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.

How Much Will Citi's Credit Card Losses Rise with Unemployment?

Oh yeah, credit card debt at Citi, BAC, AmEx, etc., will go bad as unemployment continues to grow. OTOH, I don't think it will have the same effect as mortgage defaults have had, simply because people are unable to leverage their credit cards as much as they leveraged their homes. Still, it's gonna hurt many banks' asset base, reserves, and ultimately lending ability. Another arrow in the chest of an early economic recovery.

Chrysler's Lenders: When Banks Have No Reputation Left to Lose

And if I remember right, experts keep saying "things won't get better until we trust the banking system."

Right!

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.

Citi's Earnings Leave Much Room for Concern

There is nothing in the Citi quarterly report that should give any investor any confidence in the strength or growth of this firm.

Not only does it fail to mention writedowns in any consequential way (including the changes in FASB valuation of assets), but it totally ignores the fact that the bulk of its revenues are gifts from the American taxpayer via the Fed and Treasury.

Would you invest (not trade) in a company dependent on the good graces of the USG, notwithstanding Timmy's desire to keep all the TBTF banks operating?

Not a basis for corporate or economic growth in my book.

Citigroup: The Beginning and End of the Current Rally?

I find the games being played in the financial sector--banks, insurance, financial parts of bigger cos.--in both their official accounting statements and in their comments in investor presentations and public statements are at least reprehensible, possibly criminally fraudulent. While I'll leave it to Mr. Cuomo, NY's A/G, to sort out what's criminal (the Feds couldn't find criminal activity if they were mugged), my only recourse is to NOT invest in these badly flawed, badly led, and badly leveraged companies.

I don't care if I might miss a possible passing surge in their stock values, I can find comparable LONG-TERM gains elsewhere with a lot less unease about the veracity of their corporate activities or statements. What's the point of losing sleep or money with these arrogant idiots?

Citigroup's Horrible Conference Call

I was wondering how C and soon MS & BAC were going to two-up the GS and WFC "we got money" show of last week. It seems that, in addition to mystical, magical accounting, the answer is talking jibberish, right out of Alice in Wonderland.

Did you ever hear in this presentation that revenues were boosted billions by the taxpayer money provided by the USG? I didn't think so.

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??