Steve W from Ford

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

What a shallow and useless exercise. Does no one exercise any editorial judgement on what gets posted?
The analysis is so shallow as to be laughable and the assumptions are rediculous. The US banking system will NEVER get to 75% losses as way before we reach this point there will be total societal collapse as to reach this point of loss posits that NOTHING any longer has any value is the US. Not house, not commercial buildings, not securites, nada zilch!
So why not just put on a sign saying "The End Is Near" it's about as good an argument.

Thoughts on Last Night's Speech by the President

He missed the great opportunity he had to be POSITIVE last night. The American people desperately need to hear that things are turning around on the economy and he started out with more doom and gloom. It was 10 minutes into the speech before he, rather tepidly IMHO, gave much of an endorsement for progress on the economy.
Obama has the biggest microphone on the planet. He needs to spend more time reminding people that the tough times will pass and very good times lie ahead. He needs to repeat this over and over and over again to lift confidence and then, like magic, it will be true.
That speech was soooooo boring and ungracious. Just a rehash of his campaign speeches with a few digs at Bush, which are totally unnecessary and just diminish him.
And really, to have the Democrats cheering like madmen at the idea that he "inherited" the deficit is just too much! Like THEY didn't have ANYTHING to do with getting us to over 12T in debt!

Certain Banks Are Still Broke

So the author presents no evidence of his assertion WFC is "broke". He just makes a statement like it is obvious. Meanwhile Warren Buffet is adding more to his already large position in WFC. Hmm, why would Buffet throw good money after bad? Gee who to believe? Think I'll go with Buffet.

Wells Fargo's Record Profit: Beginning of a Trend?

One would be a fool to bet against an industry at which the government is literally throwing TRILLIONS of dollars. The banks have record low cost of funds and with the percieved credit crunch they are able to lend at very high rates. A bank like Bank of America has over a trillion dollars on deposit with a cost of funds of less than 1%. What are you paying if you keep a credit card balance? Lots of room in there to absorb some writeoffs!
With the secondary markets unfreezeing and M2M revisited there will be write ups of the previous writedowns that all the banks took in the last quarter as we go forward.
WFC cited the huge profit they were making in mortgage originations. Guess who is now the largest mortgange originator in the US? The newly combined CW and BAC!
Merrill is now also paying off rather than contributing losses.
All in all I'd expect BAC to roar to near record earnings 1st quarter and for it's share price rally to continue.

Picking on Geithner

The real question is not if the Treasury Secretary is "close" to wall Street or not, it is rather, what is the quality of his character?
Probably the greatest treasury Secretary of the last 150 years was JP Morgan. He WAS wall street but he had character and that, in the end, was what counted.
The whole question of ties to wall street is a false one. It is just another way to say "rich people are bad" and is one of the great problems with our age and one of the false choices deliberately set up by the left. Do not be distracted by this straw man of the left. We need men and women of character in positions of power. With that quality, ties to wall street are just fine..

Oil Production in the Americas

It is incredible to me to see repeated photos of a US President smiling like a naive fool in the face of these buffoonish demagogues like Chavez who have missed no opportunity to accuse the US of the most vile actions and intentions.
Mr Obama appears as a naif when he allows himself to be used in such a manner by men who have set themselves up as enemies of the US and continue to throw rhetorical bombs at our country. Not only is it foolish in the extreme to kowtow to such creatures it is embarrassing in the extreme and will prove counterproductive in the end as these leaders survive by tweaking the "Norte Americanos" and will only exploit Obama's foolish grin.

Technicals: Where Is the Pullback? What Pullback?

Many commenters, along with Tyler Durden, seem to think the recent rally and in particular the fast rise in the financials following WFC announcement is unjustified. Some have said the WFC profit guidance was expected by "everybody".
This is wishful thinking. I have followed the bank stocks over the last 3 months intensively and I can tell you that while some "expected" good earnings this quarter many many did not. Do you not remember that LAST WEEK Mike Mayo was saying the banks were dead meat walking? At least half of all analysts seem to think the banks will fail while the other half think they are undervalued. Certainly no consensus there.
The WFC announcement is the first REAL evidence the big banks will survive and actually may prosper in the current environment and THAT is big news and justifies a big run up.
When you have the financials go from possibly being zombie banks to earnings stars in one week I'd say that justifies quite a run up in the market. One can argue that the earnings are fictional or won't last or that other banks will report much worse earnings but you can't argue there is nothing behind the rally led by financials.
When your bank goes from being possibly on the brink of failure to looking solid it is good for most any company and removes quite a lot of uncertainty from the market.

Too Big Has Failed: KC Fed Prez Says We Need Temporary Nationalization

It's interesting that discussion about nationalization of banks doesn't even touch upon the fact that this is the seizure of private property without due compensation we are talking about.
No one seems to have any constitutional problem with this because it seems to be assumed that the public benefit is so obvious.
Other than Citi I don't know of a major bank that is not profitable or has insufficient regulatory capital which would, at least, provide a pretext of a reason for nationalization.
So we are already at the point where a possible benefit to the state justifies violating THE basic prohibition in the constitution?

Wow!

