Year: 2009

Moron

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Yep, it’s Timothy “Eddie Haskell” Geithner again, who really does not have a f^%$ing clue.

In this case, it is his insistence that U.S. banks can earn their way out of the current hole that they dug themselves in:

Treasury Secretary Timothy Geithner is betting that U.S. banks can do something their Japanese counterparts were unable to accomplish in that country’s “lost decade” of the 1990s: earn their way out of trouble.

The stress-test results released yesterday by regulators found that the 19 largest banks face a $74.6 billion capital hole that may be filled mostly by private money. That compares with the hundreds of billions of dollars seen by outside analysts, including the International Monetary Fund, and takes into account banks’ projected earnings over the next two years.

The “stress-test results are an important step forward,” Geithner said in a statement announcing the results. “Americans should know that the government stands behind the banking system and that their deposits are safe.”

…

Geithner told reporters that regulators took a conservative approach to toting up potential credit losses and calculating the industry’s ability to absorb them through increased earnings. The forecast of future profits was at the “quite low end of analysts’ expectations,” he said.

(emphasis mine)

It is quite literally all a confidence game to him: If he can convince the American public to maintain their confidence in the banking system, then they will make so much money, from those FDIC subsidized loans, I guess, that they will earn their way out of this.

It’s also clear that the “stress test” was intended as a confidence building measure, whether it is justified or not.

When you look at the dictionary for the definition of “regulatory capture“, the process by, “which a government regulatory agency created to act in the public interest instead acts in favor of the commercial or special interests that dominate in the industry or sector it is charged with regulating,” you sill see this picture.

Great googly moogly! How stupid do they think that we are?

Who are they anyway? Maybe we can export them to Namibia.

EU Parliament Votes for Sanity

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A number of copyright numnuts, in particular Nicholas Sarkozy, want the law to require ISPs to take down an account on an accusation from a license holder, but the Euro Parliament passed language saying that any take-down has to be in court:

But a battle has exploded in the last few weeks over a parliamentary amendment that aimed to prevent countries from passing legislation similar to France’s ‘three-strikes’ bill that would cut off internet access if users are repeatedly caught downloading music, films and other content without permission of the copyright holder.

…

France, wanting to save what has become a flagship piece of legislation for President Nicholas Sarkozy, whose wife is a pop star, lobbied other member states heavily on the issue.

…

Catherine Trautmann, the deputy responsible for shepherding the legislation through the parliament, said she was confident that the wording in the compromise meant that a court order was required before access could be cut.

French culture minister Christine Albanel meanwhile believed that the compromise meant that websurfers who had their internet access cut had a right to judicial appeal – but only after the deed had been done.

The deal unravelled on Wednesday morning however, when the full sitting of the parliament supported a late amendment 407 to 57, with 171 abstentions, re-inserting stronger language requiring governments to obtain a court ruling before access can be cut.

…

(emphasis mine)

I guess Sarko is big on this because he just knows that record distributors and movie studios are such honest and empathic people that they would never abuse this power.

This will probably push the bill into the next session, which promises to have even more consumer advocates.

Two snaps up.

Economics Update

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So, the Bureau of Labor Statistics has its April employment report out, and non-farm payroll employment continued to decline in down 539,000, though this is a slower decline, and beat expectations though the unemployment rate rose to 0.4% to8.9%, a 25 year high.

Under the less restrictive, and to my mind more accurate U6, unemployment rose to 15.8%.

The picture (click for full size) shows the employment fall from peak compared with other recessions.

Meanwhile, wholesale inventories fell by 1.76%, more than the forecast of 1%, as retailers and manufacturers tried to adjust for reduced demand.

We also have some bad news in the financial industry, with Royal Bank of Scotland posting a loss after writing down risky assets, Commerzbank, Germany’s 2nd largest bank, reporting an €861 million loss, and our old friend AIG posted a loss of $4.5 billion. (AIG is the gift that keeps on giving.)

Meanwhile, all the optimism over the jobs report (Whee! !he 2nd derivative is positive!)has driven the dollar down and driven oil above $58.bbl.

