Lilguy

The Coming Consequences of Banking Fraud

While there may be a grain (or two) of truth in this article, it is so full of opinion and color that it loses just about all credibility. So many words, so little substance.

I'm a lot less conspiratorial, a little more analytical (& balanced), and maybe a little more optimistic (tho not by much) than Mr. Kim.

Bank Asset Values a Lingering Problem

There is nothing going on in the federal government nor in the financial industry that intends to provide a more transparent look at the fair value of financial enterprises. Indeed, the opposite is occurring. As several above have noted, the abandonment of mark to market accounting was a key federal (led by Congress) foisted on the public. Nothing the Fed has done has led to a clearer understanding of the bad assets it has taken off of bank books (Maiden Lane I-III), Geithner PPIP program was meant to hide the true value of bad assets as was the so-called "stress tests"--which were publicly intended to give the American public "confidence" in the banks.

While I'm not one generally for conspiracy theories, the fact of the matter is the results of all the industry, regulator, Congressional, and Administration (Bush & Obama) initiatives has been to make it more difficult to understand the health of the American financial industry. Until we acknowledge their problems, we will not be able to cure them.

Chart of the Day: Common Capital vs. TCE

The purpose of the stress test, as repeatedly stated by Geithner, was to boost confidence in the US banking system. It was not about a "fair and balanced" assessment of their capitalization or solvency. The metric picked to show "confidence" was the one that allowed them to fare best.

In short, the confidence test was a con. The only real reason to have confidence in the banking industry is that Geithner & the White House have repeatedly stated they will not let large banks fail. Whether they have already or ought to soon is irrelevant.

Now, drink your kool aid, and be on your way.

Blaming Bankers When Government Is Really at Fault

I have no doubt that the USG Administraton (both) is a large part of the fault for our present financial--and broader economic--situation, but the financial sector is equally at fault for all the hugely bad investment and risk assessment decisions it has been making for more than two decades.

Besides the Administrations and banks, you can throw in Congress, the regulators, highly leveraged consumer/homebuyers, and a few other cats and dogs as well.

We're all in it together and, by in large, we all contributed to the mess we are in, directly or indirectly. The question now is: What's the best way out of this horrific mess?

Banking System Still Has Major Problems

"The major story that these data tell is that commercial banks are afraid to lend, especially to their own kind."

With that kind of recommendation from their brethren, why should the USG and taxpayers put any faith--or money--into them? Let these guys duke it out among themselves, and we can help the survivors recover.

Jonathan Finger Balks at BofA Results, Pushes for Lewis's Ouster

Lewis is as bad as the rest of them.

The only concern I have is that they could just as easily pick someone worse for CEO. Think about Pandit replacing Prince at Citi; that worked out real well, huh!

Bring in the Antitrust Division (on Banking)

I agree absolutely with Dr. Johnson's analysis. If the banks are "too big to fail" for the sake of our financial system and economy, then they are too big to exist.

I know it will would be difficult to show outright collusion--two Ibank CEOs negotiating prices or turf or whatever to the exclusion of others--but the effects of their actions has been to corner the financial system market. Moreover, they appear to have done so in a fraudulent manner with vastly over-priced assets misleadingly sold to unwary investors.

Some CEOs and other senior executives need to go to jail, and their banks split up (just like ATT a generation ago) or dissolved to avoid the TBTF potential. We all are better served by a more competitive banking environment.

What is most irksome at the moment is that Treasury & the Fed are actually facilitating and financing the the centralization of banking system thru deals such as JPM-BearStearns and BAC-Wachovia-ML. This is precisely the wrong direction to go.

AmEx Shares Could Double - Barron's

OK, AmEx has done a marginally better job than the idiots at Visa in cleaning up their accounts--by paying off non-paying clients of all things. NTL, Barron's writing on both of these companies is just the sort of happy talk BS that Tyler Durden (Zero Hedge) loves to shred like yesterday's newspaper. (See his post here on Time magazine's saying the financial crisis is over--seekingalpha.com/artic....) Also, Meredith Whitney--who has been right more times in the last two years than Barron's has been in a decade about the state of the financial sector--clearly sees credit card defaults as the next big wave to strike the banks. If I remember correctly, she put the default number by the end of this year at about $4 billion. And, of course, there will be a next year with unemployment even worse, etc.

Even with mark-to-myth accounting, that's going to be a hard one for banks to cover up in the ol' balance sheet.

Why It's Better to Bail Out Borrowers than Banks

The roughly 7:1 ratio of USG & Fed commitments of financial aid to the financial sector (Wall Street) vs. debtors (Main Street businesses & consumers) ($9.3T vs. $1.3T) shows who has influence--access and money--in Washington. It does not reflect either a rational, cost-effective, fair, or equitable use of taxpayer funds. It is merely a reflection of who owns our political system. Money means more than votes.

And mainstream Main Street businesses and households do not. They will continue to go bankrupt--and households homeless--for years while Summers, Geithner, & Bernanke try to make the banks and bankers whole at taxpayers' expense.

The U.S. Banking System's Terrifying Balance Sheet

Wobatus--Nice analogy--it got me thinking about its accuracy. There are a few significant differences, however, between your circumstances and those at the bank.

