TARP

We bail them out. They stiff us. Wonder why we hate the banks? Some thoughts on Ed DeMarco.

Our friends at Research Edge referred to this weekend’s announcement as The Keynesian Elixir. Wikipedia defines an elixir as “a sweet flavored liquid used in compounding medicines to be taken orally in order to mask an unpleasant taste and intended to cure one’s ills. Elixir in the noun form means a drink which makes people last forever.” In this case, the Euro Elixir is masking the unpleasant aftertaste of unintended consequences. The cure will buy some time, but will emphatically, not last forever

No photos or videos of Greek street riots, or burning Athens policemen here. With all the serious discourse over Greek bankruptcy and what not, the general public sometimes ignores the levity of the broader comedy that has brought us here in the first place, i.e. that the Greek government simply sucks at collecting taxes. And no matter how many decrees from above come, this will not change. Case in point: the Guardian reports about the latest tax collection, and immediate ensuing tax avoidance scheme implemented by the Greek government and the Greek wealthy, essentially includes the usage of Google Earth to track those who have swimming pools, cross indexing it with tax collections by address, and catching perpetrators. The loophole - green tarps to fool Google. In other words, good luck IMF.

We are too busy maxing out our credit cards buying AAPL shares after hours into the parabolic blow out (using Sigma X of course, how else could we subpenny front run our own orders?), stacks of Kindles, 7th vacation homes with negative equity, and LBOing zero EBITDA companies to comment on this, suffice to say that if you ever needed confirmation that America is a banana republic in which fraud, corruption and lies are now the norm, here you go: Government Motors is now blatantly lying to its existing and future buyers, and everyone in the administration is complicit.

If only there were more journalists like Dylan, the vast majority of America's population may well have been on its way to grasping the gravity and the real implications of our current unprecedented wealth transfer paradigm, which the President, despite increasing "political points" rhetoric and recent attempts, such as the Volcker Rule, to if not stop then at least delay (thank you teleprompters), has been instrumental in blessing. Between TARP, guarantees, direct cash investments, and the trillions in implicit benefits from the record steep yield curve, the only beneficiary from the existing financial environment is the banking system, period. That this money could be put to much greater use elsewhere is without question: if these trillions had been invested in education, tech and research, America could now be on the verge of another technological revolution. But it is now too late (and, yes, this does account for marvels such as the Kindle - now if there was only a cool looking gadget that would force more Americans to learn to read). Looking back many years from now, the sad legacy of this administration will not be some vaunted healthcare reform, but the unprecedented amount of capital that shifted away from the nation's working class to the nation's "financial innovation producing" class.

Is Citi going to be out of TARP after completing the secondary it is trying to get done? No is the answer. But you could have fooled me.

Nothing too secret here: banks are willing to wager the systemic stability so they can get another bonus payment before everything hits the fan next year. What happens when (not if) TARP is needed again? Well, these banks will have to nationalized, or else there will be a revolution. And these banks know this, so they would rather cash in at least one more bonus after which who the hell cares.

"I am hereby extending [TARP per] the authority provided under the Act to October 3, 2010. This extension is necessary to assist American families and stabilize financial markets because it will, among other things, enable us to continue to implement programs that address housing markets and the needs of small businesses, and to maintain the capacity to respond to unforeseen threats, as described above." Tim Geithner

Threat #1 - landslide change in the political landscape in 12 months

To us, the confirmation hearings last week before the Senate Banking Committee only reaffirm in our minds that Benjamin Shalom Bernanke does not deserve a second term as Chairman of the Board of Governors of the Federal Reserve System.

In addition to paying back its $45 billion portion of TARP, the Bank, in what will be Ken Lewis' last act, will also raise incremental capital. $18.8 billion of new "common equivalent securities" to be issued, or the equivalent of 1.2 billion shares. And even as the firm is set to payout humongous bonuses ala Goldman, the firm will not touch its $44.5 billion in TLGP backed issues.

Let’s hope that Barofsky did not rely upon Blackrock for uncovering problems. Blackrock was involved in disturbing activity as a CDO manager. Among other things, Blackrock Financial Management was CDO manager in some horrific 2007 vintage CDOs such as Pacific Pinnacle CDO ($1 billion; closed 1/1/07; Event of Default 2/4/08); Pinnacle Point Funding ($2B closed 6/7/07; acceleration 12/13/07); Tenorite CDO I ($1 B closed 5/11/07; liquidation 2/7/08); or Tourmaline CDO III ($1.5 billion closed 4/5/07; Event of Default 3/31/08).

Another man wondering why the American people are so eager to be lied to day after day by those in charge. As for how much money (if any) taxpayers are going to see back: expect some truly historic "write offs."

"We have been concerned about use of the TARP funds since the program’s enactment in October, 2008. We are deeply troubled by the lack of oversight of $700 billion in taxpayer dollars, with billons of tax payer dollars ultimately going to financial institutions without restrictions or accountability. As a result, billions have been poorly spent, used to support bonuses to failed executives, or simply gone to uses that banks cannot account for when asked by the American people.” Congressman Paul Hodes

"Wells Fargo (NYSE: WFC) CEO John Stumpf says bank will pay back TARP soon and that it will not need to raise equity to do this."

Surely the increase in "compensation close to the average pay for similar executive roles at peer group companies" is very much deserved, and Zero Hedge approves the very prudent decision by WFC's board of directors. None of this would be made possible without the generosity of taxpayers and Bernanke's plan to bog America in trillions of unsustainable debt for generations to come (aka the steep yield curve). Look for WFC's TARP repayment announcement coming to an 8-K near you any day now.