I Didn’t Expect a Bloody Irish Inquisition!

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The right to blaspheme is a basic human right. Or it should be in a modern democracy.

If your God can’t take me calling him a pig felcher, then he ain’t much of a God.

Of course, Ireland, notwithstanding its economic success until recently, is still very much a 3rd world nation, so the Irish Minister of Justice, Dermot Asshole Ahern, has decided to ignore the European Convention on Human Rights, and put forward a bill to make it crime, punishable by a fine of up to €100,000 to, utter or write anything “grossly abusive or insulting in relation to matters held sacred by any religion, thereby causing outrage among a substantial number of the adherents of that religion; and he or she intends, by the publication of the matter concerned, to cause such outrage”.

There is no institution that needs the air let out of it than organized religion, and the right of people to do this should not be abridged.

Corruption, Business as Usual in the Financial Markets

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Some times you notice something, and think, “I’m gonna have to post about it later,” and by the time you do, the story has changed.

This is particularly true in corruption cases, where things move rather quickly.

Case in point, the corrupt, self dealing Chairman of the Federal Reserve Bank of New York, Stephen Friedman, who, “bought shares in Goldman Sachs in December, profiting to the tune of $1.7 million.“

Ordinarily not a problem, since the Federal Reserve does not regulate investment banks, but for a little fact, that in September, the Federal Reserve allowed Goldman Sachs to become a bank holding company, and hence was regulated by the Federal Reserve, and most particularly was regulated by, you guessed it, the Federal Reserve Bank of New York.

But of course, as Yves Smith so eloquently notes, “A Conflict of Interest is Not a Conflict of Interest If It Involves Goldman,” or as he said to the Wall Street Journal:

Last week, following questions from The Wall Street Journal, Mr. Friedman, 71 years old, disclosed he would step down from the New York Fed at year end. In an interview, he said he made the decision because the waiver letting him own Goldman stock and be a Goldman director expires at the end of the year. He added: “I see no conflict whatsoever in owning shares.”

Except of course, as Ms. Smith notes, he bought shares in a company that he was regulating, and he did so before the waiver was approved.

This is insider trading, pure and simple.

Of course, today we see have justice, Wall Street style, as Mr Friedman has resigned, effectively immediately, from the NY Fed.

That’s it. He gets to walk way and keep his money, there will almost certainly be no criminal investigation.

This is business as usual, and, yet again, all roads on corruption lead back to Goldman Sachs, the BCCI of Wall Street.

Taking these racketeers down them down must be a government priority.

Because the Political Culture is That Dysfunctional

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Matthew Yglesias wonders why we have to beg the government in Islamabad to take action against the Pakistani Taliban as opposed to their begging for help, when it is clear that they are an existential threat to their government.

First and foremost, I think that the level of threat is exaggerated, but more importantly, the political culture of Pakistan is amongst the most profoundly dysfunctional in the world.

It has much to do with its founding as a nation, which was not so much born in nationalism, but British colonial tactic.

Simply put, the British maintained control in many of their colonies, particularly in what is now India and Pakistan, was to encourage ethnic rivalries, and so as movements for autonomy, and later independence, grew in India, the British authorities encouraged Muslim leaders to agitate for a separate state, which they believed would make the independence less likely.

This was followed by the war over Kashmir in 1947-8, in which the British, particularly Mountbatten, continued to meddle in South Asian affairs.

When combined with the later wars, particularly the humiliation suffered in the Bangladeshi war of independence, it left the state security apparatus, particularly the ISI, focused on one goal: to win the next war against India, and secure all of Kashmir.

This is not going to happen. India and Pakistan both have something on the order of 50 combat militarized nuclear warheads, and as such a full out shooting war would result in horrific losses to India, and something very close to the complete elimination of the Pakistani state.

Even so, there remain elements in the military, and the Pakistani intelligence service, the ISI, that remain exclusively focused on the prospect of a final apocalyptic battle with India.

As such, they support extreme Muslim fundamentalists on both sides of the border with Afghanistan, even though these are the same people who are a threat to the stability of the state, because they believe that the conflict with India is the primary focus of the state, and that by supporting these the Taliban, they can minimize India’s influence in Afghanistan.

