Dick Fuld

As the fallout of Liborgate escalates, the next big bank to be impacted in the fallout started by Barclays civil settlement "revelation" is set to be troubled UBS, already some 10,000 bankers lighter, where as many as three dozen bankers are reported by the implicated in the fixing of the rate that until 2009 was the most important for hundreds of trillions in variable rate fixed income products. Only instead of attacking the US or even European jurisdiction, where the next big settlement is set to hit is Japan: a country whose regulators as recently as half a year ago promised there were no major issues with Libor, or Tibor as it is locally known, rate fixings. And while this most recent development will have little material impact on UBS' ongoing business model, the one difference from previous settlements is that it will likely include criminal charges lobbed against some of the 36 bankers. From the FT: "UBS is close to finalising a deal with UK, US and Swiss authorities in which the bank will pay close to $1.5bn and its Japanese securities subsidiary will plead guilty to a US criminal offence. Terms of the guilty plea were still being negotiated, one person familiar with the matter said on Monday, adding that the bank will not lose its ability to conduct business in Japan. The pact between the bank and the US Commodity Futures Trading Commission, US Department of Justice, UK’s Financial Services Authority and UBS’s main Swiss supervisor Finma is expected to be announced on Wednesday, although last minute negotiations continue."

Nobody on the Buy Side wants to sue JPM, Goldman Sachs, Morgan Stanley et al for securities fraud on the more problematic deals of the past decade.

In all the recent talk of economic gloom and doom, not to mention JP Morgan rehearsing for its role as Federal Reserve and failing miserably, some forgot that Jon Corzine still walks free. That may change soon if James Giddens, trustee for the liquidation of MF Global has his way. In a report filed today, Gidden says: "As attempts were made to transform MF Global into a full-service global investment bank, management failed to add to its Treasury Department and technology infrastructure, which was needed to meet the demands on global money management and liquidity." He continues: "My investigation has concluded that management’s actions, along with the lack of sufficient monitoring and systems, resulted in customer property being used during the liquidity crisis to fund the extraordinary liquidity drains elsewhere in the business, including margin calls on European sovereign debt positions." So someone was at fault: who? "I have determined there may be valid claims against individuals and entities. In my capacity as Trustee, I will make every effort to ensure that such claims result in the greatest possible returns to customers in an efficient and fair manner, whether those claims are pursued by my office or others." And specifically from his list of recommendations: "Provide for civil liability for officers and directors in the event of a commodities segregation shortfall." Well, we know there is a shortfall. So... why is Jon Corzine still walking free? Oh wait, Valukas said there were "colorable claims" against Lehman management too. Last we checked Dick Fuld is still out there... somewhere. But generally yes: it just has not been JPMorgan's year so far.

Henceforth, it shall be referred to as the "Corzine Rule"

I'm not, neither should you...

In his latest letter to clients (which we will present shortly), Diapason's Sean Corrigan has one chart that explains beyond a shadow of a doubt what the true cost of the (First) Great Financial Crisis, the failure of Lehman, and the bailout of the US financial sector, is. The premise is ridiculously simple: the chart below compares the trendline of US debt before and after the Lehman from September 2008, and the rescue of everyone else who unlike Dick Fuld, was in Hank Paulson's good graces. What is immediately obvious is that US debt is currently $3.5 trillion higher than where it would be had America's banks not received a rescue. That is Sean's conclusion. It is however incomplete. The truth is that this is a proportional increase which if extrapolated into the future, means that every year the US will incur well over $1.2 trillion each and every year as a result of bailing out the banks. That is the true cost to Americans regardless of what Tim Geithner may claim. But note how we said First. Unfortunately, the Second Great Financial Crisis, that of bailing out insolvent sovereigns, is currently and process. And when all is said and done, the global cost in terms of new "trendline" debt will be many more trillions in incremental debt every year. And despite what economic voodoo theories say, near infinite debt always ends in near infinite pain. It will this time too. Guaranteed.

