Paging, Teddy Roosevelt ...
Just connecting the dots. You tell me.
Carl Levin's Senate Permanent Subcommittee on Investigations released several internal emails that indicate that Goldman, well duh, was actively shorting the mortgage market. Um, we all already knew that. Although what is relevant is that this once again bolsters the case for the Volcker Rule - as Levin points out: “Investment banks such as Goldman Sachs were not simply market-makers, they were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis.” In other words, Goldman's traditional defense that all it does is match buyers and sellers while holding some "inventory" is blown out of the window. And this will be magnified substantially during the April 27th grilling of Blankfein (and Tourre). On the other hand didn't the president himself, with great aplomb, say that the Volcker rule is coming thus causing the February correction? So whatever happened to the presidential decree being followed true? Oh yeah, it stopped at the Chris Dodd barrier of corruption which only filters through whatever his Wall Street superiors allow him to.
Senator Ted Kaufman strikes at the heart of the problem in a fin reform proposal, that is leaps and bounds ahead of the Wall Street co-opted bag of concentrated excrement that is the Dodd proposed "Bill", (which incidentally is also dumber than a bag of hammers in terms of actually regulating any of the really salient risk factors - the thing does not even account for the GSE's $6 trillion in debt for god's sake) whose only purpose is to make sure banks can blow themselves up once again and this time so spectacularly that only Mars would be able to bail out not only America but the world, in the process wiping out all of America's wealth. As Kaufman notes: "The prudent solution is to shrink these institutions to a manageable size at which they can actually be effectively regulated." We completely agree. It is time for this president to actually do something instead of just looking all grave when reading from a teleprompter, pretending he cares about Main Street - and the right thing is to enact the Kaufman-Brown proposed legislation into law immediately. Our only addition: demand that the DOJ look over the trading books of every bank and determine which ones pass a monopoly threshold designation. If Holder and Varney need help in doing their job properly, we will gladly volunteer our services.
The hearing by the Permanent Subcommittee on Investigations is starting its grilling of WaMu executives on "The Role of High Risk Home Loans." Watch the hearing live and commercial free here.
Below are the scheduled appearances and testimonies. The full 666 page exhibit list can be found here.
- Recession not over - National Bureau of Economic Research not ready to say when recession ended (Bloomberg, Economic Populist)
- Profits for banks dimmed by home-equity loss seen at $30 billion, CreditSights (Bloomberg)
- And now attention turns to... Spain's toughest job, 20% unemployment (WSJ)
- Interest rates have nowhere to go but up (NYT)
- Palm hires Goldman, Quattrone to find buyers (Bloomberg)
- Dubai's $330 billion deferred buildings impose fees (Bloomberg)
- What do we do if the rich start to leave? (RCM)
- 47% of Americans pay no taxes (Fundmastery)
Banks are busted, all of the big guys were doing the Lehman thing, and it gets worse. I take a look under the hood of the big boys to see what they were hiding. On a side note, as I type this the story is breaking all over the place. Is this the return of true, investigative reporting? I hope so!
Bob Corker, Humiliated By Chris Dodd, Joins The Fed Bashing Brigade; In The Meantime Ted Kaufman Shows Everyone How It's DoneSubmitted by Tyler Durden on 03/11/2010 13:18 -0400
Earlier today political corpse Chris Dodd said that he would proceed with unveiling a financial reform bill on Monday without Republican participation, in a humiliating blow to Bob Corker, who was most recently seen doing all he could to help his Wall Street colleagues make sure the Volcker plan would never see the light of day. Yet with recent rumors out of Washington that not only is the Volcker plan alive and well, the double whammy for Corker may be coming any day. So what does the Tennessee Senator do? He joins the Fed bashing brigade. Among his remarks from his conference given today after his was "fired" by Dodd, was the observation that the "Fed will have its wings clipped in reform" and that the "Fed is lobbying hard to protect its marble buildings." No doubt Senator: it is people like you who make Fed (and broader Wall Street) lobbying efforts quite easy. We hope that you and all your other bought and paid for colleagues in the Senate can learn from Senator Kaufman, whose speech on financial reform we already posted earlier, but which needs to be read and understood by all who are serious about regulatory reform, instead of puppets like Chris Dodd who huff and puff, yet only want to secure a friendly donation paycheck from his core Wall Street constituency, well into his retirement days.