Personally, I think that it’s nuts, and a does much harm to Pakistan, but that is what the mind set is.

Commercial Real Estate Crash Hitting

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With commercial mortgage delinquencies hitting an 11-Year High, (H/TCalculated Risk) the records only going back 11 years, we are starting to see what might very well be a worse crash in commercial real estate than we saw in housing, because typically, CRE mortgages need to be refinanced every 5 years.

Additionally, we have a report from Deutsche Ban suggesting that 2/3 of loans backed by mortgage backed securities (CMBS) will not be able to be financed if they come due between now and 2018.

While CMBS are only about ¼ of this market, it’s not unreasonable to assume that we could see similar numbers in the same range for other forms of financing, as the property remains under water.

Even if that number is only 20-30% of outstanding commercial markets, we are looking at a death spiral that will make the housing bubble pop look tame.

Just So You Know, There Are No Grown-Ups In Charge

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Alan Grayson (D-FL) questioning the Inspector General for the Federal Reserve, and it appears that no one is in the process of reviewing any Federal Reserve activities.

Un-dirtyword believable.

The Federal Reserve needs to be reformed and made more transparent.

I don’t know of any specific allegations of corruption, but when you are seeing 9 trillion in transactions, and not even the attempt to see what is going on, I cannot imagine that someone out there is not lining their own pockets.

More Evidence that the Fix Was In on the Stree Tests

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As Peter Boockvar observes, they can raise the capital through a simple accounting trick

Considering that they’ve already received $45b in preferred stock from the US taxpayer, an accounting maneuver of converting that to common can, Voila, cure their capital needs without raising a penny of new money, a move that even the magician David Copperfield would be in awe of.

Just delightful.

Everyone gets a gold star, and all the test takers are cheating.

Tom Ridge Not Running for PA Senate

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I don’t think that he could have won the primary anyway, but this puts former head of the Club for Growth Pat Toomey in the driver’s seat for the ‘Phant 2010 PA Senate Nomination.

Also, considering that Toomey is a very heavy duty wing-nut, it puts whoever wins the Dem primary at a substantial advantage in the general election.

I even if I thought that a primary contest would make it more difficult for Dems to hold the seat, and I don’t, I just cannot see a decent candidate losing in Pennsylvania if they don’t screw it up.

Economics Update

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I think that we have some promising news here, though, eternal bear that I am, believe it to be a pause rather than the start of a turn around.

That being said, first time jobless claims fell, as did the less noisy 4 week moving average (see pic), which makes 4 weeks for the 4 week moving average, though continuing claims rose 56K to 6.351 million, indicating that this might more that businesses are running out of people to lay off than people are being rehired.

That being said, the fact that the April retail sales numbers beat expectations is just generally good news.

I’m not sure, however, how they managed to beat expectations, what with consumer credit dropping a record $11.1 billion in March, which indicates that the consumer is retrenching.

My guess is that this is an artifact of tax refunds.

In Europe, we have the Bank of England holding rates steady and the ECB cutting rates by 250 basis points (¼%), and both have expanded their programs of “quantitative easing” (printing money).

These actions were not particularly aggressive, which meant that the dollar Euro, because they are simply less likely to debase the currency as much as Uncle Ben (Bernanke).

The concerns about the US money supply are also finding their way into the US Treasuries market, with interest rates on the latest bond sales exceeding expectations, because investors are worried about monetarily driven inflation.

Still, reading the tea leaves on real estate, things are not going well, with delinquencies on dues to homeowners associations, which tend to foreshadow mortgage defaults, growing rapidly from 2.8% last June to 5.3% today.

Additionally, you have condo and apartment sales in Manhattan declining precipitously, with sales falling 48% year over year. (!)

The fact that mortgage rates are trending higher is not a help here.

In the world outside of real estate, the transportation based indicators are not showing any sign of recovery either, with Suez Canal April revenues falling 22.7% YoY.

Still, oil traders are betting on increased demand for oil, which translates into increased economic activity, and so crude rose today.

