Jonathan Weil

• Jonathan Weil: How $1 trillion time bomb posts a phony profit (Bloomberg)
• Jobless recovery becomes more jobless and less recovery: initial claims spike by 18k to 460,000, miss expectations by 25k (Bloomberg)
• Ken Rogoff Op-Ed: Bubbles lurk in government debt (FT)
• Investors playing defense heighten Greek debt woes (WSJ)
• Early Easter boosts March retail sales (Reuters) as consumer buy trinkets with money saved from not paying mortgage or credit cards
• With oil surging, the old merger rumor is back: US Airways, United in talks again and again (WSJ, Reuters); in the meantime US Airways prepares to allow standing-only passengers on its flights

• Jonathan Weil: John Mack's short story was too dumb to fail (Bloomberg)
• Oops - RBS CDS surge on rumor of debt restructuring - yet another bankruptcy-cum-bailout for the Greek bond-laden third-tier repository of toxic assets? (Bloomberg)
• As expected, the entire manipulated, short-squeeze based market run up was merely for the benefit of the government selling its Citi stake (Reuters)
• Dubai bail out #2 (Bloomberg)
• Jobless claims still materially over 400,000 6 months after the "end" of the recession (Bloomberg)
• As Zero Hedge first reported, Social Security to see payout exceed pay-in this year (NYT)
• David Tepper probed by the SEC (WSJ)
• Cramer explains why he was wrong once again (CNBC)

The Washington Post reports that the next "Lehman-sized" event may be just around the corner, as the European Commission is now supporting a ban on trading sovereign CDS. While we are in process of tracking down whether this is actual news or just some exaggeration based on semantics, we will caution, once again, that the consequences of a CDS trading ban will be severe and very likely result in the opposite of what the EC intends on achieving. Keep in mind that everyone expected the Lehman bankruptcy to be contained as it was at best a fringe cog in the financial system. The result was a systemic collapse as one interlinked component of the financial fabric imploded after another. The rush to unwind CDS positions ahead of a ban will be massive and have unpredictable consequences. But the biggest threat is what happens to bond prices, which once basis trades are made impossible, will be promptly unwound, leading to pervasive selling of the cash leg not by speculators but by plain vanilla mutual fund idiot money. What scapegoaters seem to forget is that the vast majority of existing sovereign CDS notional is tied into perfectly boring insurance "basis" trades, in which the bond is held in combination with associated CDS. Once there is an inability to have hedged cash sovereign exposure, the demand for European sovereign paper will plummet, achieving precisely the opposite of what the CDS ban is attempting to accomplish.

• Yet another example of the ongoing FASB crookery via Jonathan Weil (Bloomberg)
• Markopolos on Schapiro and the SEC: "she has the wrong staff. They're a bunch of idiots there." (HuffPo)
• Semi-nationalized RBS loss shrinks to just $1.2 billion, has approval for $1.3 billion in bonuses: one wonders just how the FASB is involved in this one (MarketWatch)
• British Pound could fall as low as $1.05 (Telegraph)
• +22K in Jobless Claims to 496K, 460K expected,: 6 our of 8 weeks in 2010 have seen growing jobless claims (Bloomberg, DOL) snow blamed for firings, and worst initial claims number since November 14
• Palm slashes guidance (Palm), keeps retarded white font on blue background website color scheme
• The 21st century economic breakdown (Minyanville)

A few days ago we made some observations on the just-announced nearly $4 trillion 2011 budget. The key point was that while the ugly numbers already looked like a superglued Frankenstein monster without a Kardasian botox treatment, or even simple lipstick, it would have been truly disastrous had the administration done what Peter Orzsag threatened he would do 2 years ago, namely bring the GSEs, Freddie and Fannie, on the government's balance sheet. How this is not the case yet is simply stunning: the GSEs enjoy not only the constant "bid of first refusal" courtesy of the Fed's MBS QE program, but an explicit Treasury guarantee that has no ceiling as of last Christmas eve. Bloomberg's Jonathan Weil today came to the same conclusion, although being a Bloomberg employee he was characteristically much more crass, uncouth and downright cynical than the paragon of respected journalistic patois that is the establishmentarian concept known as Zero Hedge. In an attempt to awake the morts out of their stupor, a pandering Weil uses such cheap tricks as hyperventilating allegory, sarcasm, and hyperbole when saying that  "[b]y all outward appearances, it seems
Obama and his budget wizards decided that including the
liabilities at Fannie and Freddie would be too much reality for
the world to handle. So they left the companies out, in a trick
worthy of Enron’s playbook, except not quite so hidden." Obviously, Bloomberg has an uphill struggle if its ever wishes to reach profitability (in the trillions of dollars that is... billions is so fin de pre-bailout siecle). We also fear for Weil's job prospects should he ever wish to find an occupation at such a highly respected place, where not only is there a 4 syllable word minimum but no sentences ever end in prepositions, as the Reuters blogosphere. Ironically, Bloomberg did redeem themselves somewhat later today, when in a Tom Keene interview, Goldman policy advisor Arthur Levitt is caught on tape performing more of the same hyperventilating, and in doing so blasting the administration, using the same Enron-esque analogy, when analyzing the paradox of the GSEs and the sovereign balance sheet.

Did a hedge gone wild account for nearly half of Wells Fargo's Q4 earnings? More importantly, when the economy turns sour, will the same "hedge" drag the company's net income down faster than a financial weapon of mass destruction obliterates lower Manhattan? An analysis of Wells Fargo's Mortgage Servicing Rights and associated "economic hedges" indicates that investors should be concerned by a flashing red light hidden deep within the bank's assets, and the associated loose accounting principles.