Is Dick Fuld running this show? The Eurozone bailout, now being referred to as Euro TARP, is doomed to fail.  While nothing has been officially announced the markets are rallying broadly on the back of a news article published by CNBC on Monday.  The details are lacking as to the actual structure but speculation is already running rampant across the financial markets as to what it might look like.  What is presumed is that Euro TARP will follow the proposal originally proffered by Tim Geithner on his European trip recently.  That proposal had been widely dismissed by the G20 as they couldn't come to terms on any type of structure.   The current idea outlined by CNBC will bypass the G20 entirely and allow the European Investment Bank (EIB), a bank owned by the member states of the European Union, to take money from the European Financial Stability Facility (EFSF) and capitalize a special purpose vehicle (SPV) that it will create. The SPV will then issue bonds to investors and use the proceeds to purchase sovereign debt of distressed European states, which will hopefully alleviate the pressure on the distressed states (PIIGS) and the European banks that already own their sovereign debt. If alarm bells aren't already going off they will be in just moment as you get the gist of the rest of this disastrous plan.

"You measure a democracy by the freedom it gives its dissidents, not the freedom it gives its assimilated conformists."-- Abbie Hoffman [WB7: or Bankster Bailout Queens...]

"A few good banks is better than a lot of bad one."--Jim Cramer

They say that the simplest analysis is always the most powerful one. That appears to certainly have been the case with our presentation of global banks' Tangible Common Equity ("TCE") ratio to total assets from last Thursday, and specifically our observation of the glaringly obvious, namely that of the 30 most undercapitalized banks in the world, Canadian ones represented a whopping 33% of all. Note: this was not an attack on Canada, this was not some hedge-fund inspired start of a bear-raid on the Canadian banking system, this was nothing but an attempt to warn our readers of, again, what is out there for anyone (who is not blinded by cognitive bias) to see for themselves. Alas, the reaction to that post, particularly in the Canadian media, has been swift and severe, provoking such respected publications as The Globe And Mail to pen not one but two responses, one being the by now so-oft discredited attempt to ignore the message and target the messenger (Who is Zero Hedge, and why should we care?), followed by a more coherent attempt to debunk the claim that a painfully low TCE ratio is never a good thing (Is Zero Hedge looking at the wrong numbers?). The argument of G&M's Boyd Erman boils down to the statement that TCE is not a fair indicator of balance sheet stress and instead one should focus on a "Tier 1" approach of risk estimation, one that includes Risk Weighted Assets. Here we could provide the reference to Lehman's Tier 1 ratio, which was well in the double digits on the day when it filed for bankruptcy, even as the bank's true leverage was about 40x, a number which eventually brought on the biggest bankruptcy in history. We could but we won't, instead we will ask, rhetorically, who is John Paulson, and why should the Globe and Mail care?

The last time we saw letters of this nature, John Thain and Dick Fuld were assuring their employees all shall be well. It is about that time again. The CEO of the soon to be bailed out company has just distributed a memo to his "teammates" doing his best to rebuild rock bottom morale, and failing: "Because we serve one in two households in the U.S. and have leading positions with the global Fortune 500 companies here and around the world – a market advantage in most respects – turbulence in the global economy will affect us as well. But we have weathered challenging times before and we will now." Correct: you did so courtesy of $15 billion in TARP funding from the Fed. And we are certain that you will do the same all over again, so you, or actually your imminent replacement can write sentimental drivel such as this all over again. That said, we find it truly shocking that there is no mention of the fact that Bank of America is about $20-50 billion underprovisioned for the perfect litigation storm that is coming courtesy of the worst transaction in M&A history: BAC's purchase of CFC.

He had the unmitigated hubris to publish another piece of feeble hubristic trash in the WSJ at precisely the same time Citizen Murdoch was being castigated for his hubris and Goldman Sachs was reporting on the sorry quarterly result of it's...hubris.

It's a subprime world after all...

Is this time different?

Dear Congressman:

It’s here:  Your moment at the plate.   You’ve whiffed more than a few … and, yes, we’re counting.  But you’ve been gifted another at-bat, and the President’s tired.  Seventh inning stuff is coming out of his teleprompter, and this full-count fastball will be straight, level, and slow.  You won’t see another one like this for five years.

An embattled first term president is faced with an outcome that he must, at all costs, prevent, and he’s done very little ground work ahead of it.  He is about to become the first President in American history to preside over a default on the national debt, unless you vote to let him raise the limit on the financial burden we leave our children.  He would ultimately be crazy to deny any reasonable option, absolutely anything, rather than live with the outcome of his refusal.  Politically speaking, he’s whispered a prayer to the Greek God of Imprudence and Fiscal Insanity, raised a one-finger salute to the nation’s savers through the sunroof of a stolen golden Beemer, and revved it toward the draw-bridge that you were elected to control.