Freddie Mac

There is a saying: "don't buy the hand that feeds you" but there is nothing in popular aphorism literature about suing the hand that bails you out. Which is precisely what JPM did overnight when it sued the Federal Deposit Insurance Company, claiming the agency was responsible for over $1 billion in liabilities assumed by the bank as part of its takeover of Washington Mutual in 2008. Of course, having been the subject of a relentless battery of lawsuits by every US agency imaginable, many were wondering when JPM would strike back, or rather if it would have the temerity to sue the same government that bailed it out with billions of direct injections and even more billions in FDIC-subsidized bond issuance. The answer is yes, and as JPMorgan alleged in the complaint, the FDIC agreed to shield it from liability from lawsuits claiming failures by Washington Mutual. JPMorgan said it took on only limited liabilities in its purchase of the Seattle-based bank’s assets. What next: Jamie Dimon sues the Fed for forcing it to acquire Bear Stearns' assets at the firesale price of $2 $10 per share, in which the bank assumed Bear's assets if not so much its liabilities - after all there was a government to bail it out for that.

• MOAR: BOJ Said to See Significant Room for More Bond Purchases (BBG)
• Meltdown Averted, Bernanke Struggled to Stoke Growth (Hilsenrath)
• New Mortgages to Get Pricier Next Year (WSJ)
• Republicans to Seek Concessions From Obama on Debt Limit (BBG)
• Hunting for U.S. arms technology, China enlists a legion of amateurs (Reuters)
• Jury Begins Deliberating in Case of SAC Portfolio Manager (WSJ)
• BP to Write Off $1 Billion on Failed Well (WSJ)
• Rajan Unexpectedly Keeps India Rates Unchanged to Support Growth (BBG)
• Thai protesters say they will rally to hound PM from office (Reuters)
• SEC Brings Fewer Enforcement Actions, Slows Early-Stage Probes (WSJ)

Neofeudal financialization and unproductive State/corporate vested interests have bled the middle class dry. Yet we accept the officially sanctioned narratives as authentic and meaningful. Why? Perhaps the truth is simply too painful to accept, so we will reject it until we have no other alternative.

Back when the Executive and Congress at least pretended not to abdicate all power to the Fed, one of the centerpiece programs designed to boost the housing market for the benefit of the poor (as opposed to letting Ben Bernanke make marginal US housing a rental industry owned by a handful of private equity firms and hedge funds), was Barack Obama's Home Affordable Modification Program or HAMP, which attempted to prevent foreclosures by lowering distressed borrowers’ mortgage payments. Under the program, homeowners would be given trial modifications to prove they can make reduced payments before the changes become permanent. The program was a disaster as of the 3 million foreclosures that were targeted for modification in 2009, only 905,663 mods have been successful nearly five years later - a tiny 13% of the 6.9 million who applied (still, numbers which Obamacare would be delighted to achieve). Part of the reason: the program's reliance on the same industry that sold shoddy mortgages during the housing bubble and improperly sped foreclosures afterward. But there was much more. For the definitive explanation of everything else that went wrong, we go to Bloomberg's Hugh Son whose masterpiece released today explains how and why once again the banks - and especially one of them - won, and everyone else lost.

• With website improved, Obama to pitch health plan (Reuters)
• Joe Biden condemns China over air defence zone (FT)
• Tally of U.S. Banks Sinks to Record Low (WSJ)
• Black Friday Weekend Spending Drop Pressures U.S. Stores (BBG)
• Cyber Monday Sales Hit Record as Amazon to EBay Win Shoppers (BBG)
• Ukraine's Pivot to Moscow Leaves West Out in the Cold (WSJ)
• Investment banks set to cut pay again despite rise in profits (FT)
• Worst Raw-Material Slump Since ’08 Seen Deepening (BBG)
• Democrats Face Battles in South to Hold the Senate (WSJ)
• Hong Kong reports 1st case of H7N9 bird flu (AP)
• In Fracking, Sand Is the New Gold (WSJ)

A zombie government armed with accounting tricks has bailed out a zombie banking industry using even more financial phoniness. A few numbers pushed here and there, and the industry is earning record profits. But out in the real world where people live and work, things aren't so rosy. Zombies make negligent landlords and dangerous neighbors.

An overview of recent developments, include the political developments in the US Senate, that may weigh on the dollar in the days ahead.  

For anyone who still suggests, incorrectly, that Larry Summers was the "wrong" choice for Fed Chairman just because he would promptly end QE the second he was elected as the erroneous popular meme goes, we have one soundbite from his recent Bloomberg TV interview refuting all such speculation: "if you had to say, should we have used this tool or should we not have, I think the answer is overwhelming that we should have." He had some other amusing logical fallacies (including discussing whether the market is in a bubble) all of which are transcribed below, but the best one is the following: "I think it does bear emphasis that the people who were most appalled by it are the people who have been predicting hyperinflation around the corner for four years now and they have been wrong at every turn." And let's not forget that "subprime is contained" - until it isn't. Then again, the last time we checked, the history on the biggest monetary experiment in history - one in which both the Fed and the BOJ are now openly monetizing 70% of gross bond issuance - has certainly not been written. Finally, in the off chance Summers is indeed correct, what history will instead say, is why instead of monetizing all the debt from day 1 of the Fed's inception in 1913, and thus pushing the stock market into scientific notation territory, did the Fed leave so many trillions of "wealth effect" on the table?