First, the bank's toxic assets are supposed to be valued at market price because they are trading assets (with a view to making a capital gain--LOL!), not ones they intend to hold until maturity. In contrast, while you may sell your home & pay off your mortgage ahead of time, it sounds as if you are quite willing to let it roll until it's paid off.

Second, and more importantly, the value of the toxic assets on the bank's balance sheet helps determine how much (or "little") it can loan as a reserve against bad loans. Right now, the low values of these assets (well, at least until FAS 157 was revised) limits the ability of the banks to lend money and thereby make money--and get that flow of funds you have. This not an issue for you because your income is not determined by the value of your home/mortgage.

Appreciate the useful comparison, however. Just don't try to loan money based on the value of your house! And good luck on an RE market comeback.

Bail Out for Dummies - Part I

...and, so, remind me again: Why is this financial system worth saving if it is essentially bankrupt? Why are these banks "too big to fail" if, as it appears, they have already? Why are we putting America in such deep hock to save these frauds and fools?

I would note that, just last week (3/31), Bloomberg had an article detailing all the measures of the US Government to stimulate the economy. The programs together total commitments of $12.8 trillion. Wall Street's share of that is some $9.3 trillion. Main Street's share--money for the other 300 million of us--is a mere $1.3 trillion while the USG has set aside $2.5 trillion to cover the bad bets of the GSEs and likely funding needs of the FDIC. (Nothing like covering the bad debt of the USG with more debt guaranteed by the "full faith and credit" of the USG!)

Does any of that seem as wrong-headed to the rest of you as it does to me? What about the 5 million newly unemployed since the recession began? What about the 48,000 business failures last year--up from 28,000 in 2007--and the projected 62,000 such failures this year? What about the projected 1.5 million personal bankruptcies this year? ...and that doesn't even touch the massive damage to household wealth from decimated house values, depleted 401Ks, and overwhelming debt.

What the hell is the Administration (& its predecessor) and the US Congress doing??

The U.S. Banking System's Terrifying Balance Sheet

...and, so, remind again: Why is this financial system worth saving if it is essentially bankrupt? Why are these banks "too big to fail" if, as it appears, they have already? Why are we putting America in such deep hock to save these frauds and fools?

I would note that, just last week (3/31), Bloomberg had an article detailing all the measures of the US Government to stimulate the economy. The programs together total commitments of $12.8 trillion. Wall Street's share of that--as reflected in Mr. Durden's article & Mr. Salmon's commentary--is some $9.3 trillion. Main Street's share--money for the other 300 million of us--is a mere $1.3 trillion while the USG has set aside $2.5 trillion to cover the bad bets of the GSEs and likely funding needs of the FDIC. (Nothing like covering the bad debt of the USG with more debt guaranteed by the "full faith and credit" of the USG!)

Does any of that seem as wrong-headed to the rest of you as it does to me? What about the 5 million newly unemployed since the recession began? What about the 48,000 business failures last year--up from 28,000 in 2007--and the projected 62,000 such failures this year? What about the projected 1.5 million personal bankruptcies this year? ...and that doesn't even touch the massive damage to household wealth from decimated house values, depleted 401Ks, and overwhelming debt.

What the hell is the Administration (& its predecessor) and the US Congress doing??

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

Interestingly, it's now a day after Mr. Durden and others published their story about the AIG to bank transfers--and, so far as I can tell, not one single MSM has reported on what appears to be the USG laundering taxpayer money through AIG to the benefit of major banks.


I can only speculate why, but let me start by suggesting that maybe no MSM reporter could corroborate (or deny) this report--or maybe even explain it in a way that might reach mainstream audiences. Without corroboration, it's unlikely the MSM will publish on the topic. It would be interesting to know if they even tried.

I would also note that this is the second time I have seen what seems to me to be an important (and probably negative) piece of economic and financial information (the other was BOA/Merrill's David Rosenberg's call of an ongoing depression) that was not picked up by the MSM.

Frankly, I think we receive a much more complete picture of the economic and financial world (and other aspects of the world around us) through blogs like this. Occasionally, their reporting may be off the mark, but in the end (a) at least we have the info and (b) it is ALWAYS our responsibility to evaluate it and act accordingly.

Kudos to Durden, Zero Hedge, and Seeking Alpha for their work!

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

Transparency! We need it now!

Both the USG in the form of Treasury and the Fed as well as the financial sector have done nothing but try to hide the trading and investment actions and the values of their assets since this crisis began.

Now, apparently, they are all dealing with each other in massive insider deals that essentially rape the American taxpayer. But who's going to know if no one except these insiders can actually see the transactions among them?

The American public needs and deserves absolute transparency of the actions of the government that is suppose to advance its interests. If that occurs, the government will be less willing to make these horrendous, self-serving bailouts at taxpayers' expense, and progress can be made on a rational, balanced approach to rebuilding the financial marketplace. Until that happens, however, we will just be stumbling along, doling out trillions of taxpayer dollars to billionaires who either deliberately or through utter stupidity drove the financial sector into this massive hole.

The Complexity of the Bank Bailout Plan

Another question:

The FDIC charges banks premiums to cover the defaults of banks it insures. Is there any plan to have the recipients of the the TARP 2 bailout pay premiums against future stupidity, er, bad loans/securities/swaps?

I don't think so. So, the taxpayer gets stuck because his bank is offering lower interest rates to cover the premiums it must pay the FDIC, which will use that money to pay off the PPIPers and banks.

Ain't that grand!