Hank Paulson

Gazprom must really be demanding payment on overdue Ukraine invoices which is the only way we can explain the unprecedented speed with which the IMF has managed to cobble together a makeshift bailout package of up to $27 billion - the bulk of which will naturally go to Russia - which has just made Ukraine its latest vassal state. There are of course, conditions: "Approval is “expected in April, following the authorities’ adoption of a strong and comprehensive package of prior actions aiming to stabilize the economy and create conditions for sustained growth,” IMF mission chief Nikolay Gueorguiev said in the statement. Disbursement may start next month, he said at a news conference in Kiev." And then comes the hyperinflation: "Monetary policy will target domestic price stability while maintaining a flexible exchange rate. This will help eliminate external imbalances, improve competitiveness, support exports and growth, and facilitate the gradual rebuilding of international reserves. The NBU plans to introduce an inflation targeting framework over the next twelve months to firmly anchor inflation expectations"...  Very high inflation targeting.

Is capital adequacy really the answer to the question?

The Fed’s serial bubble machine has not only bestowed massive speculative windfalls on the 1%, but it has also fostered a noxious culture of plunder and entitlement in the gambling casinos of Wall Street. After each thundering sell-off during the bust phase, crony capitalist gamblers have been gifted with ill-gotten windfalls during the Fed’s subsequent maniacal money printing spree.  In this context comes Bruce Berkowitz “scolding” and firing “salvos” at Washington from the front page of the Wall Street Journal.

There’s good propaganda and bad propaganda. Bad propaganda is generally crude, amateurish Judy Miller “mobile weapons lab-type” nonsense that figures that people are so stupid they’ll believe anything that appears in “the paper of record.” Good propaganda, on the other hand, uses factual, sometimes documented material in a coordinated campaign with the other major media to cobble-together a narrative that is credible, but false. The so called Fed’s transcripts, which were released last week, fall into the latter category... But while the conversations between the members are accurately recorded, they don’t tell the gist of the story or provide the context that’s needed to grasp the bigger picture. Instead, they’re used to portray the members of the Fed as affable, well-meaning bunglers who did the best they could in ‘very trying circumstances’. While this is effective propaganda, it’s basically a lie, mainly because it diverts attention from the Fed’s role in crashing the financial system, preventing the remedies that were needed from being implemented (nationalizing the giant Wall Street banks), and coercing Congress into approving gigantic, economy-killing bailouts which shifted trillions of dollars to insolvent financial institutions that should have been euthanized.  What I’m saying is that the Fed’s transcripts are, perhaps, the greatest propaganda coup of our time.

Is the Treasury's rescue of Fannie Mae and Freddie Mac unfair to private shareholders?  Yup.  And they deserve it. 

Moments ago, as we reported, the CEO of Walmart, Mike Duke, retired. And while he will hardly pocket quite as much as Hank Paulson, his departure may raise even more eyebrows as his retirement package, to which he is now entitled, is a whopping $113 million, or about 6,182 times greater than the average 401(k) balance of a typical Wal-Mart worker according to a NerdWallet analysis. Naturally, this is orders of magnitude greater than the already debatable ratio of CEO compensation, which was $20.7 million in 2012, or about 305 times more than the average Walmart manager, and 836 more than the take home of the median Walmart worker.

Since the Financial Crisis erupted in 2007, the US Federal Reserve has engaged in dozens of interventions/ bailouts to try and prop up the financial system. Now, I realize that everyone knows the Fed is “printing money.” However, when you look at the list of bailouts/ money pumps it’s absolutely staggering how much money the Fed has thrown around.

So over the weekend, the world learned that Tiny Turbo Tax Timmy Geithner had accepted a job with private equity giant firm Warburg Pincus. The news was about as much of a surprise as a lie popping out of Barack Obama’s mouth every time he opens it. Nevertheless, the move is particularly hilarious in light of a profile article of Geithner in New York magazine from January of this year, in which the king of cronyism tried to distance himself from Wall Street. Here’s the money-shot paragraph from the piece...

