Tom Jacobs

U.S. Banks Putting 'Lipstick on a Pig'

Jeff,

I generally find your posts, this one included, credible and in the right direction, but I believe that the inflammatory language detracts from your analysis. There is nothing wrong with tact. You have strong arguments and the only perception I get from "crime syndicate" or "feces" is to question your judgment.

I have not observed Bloomberg to be a Wall Street mouthpiece at any point of the crisis. They took the lead on challenging the Fed's secrecy regarding its actions, not a step that a Wall Street mouthpiece would pursue when the Fed has repeatedly acted to protect Wall Street and the status quo.

Tom

Fed Finds a Way to Use Stress Tests to Screw Bank Shareholders One More Time

You seem to write from a vacuum. These very banks negotiated to lower the bar on these supposed stress tests. Further, they have succeeded in watering down the "market values" at which they carry their assets. Finally, they generated their earnings in the first quarter from a combination of AIG using tax payer money to buy out various CDOs at par as opposed to anything like market value as well as some such as Citi booking gains buying back their own debt. Now you object to requiring that the banks not get to include their own internally generated profit projections. Again, I don't know where you are coming from...

How CDS Spreads Affect Equity

You should probably differentiate between levels of seniority when you do your comparison. Two firms with CDS at the same level of seniority, etc. Further, the CDS spread is effectively Probability of Default * Loss in the event of default, so adjusting for loss in event of default, CDS is a proxy for default likelihood, etc. Thanks for the post.

FDIC Regulation: Reason for Alarm

Thanks to Alan for making the point on the differing means of government handout. The Wells Fargo deal will actually cost us more as taxpayers than the proposed Citi offer, an unclear conclusion from the link shared by Alan. The original story along with the unconstitutional nature of the administrative law change enabling Wells to proceed was broken by the Washington Post:

www.washingtonpost.com...

When Banks Stop Underwriting

First off, banks have historically used these loans and lines as loss leaders with the internal argument that getting at the rest of the wallet requires using the balance sheet to get in the door. The regulatory differences between commercial and investment banks regarding how these were booked used to dramatically favor the commercial banks (obviously not an issue anymore). Thus, the development of the CDS market provided a means for those within commercial banks trying to impose some discipline on the large corporate loan business to provide an external metric as opposed to asset swapping illiquid bond spreads. Tying to CDS while as you say somewhat removes the monitoring function, is it really believable that loan officers really have much in the way of unique private information on the large companies which have active CDS markets like Nokia? I don't think so.

On the evils of derivatives arguments it just gets worse and worse. Just because Warren Buffet blew his due diligence on General Re:

"When we purchased Gen Re, it came with General Re Securities, a derivatives dealer that Charlie and I didn’t want, judging it to be dangerous. We failed in our attempts to sell the operation, however, and are now terminating it.

But closing down a derivatives business is easier said than done. It will be a great many years before we are totally out of this operation (though we reduce our exposure daily). In fact, the reinsurance and derivatives businesses are similar: Like Hell, both are easy to enter and almost impossible to exit. In either industry, once you write a contract – which may require a large payment decades later – you are usually stuck with it. True, there are methods by which the risk can be laid off with others. But most strategies of that kind leave you with residual liability."

(from:

www.myprops.org/conten.../

we are now saddled with the endless doom and gloom over products that are great for clients when they reach commodity status but always cause problems when banks first develop them since clients are so easily convinced to pay a lot for something they don't need unlike the rest of human experience with the sales process. The misrepresentation by all of these ignorant pundits is really sickening.