Joseph L. Shaefer

Wall Street Breakfast: Must-Know News

“Citi, Wells stuck in TARP trap… While bank executives would like to move forward under terms similar to those granted Bank of America…Fed and Treasury officials want the two banks to raise more capital relative to the loans they're seeking to repay.”

These banks took the taxpayer’s TARP money at near 0% and reinvested it in guvvies then yielding 4-4.5%. It was a risk-free transaction using other people’s money (ours) that made them billions. They also used it to play the derivatives market, to pay bonuses, and to increase their market share by buying banks “too small for the government to care about” for pennies on the dollar. And now they want to negotiate a “better” deal in repaying TARP money so their CEO and top execs can get higher salaries? I guess this is what it looks like when cheeky turns to rapacious…

Wall Street Breakfast: Must-Know News

"House Speaker Nancy Pelosi suggested recycling leftover funds from the $700B TARP fund to create jobs and boost some salaries."

And who decides which workers in which industries get a salary boost? The imperial (imperious) monarchy headed by the Queen Bee? Ah, yes, I can hear it now: "When I am Queen, *I* shall decide who gets the goodies and who has displeased me..."

Here's an alternate plan: give the "leftover" money back to the people who provided it -- the taxpayers. There is no law that says just because it was collected or extorted for one purpose, The Monarchy now gets to dispense it to some other group or for some other purpose.

And here's an even more radical thought: why not let the marketplace determine the value of goods, services and labor, while the Queen Bee hatches eggs or whatever it is Queen Bees do when they aren't devouring worker bees...

Wall Street Breakfast: Must-Know News

"GM ousts CEO, vows progress."

Well, heck, if progress is that easily obtained, why not fire the whole executive suite and start fresh? Now THAT would be progress!

Wall Street Breakfast: Must-Know News

"Iran provokes over nuclear plan... Ahmadinejad told a cabinet meeting Sunday of plans to build 10 more nuclear facilities for enriching uranium to provide nuclear fuel for energy."

Let's see -- on 37 different occasions, the "international community" has told Kim Jong-il he'd better stop playing with nukes. And 37 times, they've done nothing but talk, wring their hands, and whimper that he was a bad boy.

Is it any surprise that Ahmadinejad, with more money, more natural gas, more people, more terrain and, if possible, even more delusions, has taken notice of the international community's proclivity to talk big, carry a little twig, and ultimately do nothing?

Is there left one nation with courage, leadership and foresight in each of these cases willing to put an end to this twaddle?

Wall Street Breakfast: Must-Know News

"Treasury losing patience with mortgage servicers... 'Some of the firms ought to be embarrassed, and they will be,' Treasury's Michael Barr said in a recent interview."

Well, isn't that special?

12 months ago every worker, businessperson, citizen and foreign tourist on Main Street noticed that banks were taking OUR money and speculating with it rather than putting it back in the local community as loans and mortgages -- then repaying it as soon as they were told their bonuses and salaries would be capped.

Having gotten free money to play with for a year, now Secretary Geithner has gone all petulant on them, is stamping his ineffectual little feet, and pouting that "he's gonna telllllllll" on them.

Too late, sir. The rest of us knew their names months ago. Don't tell on them, tell them what you want them to do, then monitor that they are doing it. We gave them our money -- it's time we decide how it's used...

Wall Street Breakfast: Must-Know News

"Underwater mortgages could drown housing recovery. 23% of all U.S. homeowners with a mortgage, or 10.7M, now owe more to the bank than their house is worth..."

I don't discount the importance of these numbers one bit. I was among the first to warn of the housing bubble with "clear and present danger" articles during 2005 and 2006. But neither can I accept the shrill conclusion that because 23% are underwater, that some figure close to 23% will walk away from their current home. (Although, in the Unintended Consequences Department, the current $6500 "redistribution" from all taxpayers to any principal residence buyer may tempt many more than otherwise would have walked to do so...)

Still, a house is not a home and a home is much more than a house. If you like the neighborhood, like the school district, like your neighbors and are comfortable in a place you rent, you don't move just because rent somewhere else is $50 a month cheaper. The same is true of your home, especially if have put sweat equity into the yard or painted it recently or done improvements to the interior, etc.

23% underwater doesn't mean that 23% are hundreds of thousands underwater; or that we'll stay underwater as housing prices rebound in many parts of the country; or that we'll walk away from the home we love just because it's underwater TODAY.

I did not share in the irrational euphoria when prices were ridiculously overpriced. But I do not share the shrill hysteria that the sky is now falling, either. We've been here before. "House" prices go up and they go down. But people still want a "home" to call their own...

Wall Street Breakfast: Must-Know News

"Dimon for Treasury Secretary? "

OK, let's accept that it's "possible" for someone on Wall Street to experience remorse. Next, that it's "possible" they may feel just guilty enough to give up their $48 million a year job to take on a role in government. And that it's "possible" they aren't just pandering to the popular anger and might actually allow the occasional Not Too Big To Wail bank to fail ("possibly" into the waiting arms of JPM.)

Even if that were all possible -- isn't it just as possible we could hire someone who WASN'T a hungry fox to guard the henhouse? Who would begin the job with credibility rather than distrust?

Why must our Treasury Secretary come from Wall Street? Are there no Paul Volckers or Milton Friedmans or Alexander Hamiltons out there willing to put the needs of the American people above the markers they owe their cronies on Wall Street?

It's a rhetorical question. Of course there are...

The State of Banking: Banking on the State?

One of the essential underpinnings of any social contract – or legal or financial contract, for that matter – is that “actions have consequences.”

Once a state or national government picks and chooses favored industries (often because the appointees have come from and will return to those industries) and says to them, explicitly or implicitly, “actions have consequences, but, don't worry, not for you,” there is no social, legal or financial constraint on their actions.

