)
  • Mexico sets shelters as volcano shakes, spews ash (AP)
  • Europe Eases Corporate Tax Dodge as Worker Burdens Rise (BBG)
  • IPOs Set to Raise Most Cash Since Crisis (WSJ)
  • Melting Ice Opens Fight Over Sea Routes for Arctic Debate (BBG)
  • Top hedge funds bet on Greek banks (FT)
  • Icahn Asks Investors to Make Big Bet on a Debt-Laden Dell (BBG)

Fed, Treasury Investigating Bloomberg Client Surveillance

As reported on Friday, the most recent example of a breach in informational Chinese walls was confirmed at Bloomberg, where it was discovered that reporters have the same degree of client surveillance as workers on the API/terminal side. The reason why this is problematic is that since Bloomberg is a monopolist in the financial terminal industry, with such competitor attempts as Reuters' Eikon being massive failures, virtually every finance professional needs a terminal (even if the rate of sale of such terminals is slowing down as a result of the ongoing financial margin headaches). Which means that Bloomberg journos, an increasingly competitive service to the likes of Dow Jones, Reuters and AP, may have had an unfair advantage when it comes to tracking their "pray" - Bloomberg's own clients. And now, following the original Goldman complaint which Bloomberg said ended such informational commingling, it is the turn of the Treasury and the Fed (certainly very heave users of the BBG Trading terminal) to complain. What is left unsaid in all of this is the simple question of just why is it material information what the Fed, arguably an entity that at least in a normal world should not have any day to day trade interactions with financial markets, looked up on its trading terminal.

What Causes The Growing Wealth Gap In America?

A major issue in America today is the growing gap between the rich and the poor, and the popular narrative is that the disparity is caused by capitalism run wild and only the firm hand of government can fix the problem. But what if this narrative has it backwards? What if the growing wealth disparity in America is actually caused by the government? Take Warren Buffet, a man often at the center of this debate, as not only is he a billionaire, but also a vocal advocate for higher income taxes on the rich. Many are aware of his acumen in making investments that have a “margin of safety” – or minimal downside – but few are aware of the greatest source of such safety for Mr. Buffet in recent years, the US Government.

Frontrunning: April 30

  • Euro-Area Unemployment Increases to Record 12.1% Amid Recession (BBG)
  • Fed faces calls for radical reform (FT) - Has Jamie Dimon approved of this message? No? Carry on then
  • CEO Pay 1,795-to-1 Multiple of Wages Skirts U.S. Law (BBG)
  • Ex-UBS Executive Convicted of Paid Sex With Underage Girl (BBG)
  • Six months after Sandy, New York fuel supply chain still vulnerable (Reuters)
  • Older, richer shoppers lead Japan’s surge in consumer spending (FT)
  • Sharp euro zone inflation fall, joblessness point to ECB rate cut (G&M)
  • Gold Rush From Dubai to Turkey Saps Supply as Premiums Jump (BBG)
  • Japan Industrial Output, Retail Sales Disappoint (MW)
  • Gunmen surround Libyan justice ministry (Reuters)
  • Insider-Trading Probe Trains Lens on Boards (WSJ)
  • Best Buy exits Europe (WSJ)
  • Banker Roommates Follow Zuckerberg Not Blankfein With IvyConnect (BBG)