Gee, This is Credible

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The BJP is saying that if the US rescinds a tax break used to outsource workers that they will remove India from the nuclear deal with the US, and buy their civilian reactors from the French.

Note that the tax break subsidizes shipping jobs from America to India, but then again, as the spectacle of appropriations bills and the agriculture bill show, everyone wants their subsidy.

Of course, the French don’t subsidize outsourcing software and support to India, and the number of Francophones is relatively small in India, so the couldn’t move much business there if they tried.

Additionally, the BJP, the Hindu Nationalist (or as I like to call them, Fascist) Party is not the party in power, that’s the Congress Party, though there is a campaign ongoing.

It’s electioneering, and means nothing, though if I were Barack Obama, I would call their bluff.

It would not even effect the nuclear industry for the next few years, as lead times are very long for such projects.*

*Full disclosure, I did work for a brief time in the nuclear industry last year, on plant shutdown and cleanup of waste.

More Info on the Georgia Mutiny

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Well, I asked for background on the Georgian mutiny, and I just got it.

This wasn’t a coup attempt. This was a mutiny in the classic sense of the term, with an armored brigade (!) being ordered to take action against peaceful demonstrators, and the commander, Colonel Mamuka Gorgiashvili, with, one assumes, at least the tacit the consent of his subordinates refused to deploy against peaceful protesters.

He defied orders and remained in barracks.

This is probably significant, the state security apparatus has been a bulwark of Saakashvili rule, but it is by no means an attempt to disrupt the NATO maneuvers or a coup.

It’s Official, the “Stress Test” Was Just Theater

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We are getting reports now of what Timothy “Eddie Haskell” Geithner’s stress test has determined, and it’s clearly not reality.

Bank Needs
Capitalization		 Amount
Bank of America Yes $34 B
Wells Fargo Yes $15B
Citigroup Yes $5B
Morgan Stanley Yes $1-2B
Goldman No

MetLife No

JP Morgan Chase No

Bank of NY Mellon No

American Express No

Capital One No

BB&T No

This is a damn joke.

You have one “oh my God” number, for Bank of America, and it’s about 50% of their market cap, but Citi, which is clearly in much worse shape is somehow better capitalized by a factor of 6.

This is simply not true, even after BoA’s disastrous acquisition of Merrill Lynch and Countrywide.

Also note this joint statement from the Treasury Department, Federal Reserve, FDIC, and Office of the Comptroller of the Currency, which, to my untutored eye, appears to say that they are going to go with their cockamamie scheme to claim that capital is increased by swapping preferred for common stock.

It’s an accounting trick, and what’s more, it’s one where the taxpayer has just taken a second haircut.

They are making great theater by pretending to talk tough and giving a month for the banks that need to to present a plan to raise capital, and 6 months to have this plan in action, but it’s all a lie, since the plan may very well be, “suck on this, taxpaying rubes”.

I disagree with former IMF chief economist Simon Johnson’s analysis, which is that they are selectively leaking to create confusion in order to keep people from looking at whether the test was too hard on the banks.

I think that his analysis is incomplete. The “stress test” begins and ends with public relations. It’s a sham, and it has always been a sham, intended to show that the government was serious about reigning in the big banks, without actually engaging in the necessary actions, like seizure of insolvent institutions that would actually be required for it to work.

Economics Update

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Surprise, surprise, the press is noticing that foreclosures are no longer just some sort of phenomenon effecting poor people who got subprime loans:

Chuck Dayton put down a quarter of the $950,000 purchase price when he bought his house in Newport Beach, Calif., in 2004. He was making $500,000 a year with his drywall company and he expected home values to keep rising.

Then the mortgage market collapsed, new construction stopped and builders no longer needed his services. Dayton, 43, went into default four months ago because he couldn’t afford payments on the three-bedroom home, located within a block of the Pacific Ocean. He hopes his lender will agree to sell the seven-year-old house for less than he owes to avoid a foreclosure.

This is then followed by a a number of refis to take out equity, and a negative amortization loan.

A bubble market, with toxic products feeding the frenzy. No wonder Zillow dot com just completed a survey showing that ¼ of home owners are under water.