Buffett and the Banks: Make the Most of a Bad Situation

Not only is the government propping up weak lenders it is, in effect, planning on doing this on a larger scale through the tax code. It is now explicit US policy to redistribute income from the haves to the have nots. What is this but taking resources from the productive side of the economy to give to the unproductive?
I will never again be surprised by what comes out of Washington after seeing candidate Obama and the entire media and democratic party ( almost the same thing these days) loudly deny the claim by McCain that Obama wants to "redistribute" the wealth during the campaign while now explicitly claiming this position, as Obama did yesterday.

Taking Profits on the Euphoria Stampede

Anybody staying short the big banks going into an earnings season for which many CEO's have given veiled guidance about how well things are going has NO BUSINESS giving financial advice to anyone and should be cautious managing their OWN portfolio.

Even the blind could see that BAC had been irrationally beaten down way too far and was due for a rise. Still the case IMHO. I'd be holding through earnings and DEFINITELY would NOT be short the financials.

World Bank Says, Fix Banks First. Uh-Oh.

The foundational problem was the jettison of any credit standard or down payment requirement for mortgages. This was the driver for the asset bubble which was spread by securitization of the loans into the broader financial system.
This easy credit fueled rise in housing prices then was used, again through access to easy withdrawals of the temporary rise in equities, to fuel excess growth in many areas and other mini asset bubbles.
This junking of any rational credit standards for what is typically a very illiquid and yet the largest asset most Americans will ever own, was and is the foundation of ALL other credit and bank ills and the ensuing worldwide economic
collapse.

IMHO the only thing that will "fix" this is for a bottom to be found in housing prices and therefore a bottom to the first class of "toxic' (read untradable) assets. How to effect this is anyone's guess. Time and markets will eventually do this, particularly in the US as with the natural growth of our population we will see a recovery. How you do it in areas like Europe where the population may be declining, I don't know as this decline seems like it would exacerbate this problem.
It feels like we may be at or near a bottom in many of the worst hit areas as there are now stories appearing of large numbers of people flocking to Las Vegas and Florida to take advantage of the bargains there.

The rally bad way to "fix" this is by more of the same easy credit which seems to be the prescription of the Barney Frank wing of the Democratic party as they continue to prevail upon Fannie and Freddie to make more loans to "underserved" populations as well as institute "temporary" moratoriums on foreclosure. This is absolute idiocy and will do nothing but prolong the agony. If we "the people" continue to pay so little attention to our political masters that they can continue to reward favored groups
and in the process destroy our economy, we have no one to blame but ourselves.

Treasury's Bank Plan: Oh, How It's Flawed

The government has not "confiscated" private equity, as you claim. Many of the banks, particularly Citi, needed capital to survive. I don't recall anyone else willing to step up and invest tens of billions of dollars in the likes of Citi at ANY price. Without the capital injection Citi would be dead and the common shareholders, as well as many preferred and perhaps bond holders, would have seen their investment go to zero.
No the government SAVED these investors, at least in the case of Citi.

Great Recession Datapoint of the Day

On Apr 29 03:48 PM Lilguy wrote:

> The trade figures highlight the absence of "decoupling" in the global
> economy, a commonly accepted them only a year ago.
>
> Like Felix, I'm more than a little perplexed by the positive spin
> being put on the decline in inventories. As the layoff and deflation
> numbers point to, this was accomplished by selling what was on hand
> at deeply discounted and producing next to nothing. Moreover, this
> addresses virtually only the manufacturing sector, which has been
> declining here for decades. And looking forward just a month or two
> at the auto industry, I anticipate manufacturing of autos will decline
> even further--first through the all-summer layoffs at GM and then
> through major re-orgs or bankruptcies at GM, Chrysler, and maybe
> Manufacturing has grown consistently, it is manufacturing employment that has declined reflecting increasing productivity.

How Are Those Banks Doing? Depends Who You Ask

Yes some banks MAY face dilution but I believe the government is more interested in giving the banks time to earn their way out of the problem. BAC, for example, earned over 24B in the first quarter alone that was available for loan losses, future provisions and additional equity. Another couple of quarters of this and BAC won't need assistance. Many others posted similar results and IMHO the government will be smart to allow them the time to solve their own problems. The shock to the system of additional massive dilution to shareholders equity would be far more harmful and Geithner and Bernanke must know this.
After first quarter earnings like we just saw the risk of further dilution is receding rapidly. Barring further large deterioration in the economy we will not see the TARP funds converted.

What's Next for Banks?

From an investment standpoint it makes no sense to bet against the combined power of the Fed and Treasury that are now firmly arrayed behind the big banks. The big bank share prices will likely go higher particularly those beaten down the most over the last year.
That said it is a "fixed" game and could cost the average taxpayer grievously. The bet (using our money!) on the part of the Obama administration is that not bailing out the banks has more adverse consequences than bailing them out. What those who argue for letting them fail are really saying is that now is the time to institute a fundamental restructuring of the US economy to make it more biased towards the middle class and smaller banks and other financial players. Perhaps this IS the correct path but I think that most of us, if forced to make the choice, might also think that tinkering with the fundamentals of our economy during such perilous times is far too risky.
It is not like ANYONE really understands how the economy works and can easily design a better one.
The Obama administration is unlikely to switch horses in midstream and completely renounce their current plan so look for continued support of "Big Banking".
Lets hope it works.