“Actions have consequences, but not for you” is just another way of saying “All animals are equal but some animals are more equal than others.”

That is why so many Americans are so incensed by this favoritism. It isn’t only about the money. It’s about whether this nation stands for equal opportunity, whether individuals and institutions can succeed or fail on their own, and whether the playing field is level or it isn’t. For Wall Street, it may always be about the money. For the rest of us, it’s about something bigger – what this nation stands for and where we go from here.

Wall Street Breakfast: Must-Know News

"BofA's TARP exit hits snag... Until it exits government assistance, BofA remains bound by pay czar Kenneth Feinberg's compensation limitations, which bank executives fear will hamper its abilities to recruit talent."

Translation: We really don't give a rodent's posterior about recruiting talent, but that's a good excuse to deflect criticism from the notion that we're only paying back the TARP money so we can give our top dogs even more bonuses and perks. Frankly we don't care if it comes from the shareholders or the taxpayers as long as it comes to US.

You have to love corporate doublespeak, Act II...

Wall Street Breakfast: Must-Know News

"Peltz takes a foothold in Legg Mason...'We welcome Nelson," Legg CEO Mark Fetting said in a statement. "We look forward to benefiting from his insights and experience as we work together to build greater value for our clients and our shareholders.' "

Translation: We welcome Nelson about as much as we welcome a hurricane that destroys half our property. On the other hand, given the drought we've had, we can always hope that the rainmaking he brings will replenish our cisterns.

You have to love corporate doublespeak...

Ken Lewis's Symbolic Pay Cut

The gentleman in question bought Countrywide and all its troubles even after seeing the books because he wanted B of A to get "bigger." He overpaid by a factor of at least 300% for that liability and slight asset. I fear the same "buy it at any cost" mentality prevailed when buying Mother Merrill -- although he later protested "the government held a gun to my head and made me buy it."

Clearly he was not the only executive at BAC during the time these decisions were made. But in my life experience, "a leader is always responsible for his men." Even the pirate Jean Lafitte took responsibility when his men, against his orders, attacked US vessels in the War of 1812. An honorable man would take maybe $10 million for his time and effort and donate the other $115 million to childhood leukemia research, alleviating poverty in Appalachia or -- a crazy thought -- giving it to the long-suffering B of A shareholders.

As it is, it looks like the $125 million is a finder's fee for taking all those billions from taxpayers. And the beat goes on...

Wall Street Breakfast: Must-Know News

"Sources say Bank of America (BAC) has reversed course, deciding to waive attorney-client privilege and hand over "troves of documents" regarding legal advice it received during its acquisition of Merrill Lynch."

From "What? Us? We didn't do nuttin' wrong," to ""Well, if we did, the lawyers made us do it!" And we are supposed to find B of A leadership credible? In my company, the buck stops here, at my desk, as CEO. The lawyers work for me, not the other way around. At B of A, who is in charge...?

Wall Street Breakfast: Must-Know News

"The European Commission warned nine countries, including Germany and Italy, that their budget deficits are too large" and "Europe contracts more than expected." So much for the notion that there is a stable currency out there with which to replace the current reserve currency.

The US Dollar is a pale imitation of the solid currency we grew up with in which, while traveling behind the Iron Curtain or in China, locals would sidle up to us and try to get us to exchange our dollars at double and triple the official exchange rates.

But I think the country song "Don't Take Her She's All I Got," is the only reasonable response of the world's central bankers when contemplating replacement of the dollar. Sure, they may hedge a little around the periphery, but would you rather trust Vladimir Putin or King Abdullah to make certain the ruble or the riyal maintain their value when either decide to unilaterally devalue by 50%? That might leave the Yen and the Euro, but one represents an economy mired in denial and the other is a "union" that is comprised of nations bound only by geography, not shared loyalties.

Wow, having the EU bureaucrats tell Germany its budget deficit is too large. Is that like having the school nerd / hall monitor tell you to get back in class?

Why Is Goldman a Bank Holding Company?

There is a logic to what Goldman et al have done, perverse as it may seem.

Goldman, and all of Wall Street, had little choice but to become Bank Holding Companies (BHCs) -- and today have NO choice but to seek short-term gains via high-frequency trading and other chicanery.

Brokerages' previous business model depended upon five legs: commissions, float, IPOs, M&A, and trading.

M&A activity is deader than a doornail.

IPOs are unlikely to achieve success without a radically different economic environment.

Brokerages shoved so many securitized this and thats, auction rate securities, sub-prime mortgages, and other incredibly risky instruments down their clients' throats (which they packaged and ballyhooed as "safe," knowing better) that there are trillions of $$ less in float available to them and trillions less in client asset -- so commissions have plummeted.

If you lost at least a great measure of 4/5 of your revenue stream -- lesser commissions, float, IPOs, & M&A -- you'd probably do exactly what these guys are doing. They are first and foremost businessmen. "Let's see. We are only making money from our trading desks where one or two bad trades could blow us to kingdom come. On the other hand, we can take all the risk we like if we wink-wink-nudge-nudge claim to be a bank. That way, we keep all the profits if it goes our way and the American people are on the hook for our losses. Cool!"

I'm an insider in this industry. I'm too close to these yahoos to ever nominate any for sainthood or consider them angelic. But I don't disrespect their business acumen. It is OUR fault for allowing our government to engage in this sham with our money. Remove the loopholes and no one can slither through them. Create the loopholes and every semi-intelligent business person will do what they must to survive...

Wall Street Breakfast: Must-Know News

"Bernanke suggests regulation by committee."

As if the government is not screwed up enough, now we are going to have even MORE decisions by committee, ensuring those decisions will be at the lowest common denominator of intellect and common sense.

What is the definition of a camel? "A horse designed by a committee."