Even those who followed the old rules, 20% down and 30 year fixed, ended up buying into the appreciation story, with refinancing and exotic mortgages creeping into their home values.

And while fear fear has temporarily put a halt to the worst excesses, the declining job market, continues to mean that these people will stay under water.

The most recent reports, private ones from payroll check processor ADP, and the rather Dickensianly named outplacement firm Challenger, Gray & Christmas, don’t show a turnaround, though in a classic bit of journamalism, the fact that private sector employment fell by 491,000 is somehow good news.

Meanwhile in currency, the dollar weakened slightly, largely on uncertainty about both what the ECB will do the Euro rate, and the results of the banking stress test (more on that later).

In energy, both oil and natural gas were up, oil to a 5 month high, and the largest single day increase for natural gas in 2 months.

Stress Test Leaks: BoA In Trouble, Whither Citi?

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Well, the rumors are out there, and the latest is that the test will report that Bank of America needs $34 billion in additional capital.


Bank of America 3 Month Share Price

(By way of context, BoA is trading at about $11½ with a market cap of $74 billion, which means that it needs to sell new shares roughly equivalent to half of its outstanding ones in order to properly capitalized by the standards of Timothy “Eddie Haskell” Geithner’s Treasury Department.

Note, of course that this is based on their so called “worst case” stress test, which is already more optimistic than what we have seen in the past 3-4 months.


Citi 3 Month Share Price

That being said, if the numbers are bad for BoA, they must be truly horrific for Citi, which is generally considered to be in the worst shape of the big 19 banks, which has been trading at about $3½, with a market cap of 19.2 billion, and if they need to raise anything near to 30 billion, they will be back in penny stock land for good.

I would also note that if these numbers are accurate, and they might not be, I think that the indications are that the stress test was conceived to make sure that everyone “got a gold star,” which would make reality even more alarming.

(click pictures for full size)

It Ain’t the Crime, It’s the Coverup

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Barack Obama promised that the people who engaged in torture at the CIA would not be subject to prosecution, but it appears that this guarantee will not apply to people who actively destroyed evidence of torture:

When president Obama decided to release the Bush-era Justice Department’s interrogation memos last month, he tried to calm an anxious CIA by publicly declaring that operatives who “reasonably” relied on them would not face criminal prosecution. But agency officials still have plenty to worry about. Despite Obama’s assurances, a Justice Department special counsel is quietly ratcheting up his probe into a closely related subject: the CIA’s destruction of hundreds of hours of videotape showing the waterboarding of two high-value Qaeda suspects. At the same time, a Senate panel is planning the first public hearing dealing with CIA interrogations, including testimony from a star witness: Ali Soufan, the former FBI agent who vigorously protested the questioning of one of the detainees, terror suspect Abu Zubaydah.

….

You can see my old post on this here.

Interestingly, these tapes were destroyed when both Congressional investigators, and a Federal Court Judge were demanding information of this sort.

While no one may go to jail for the torture, it is likely that some people, Michael Hayden, Porter Goss, and Jose Rodriguez who was the director of the CIA’s operations directorate.

In a way, this might be better, because their defense against torture is protected by the OLC memos, as flawed (garbage really) as they are, but they did not receive an OLC memo to obstruct justice and destroy evidence.

There is a Context in Georgia

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But I am not sure what it is, so the report of a tank battalion mutinies in Georgia is concerning, but I do not know what it means.

I still believe that the Russians have thoroughly penetrated the Georgian state security apparatus, so I don’t see this as being part of a Russian backed coup. It would have been more extensive and better organized if it had.

It is likely, however, that the Russians were aware of what was going on before the Georgians, and certainly they view the events with no small amount of schadenfreude, but I think that whatever happened here had a lot more to do with what is going on in Georgia than with Russia.

That being said, I have yet to see anyone, anywhere give more specifics than, there was a mutiny, and the Georgians accused the Russians.

Perhaps there is something to be found on Georgian or Russian language sites, but I can’t read either tongue.

My guess would be that there are elements in the Georgian military not happy with the NATO exercises, but that is only a very uninformed guess.