It is a common view that the shutdown, the debt-limit debacle and the repeated failure to enact entitlement and pro-growth tax reform reflect increased political polarization. John Taylor believes this gets the causality backward. Today's governance failures are closely connected to economic policy changes, particularly those growing out of the 2008 financial crisis. Despite a massive onslaught of legislation and regulation designed to foster prosperity, economic growth remains low and unemployment remains high. Claiming that one political party has been hijacked by extremists misses this key point, and prevents a serious discussion of the fundamental changes in economic policies in recent years, and their effects.

Nearly exactly five years after Hank Paulson appeared before Congress dangling a 3 page term sheet ultimatum warning it was his way or the apocalypse, it is time for the sequel. Since we all love the smell of a good Mutually Assured Destruction spectacle in the morning. Which is why we can't wait for Treasury Secretary Jack Lew's presentation before the Senate Finance Committee discussing the Debt Limit, in which he will rain fire and brimstone on anyone who suggests that the Treasury can enter the X-Date without a debt ceiling deal in place, and will most certainly seek to crucify anyone who points out the logical, namely that payments can be prioritized and interest expense is a fraction the revenue the Treasury brings in, and that the end of the world would be nigh should the US actually be forced to live within its means.

David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank...

What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut...

He calls this condition "Sundown in America".

• JPMorgan Guilty Admission a Win for SEC’s Policy Shift (BBG)
• Pricing Glitch Afflicts Rollout of Online Health Exchanges (WSJ)
• This will end well: Japan LDP Considers Draft Bill to Put Government in Control of Fukushima Cleanup (WSJ)
• How a German tech giant trims its U.S. tax bill (Reuters)
• Despite Merkel's Popularity, Angst Creeps In (WSJ)
• Hank Paulson warns of regulatory conflict (FT)
• Rajan Surprises With India Rate Rise to Quell Inflation (BBG)
• Apple Begins Selling New iPhones (WSJ)
• Pope Says Church Should Stop Obsessing Over Gays, Abortion (BBG)

"The government’s bailout plan destroyed capitalism. In a capitalist system, those who stood to gain–and already made off with large gains—would have to bear the risk. The bailouts represented a corruption of capitalism. Crony capitalism violates the spirit of democracy established by the Founding Fathers of the republic known as the United States." - Janet Tavakoli

All of the suffering and hardships the majority of Americans are experiencing today are directly related to the coup pulled off by the crony financial oligarchs in the fall of 2008, and all of the media and political minions that helped them do it. People realize we have become a Banana Republic and they have now lost all hope.

A decisive tipping point in the evolution of American capitalism and democracy - the triumph of crony capitalism - took place on October 3, 2008. That was the day of the forced march approval on Capitol Hill of the $700 billion TARP (Troubled Asset Relief Program) bill to bail out Wall Street. This spasm of financial market intervention, including multi-trillion-dollar support lines provided to the big banks and financial companies by the Federal Reserve, was but the latest brick in the foundation of a fundamentally anti-capitalist régime known as “Too Big to Fail” (TBTF). It had been under construction for many decades, but now there was no turning back. The Wall Street bailouts of 2008 shattered what little remained of the old-time fiscal rules. There was no longer any pretense that the free market should determine winners and losers and that tapping the public treasury requires proof of compelling societal benefit.

The froth is back. As we noted yesterday, corporate leverage has never been higher - higher now than when the Fed warned of froth, and as the BIS (following their "party's over" rant 3 months ago) former chief economist now warns, "this looks like to me like 2007 all over again, but even worse." The share of "leveraged loans" or extreme forms of credit risk, used by the poorest corporate borrowers, has soared to an all-time high of 45% - 10 percentage points higher than at the peak of the crisis in 2007. As The Telegraph reports, ex-BIS Chief Economist William White exclaims, "All the previous imbalances are still there. Total public and private debt levels are 30pc higher as a share of GDP in the advanced economies than they were then, and we have added a whole new problem with bubbles in emerging markets that are ending in a boom-bust cycle." Crucially, the BIS warns, nobody knows how far global borrowing costs will rise as the Fed tightens or “how disorderly the process might be... the challenge is to be prepared." This means, in their view, "avoiding the tempatation to believe the market will remain liquid under stress - the illusion of liquidity."