• When it fails, do more of it - Bank of Japan hints at extending ultra-loose monetary policy (FT)
• PBOC Says No Longer in China’s Interest to Increase Reserves (BBG)
• Fed casts about for endgame on easy-money policy  (Hilsenrath)
• Big trucks still rule Detroit in energy-conscious era (Reuters)
• Debt Limit Rise May Not Be Needed Until June, CBO Says (BBG)
• Some Insurance Regulators Turn Down White House Invitation (WSJ)
• Say Goodbye to the Car Salesman (WSJ)
• U.S. drone kills senior militant in Pakistani seminary (Reuters)
• French business sector contracts sharply (FT)
• How Germany's taxman used stolen data to squeeze Switzerland (Reuters)
• Fed casts about for endgame on easy-money policy (WSJ)
• France, Italy call for full-time Eurogroup chief (Reuters)

A decision by the FHFA requiring the GSEs to finally release detailed information on loans they acquired and guaranteed uncovers an ugly truth about the GSEs that many should be aware of (as we noted the exuberance here). The release was only required on 35 million fully-amortizing, full documentation, 30-year fixed rate mortgages, which means as JPMorgan's Michael Cembalest notes the underwriting histories on another 20-30 million loans (e.g., the riskier ones) remain a mystery (and likely will forever). As Cembalest concludes, some people made up their minds on all the factors causing the housing crisis in 2009, and others in 2011. As long as new information keeps coming out, it seems premature to close the book on it, he adds, first, the private sector descent into underwriting hell took place well after the multi-trillion dollar GSE balance sheets had gone there first; and second, there are many reasons to wonder how bad the former would have been had the latter not preceded it.

To the DOJ, a $13 billion receipt is the "largest ever settlement with a single entity." To #AskJPM, a $13 billion outlay is a 100%+ IRR. And perhaps more relevant, let's recall that JPM holds $550 billion in Fed excess reserves, on which it is paid 0.25% interest, or $1.4 billion annually. In other words, out of the Fed's pocket, through JPM, and back into the government. Luckily, this is not considered outright government financing.

The stock below is up 1200% year-to-date. The company in question is insolvent by any and all measures and has a "parent" under great pressure to take whatever gains it can get (as opposed to leave anything for shareholders). The company is exposed to the worst of the worst in the housing market. The smart money (as they are called) is piling in. The company is, of course, Fannie Mae (or Freddie Mac - same discussion). This chart, like none other, reflects the "investment" thesis in America today, as Grenwood's Walter Todd notes, “Either you’re going to make a lot of money or you’re going to lose everything you put into it."

• China to Ease One-Child Policy (WSJ), China announces major economic and social reforms (Reuters)
• Consumers line up for launch of PlayStation 4 (USAToday)
• Trust frays between Obama, Democrats (Politico)
• Yellen Stands by Fed Strategy  (Hilsenrath)
• Hero to zero? Philippine president feels typhoon backlash (Reuters)
• Brussels warns Spain and Italy on budgets (FT)
• Moody’s Downgrades Four U.S. Banks on Federal Support Review  (BBG)
• CIA's Financial Spying Bags Data on Americans (WSJ)
• Germany Digs In Against Risk Sharing in EU Bank-Failure Plan (BBG)
• Bill Gates wants Norway's $800 billion fund to spend more in Africa, Asia (RTRS)

On December 23, 2013, the U.S. Federal Reserve (the Fed) will celebrate its 100th birthday, so we thought it was time to take a look at the Fed’s real accomplishment, and the practices and policies it has employed during this time to rob the public of its wealth. The criticism is directed not only at the world’s most powerful central bank - the Fed - but also at the concept of central banks in general, because they are the antithesis of fiscal responsibility and financial constraint as represented by gold and a gold standard. The Fed was sold to the public in much the same way as the Patriot Act was sold after 9/11 - as a sacrifice of personal freedom for the promise of greater government protection. Instead of providing protection, the Fed has robbed the public through the hidden tax of inflation brought about by currency devaluation.

• Yellen to defend Fed's ultra-easy monetary policy (Reuters)
• Japan growth slows on global weakness (WSJ)
• Eurozone third-quarter growth falters (FT)
• Fed Debates Its Low-Rate Peg (Hilsenrath)
• Yellen: Economy Still Needs Fed Aid (WSJ)
• ‘Obamacare’ launch fiasco rouses sceptics (FT)
• DoubleLine's Gundlach says U.S. equities 'only game in town' (Reuters)
• Indian Inflation Exceeding Estimates Adds Rate-Rise Pressure (BBG)
• HUD Said to Fail in Bid to Sell $450 Million of Mortgages (BBG)
• Boeing machinists reject labor deal on 777X by 67 percent (Reuters)