A new report by Moody's "U.S. Bank Asset Quality: Negative Trends Slow Down, But The Pain Isn't Over" has some gloomy observations about the asset quality of the US financial system, and its implications for future charge offs and overall profitability. In estimating total loan charge-offs between 2008 and 2011 Moody's predicts that of the total $536 billion (really $633 billion if unadjusted for purchasing accounting marks), which is equal to 9.7% of all loan outstanding at December 31, 2007, only $240 billion has been charged off, leaving $296 billion still to hit the books. Yet banks have taken loan loss allowances of "only" $188 billion, leaving just over $100 billion unaccounted for. And people wonder why banks are unwilling to lend. Moody's conclusion on what happens as reality catches up with charge offs: "Although banks have provisioned for a substantial amount of their remaining charge-offs, the additional provision required will extend the period that many banks will be unprofitable well into 2010, and will reduce capital levels." Obviously, Moody's estimates do not go past 2011 when many anticipate the next major wave of loan impairments to occur in the form of Option ARM resets and Commercial Real Estate maturities. Furthermore, Moody's does not account for securitized credit card losses, which will also be an area of major pain for the banks in the upcoming years. Just how big the impact of all these will be is still to be determined although it is very likely that the overall impact will impair overall bank capital by well over $100 billion over the next several years.
Senator Corker challenged Mr. Volcker's stance in today's congressional hearings on the Volker Rule by saying that no financial holding company that had a commercial bank failed while performing proprietary trading. It appears as if Mr. Corker may have received his information from the banking lobby, and did not do his own homework.
Let's reference the largest commercial bank/thrift failure of all...
In response to the earlier post on Treasury's supply/demand imbalance, a keen reader shares the following insight:"if there are ~16t usd assets in banking per the article and ~1% are in treasuries today that means 9% conversion of assets to treasuries remains....the banks are woefully undercapitalized. 9% of 16t is 1.44t so the banks can't meet the 10% requirement although some will get close....my concern is that the 1t usd sitting in the fed may already be in treasuries and that it is not truly cash - frn...." That would be very ungood.
JP Morgan's Q4 results show that banks are not only still in hot water yet, but the pot hasn't even really started to boil. Why is it that I look at the info and get such a different impression than much of the media and the sell side who proclaim "blow out results"? Yeah, the results "blow" alright...
A central feature buttressing myriad defenses to the more opaque practices implicit in Federal Reserve secrecy has always been the importance of maintaining "the independence of the Federal Reserve". Recent developments, with respect to the Federal Reserve's "clandestine service directorate" now give us cause to respond to this rationale with a resounding: "Shenanigans!"
Update: Would it surprise you to discover that the Fed is resisting additional disclosures? Probably not. The method of their concealment is quite interesting, however.
"The intensifying economic and solvency crises, and the responses to both by the U.S. government and the Federal Reserve in the last two years, have exacerbated the government's solvency issues and moved forward my timing estimation for the hyperinflation to the next five years, from the 2010 to 2018 timing range estimated in the prior report. The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency. Accordingly, risks are particularly high of the hyperinflation crisis breaking within the next year." - John Williams, ShadowStats
On September 30, 2008, the Treasury issued an edict innocuously titled "Notice 2008-83," published in the equally innocuously titled "Internal Revenue Bulletin 2008-42." Perhaps it is just our paranoid side, but we suspect you could return the country to the gold standard in "Internal Revenue Bulletin 2009-63" and no one would catch on for 6 months. Add to this the fact that Congress, and the rest of the planet, was already quite literally possessed by the upcoming vote on Emergency Economic Stabilization Act of 2008 (the underpinnings of what would later become the Troubled Assets Relief Program or "TARP") and it isn't hard to see why the "notice" went, ironically, somewhat unnoticed.
It shouldn't have.