The latest observation on our depressing economic reality, behind the glitzy headlines and the 3D TV screens, comes from Bloomberg's Jonathan Weil who rightfully asks "if AIG executives repeatedly claimed the stock was worthless, how do the executives, auditors, regulators, and, ultimately, the government, still have the balls to indicate the company's stock has any intrinsic value, both its publicly traded version and its book equity." Weil also joins the long list of people who wonder, just what the hell is the SEC's function in this day and age, when publicly-traded companies, many of them government backstopped, can disclose anything and everything they desire, even when such disclosure is flawed and purposefully misleading (see Bank of America and the earlier piece on a lying Tim Geithner and the very same AIG) with absolutely no repercussions. It is all really getting just far too depressing for US taxpayers to even be indignant. Maybe that has been the point all along...

Two months ago Bloomberg's Jonathan Weil brought up the very relevant topic of fair value divergences on bank balance sheets courtesy of SFAS 107 and lax accounting firm standards (some more lax than others). Zero Hedge immediately followed up on this theme and presented a comparative analysis of various bank asset shortfalls, speculating that certain accounting firms are doing their best to do an Arthur Andersen redux for Generation Bailout.

On October 15 we said: "Just what about the economic environment has given Citi auditors KPMG the flawed idea that the bank's loan can be easily offloaded with virtually no discount? And just how much managerial whispering has gone into this particular decision. If one assumes a comparable deterioration for the Citi loan book as for the other big 4 firms, and extrapolates the 2.8% getting worse by the average 1.5% decline, one would end up with a 4.2% Book-to-FV deterioration. On $602 billion of loan at Q2, this implies a major $25 billion haircut. Yet this much more realistic number is completely ignored courtesy of some very flexible interpretation of fair value accounting rules at KPMG. Maybe Citi and its accountants should take a hint from Regions Financial CEO Dowd Ritter who carries the FV of his $90.9 billion loan book value at a 25% discount." Today, finally, after a two month delay, these two articles seem to have finally made the inbox of the financial gurus at the Wall Street Journal, which, in an article named "Accounting for the bank's value gaps," says: "can investors count on consistency when it comes to bank accounting? As many banks struggle with piles of bad loans, it appears some auditors are being stricter than others when assessing their true value." Way to be on top of that ball WSJ/Mike Rapaport. Nonetheless, we are happy that this very critical topic, is finally starting to get the due and proper, if largely delayed and uncredited, attention it deserves.

A piece today by Bloomberg's Jonathan Weil focuses on ongoing accounting gimmicks, this time in the realm of Fair Value definitions as determined by SFAS 107. Weil compares the difference of Book (Carrying) Value to Fair Value which several banks hold their assets at, primarily consisting of loans. As a reminder, "Fair value is supposed to represent the price at which an asset would change hands in an orderly, arm’s-length transaction." Weil has noticed that for several banks the accountants have stretched so much that they are in fact holding FV at a higher value than book value. How that is conceivable in the current loan-impaired environment is a major question mark, especially since Weil goes off June 30th balance sheets, before the stock market bubble bonanza was in full force. Yet what caught our attention is a tangent as pertains to whether or not Citigroup may be back to its old accounting shenanigans once again.

A "folk heroish", conscientious, objective and honest jurist gone wild is to a bidetesque^TM, pandering, complicit and conflicted Wall Street sycophant, as Judge Jed Rakoff is to...

Jonathan Weil has the answer.

• Jobless claims rise by 15,000 to 576,000 (Bloomberg), even "as the economy stabilizes"
• SEC plays keep-up in high-tech race (WSJ)
• Germany braces for second wave of credit crunch (Telegraph, h/t Jake)
• Andy Xie: New bubble threatens a V-shaped recovery (Caijing, h/t Yaser)
• Jonathan Weil: Insurers' biggest writedowns may be yet to come (Bloomberg)

The FASB's rule mandating quarterly disclosure of Fair Value of toxic loans indicates that most financial firms are still very deep underwater. Case in point: Regions Financial, whose entire Stockholders' Equity would be in the red (and the firm would be in conservatorship at best) at this moment if the firm were to assign fair value to its loan book.

• Nonfarm payrolls down 247,000, right on top of Goldman's whisper estimate, unemployment rate now 9.4%, bonds yields explode (BLS, AP)
• Insider trading probe at SocGen cost former IB chief his job, TCW co-founder Robert Day also under investigation (Bloomberg)
• Australian workers cut work hours instead of firing (Bloomberg, h/t Aditiya)
• Jonathan Weil: Blowing up your company gets raised to art form (Bloomberg)
• It's not all golden at Goldman (Reuters)
• Goldman Sachs is (not) ripping you off (Ritholtz)

• US Initial Jobless Claims (Jul 18) W/W 554K vs. Exp. 557K (Prev. 522K, Rev. to 524K)
• "If there's a blue pill and a red pill, and the blue pill is half
  the price of the red pill and works just as well, why not pay half
  price for the thing that's going to make you well?"- Obama (Washington Examiner)
• Zero Intelligence trading closely mimics stock market (New Scientist)
• Jonathan Weil: Accountants gain courage to stand up to bankers (Bloomberg)
• Obama's Fed Risk Regulator plan fading as lawmakers back council (Bloomberg)