U.S. Economy: Not Everyone Seems to Be on the Same Page

Truer Words Have Never Been Spoken
I like to point out times when politicians, bankers, and talking heads slip up and say what they actually mean. It does not happen often, but when it does it is usually quite revealing.

Wednesday's quip comes from interim assistant secretary for financial stability at Treasury (IASFST?) Neel Kashkari who was up on capital hill talking all things financial.

From Yahoo Finance Wednesday:

Within weeks, Treasury Secretary Timothy Geithner plans to unveil a new public-private investment fund that will be used to purchase illiquid assets, such as toxic mortgage related securities at the heart of the financial crisis. Kashkari said the private sector has voiced interest in the program and said he expects pension funds and mutual funds that hold retirement savings to be among the major investors.

"My assumption is that most of the capital will come from the savings of the American people," he said.

Let one slip didn't you Neel?

The public-private plan is nothing more than the government offering guarantees on losses to bait return-hungry speculators into buying the worst of the debt instruments that are killing the banks. Details are still far from clear, but it seems Mr. Kashkari already has a solid lead on the targets. I am sure that pensions that have based their funding on magical 8% a year returns will be very aggressive in buying this junk thinking the government guarantees make them a sure winner. I would caution waiting for the details, reading the fine print, and giving a thought as to why nobody wants this stuff at any price.

Not to fear, Mr. Kashkari was back telling lies a few lines down in the article:

Kashkari said he didn't expect the private sector investment to get any advantage over the government's investment. "If the private sector wins, the taxpayer wins," he said. "If the taxpayer loses, the private sector loses."

He meant "If the private sector wins, the taxpayer pays for it, When the taxpayer loses, the private sector loses a bit less."

Printing Money to Buy Bonds-Coming to America
In a process that makes sense only on paper in a classroom full of Keynesian clowns, the Bank of England embarked on a new trip towards currency devaluation Wednesday:

Bank of England Buys Government Bonds, Opening New Policy Front
March 11 (Bloomberg) -- The Bank of England opened a new front in its effort to ward off deflation today as it bought government bonds with newly created money.
The central bank today purchased 2 billion pounds ($2.8 billion) of gilts, its first deployment in a three-month plan that may see it spend 75 billion pounds. Investors offered more than five times as much as the bank said it would buy. “For the economy, this is money that can now be spent elsewhere,” said George Buckley, chief U.K. economist at Deutsche Bank AG (DB) in London. “The risk is that it’s not used to lend but is kept in reserves. We don’t know what this is going to do because we don’t know where the money goes.”

I am aware of the logic (however tenuous) and the financial tomfoolery that makes this move make sense to some. It just seems pure comedy for me for a government to PRINT money to buy ITS OWN DEBT and have that pure fact ignored and perceived as just another investor buying bonds on the open market. It must work because the pound didn't budge Wednesday.

I do not know about you but when people want to sell me 5 times as much of anything I am looking to buy, I become suspicious! Those Brits are a trusting sort.

This bears watching as the same process is coming to America very soon.

It is so Hard to Stay on Message

One of the key aspects of making policy work is that all the players involved have subscribed to said policy and that all involved stay on message regarding said policy. A unified front can inspire confidence and make people think the powers that be might actually have an idea as to what they are doing. Of course the challenge is keeping everything together.

What we have been told is that:

• This is The Great Depression 2.0, or at least a low budget sequel
• The Banks are facing "systemic risk" and need help or we will all be dead
• Taxpayer money must be used to get credit flowing or else we all will die
• Nationalization of banking is Un-American, it would make us all die
• Unlimited funds must be provided to insurers and banks or we die

That about sums it up. Pretty dark and scary. This should be a message that is easy to adhere to, there is not much to it.

Yet in the past 2 days we have been told by big bankers:

• Citi (C) CEO Pandit says they are making more money than at the height of the credit bubble, at least the last 2 months anyway
• JP Morgan (JPM) chief Dimon says JPM did not want TARP money, does not need TARP money and JPM too made big bucks in the winter months

Now we could savage Citi by asking if they would be in such great shape if they revealed losses for those two months or if they had not been bailed out 2 times already with taxpayer cash. We could ask JPM if, seeing all is so well, they would give up the Bear Stearns 30 Billion backstop. I mean, they don't need it, right?

We could do that, but instead focus on the total lack of coordination going on here. With "Tea Party" rallies across the country, polls running 70% against helping out bankers with bailouts, and sentiment running high against paying other deadbeat peoples mortgages one might think that bank CEOs would keep their mouths shut, mumble humble thank-yous, and speak of better days to come thanks to the help of their fellow citizens. No such luck.

I would suggest the government get a leash on these guys and soon. I am sure that the bank CEO's of Wells Fargo (WFC) and Bank of America (BAC) are chomping at the bit to tell the world how great January and February went for them as well. If these guys keep telling us that they are all set and never wanted any help to begin with, the less well read of us might just take them at their word and really get angry that money is being given to those that do not even want it!

Like I said, it is hard to stay on message. Especially if the players involved are all full of it.

Comments

[oceansmike]

Do you know what was said to the bankers when they where summoned by the White House that day in September? Or the Day Paulson asked Banks CEO , during that weekend when Lehmans was going under,,, Do know for a fact how any of this collapse was being orchestrated by Treasury , Big BenBernanke ?? we hear so much about what everyone thinks happened ,,or are we to wait for Paulson/s Book,Bernankes Book,,,

2009 Mar 12 05:12 AM

[henarl]

The next bubble could be lie detector machines to be used by corporate CEOs, government officials, and media talking heads. The demand should far exceed the supply.

2009 Mar 12 02:59 PM

[PainfullyAware]

It seems like we have "OX-Cart Captains" racing in the Grand-Prix.

"Geithner's new plan sounds like another seduction of the public pocket book!" - I agree ED K, this is the only "Solution" they know.

2009 Mar 12 03:23 PM

[Economic Disconnect]

henarl,
go long lie detectors! Might be a short knowing that our government is never held accountable though!
All,
The next phase is either/and suspension of mark to market and a new accounting trick (Level IV?) which will allow banks extreme leeway in bookkeeping. I highlight the relevant quotes and the sleight of hand in my blog post this evening. Thanks for all the comments!

2009 Mar 12 09:10 PM