Saturday, February 28, 2009

Berkshire Hathaway Shareholder Letter

(Some highlights from Berkshire's 2008 shareholder letter):

As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”

By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear. This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.

Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.

Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.

Things also went well on the capital-allocation front last year. Berkshire is always a buyer of both businesses and securities, and the disarray in markets gave us a tailwind in our purchases. When investing, pessimism is your friend, euphoria the enemy.

Some years back our competitors were known as “leveraged-buyout operators.” But LBO became a bad name. So in Orwellian fashion, the buyout firms decided to change their moniker. What they did not change, though, were the essential ingredients of their previous operations, including their cherished fee structures and love of leverage.

Their new label became “private equity,” a name that turns the facts upside-down: A purchase of a business by these firms almost invariably results in dramatic reductions in the equity portion of the acquiree’s capital structure compared to that previously existing. A number of these acquirees, purchased only two to three years ago, are now in mortal danger because of the debt piled on them by their private-equity buyers. Much of the bank debt is selling below 70¢ on the dollar, and the public debt has taken a far greater beating. The private equity firms, it should be noted, are not rushing in to inject the equity their wards now desperately need. Instead, they’re keeping their remaining funds very private.

Though Berkshire’s credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing. At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one.

Local governments are going to face far tougher fiscal problems in the future than they have to date. The pension liabilities I talked about in last year’s report will be a huge contributor to these woes. Many cities and states were surely horrified when they inspected the status of their funding at yearend 2008. The gap between assets and a realistic actuarial valuation of present liabilities is simply staggering.

When faced with large revenue shortfalls, communities that have all of their bonds insured will be more prone to develop “solutions” less favorable to bondholders than those communities that have uninsured bonds held by local banks and residents. Losses in the tax-exempt arena, when they come, are also likely to be highly correlated among issuers. If a few communities stiff their creditors and get away with it, the chance that others will follow in their footsteps will grow. What mayor or city council is going to choose pain to local citizens in the form of major tax increases over pain to a far-away bond insurer?

Insuring tax-exempts, therefore, has the look today of a dangerous business – one with similarities, in fact, to the insuring of natural catastrophes. In both cases, a string of loss-free years can be followed by a devastating experience that more than wipes out all earlier profits. We will try, therefore, to proceed carefully in this business, eschewing many classes of bonds that other monolines regularly embrace.

Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols. Our advice: Beware of geeks bearing formulas.

The investment world has gone from underpricing risk to overpricing it. This change has not been minor; the pendulum has covered an extraordinary arc. A few years ago, it would have seemed unthinkable that yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms.

When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.

Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable –in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning close to nothing and will surely find its purchasing power eroded over time.

Approval, though, is not the goal of investing. In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re-examination of conclusions formed earlier. Beware the investment activity that produces applause; the great moves are usually greeted by yawns.

Improved “transparency” – a favorite remedy of politicians, commentators and financial regulators for averting future train wrecks – won’t cure the problems that derivatives pose. I know of no reporting mechanism that would come close to describing and measuring the risks in a huge and complex portfolio of derivatives. Auditors can’t audit these contracts, and regulators can’t regulate them. When I read the pages of “disclosure” in 10-Ks of companies that are entangled with these instruments, all I end up knowing is that I don’t know what is going on in their portfolios (and then I reach for some aspirin).

Derivatives contracts, in contrast, often go unsettled for years, or even decades, with counterparties building up huge claims against each other. “Paper” assets and liabilities – often hard to quantify – become important parts of financial statements though these items will not be validated for many years. Additionally, a frightening web of mutual dependence develops among huge financial institutions. Receivables and payables by the billions become concentrated in the hands of a few large dealers who are apt to be highly-leveraged in other ways as well. Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: It’s not just whom you sleep with, but also whom they are sleeping with.

Sleeping around, to continue our metaphor, can actually be useful for large derivatives dealers because it assures them government aid if trouble hits. In other words, only companies having problems that can infect the entire neighborhood – I won’t mention names – are certain to become a concern of the state (an outcome, I’m sad to say, that is proper). From this irritating reality comes The First Law of Corporate Survival for ambitious CEOs who pile on leverage and run large and unfathomable derivatives books: Modest incompetence simply won’t do; it’s mindboggling screw-ups that are required.

The next huge debacle

In a bit more than an hour, we'll soon have Berkshire Hathaway's latest report. But I want to take you to last years report first.

Here's what Warren had to say about the accounting for pension plans:

Decades of option-accounting nonsense have now been put to rest, but other accounting choices remain – important among these the investment-return assumption a company uses in calculating pension expense. It will come as no surprise that many companies continue to choose an assumption that allows them to report less-than-solid “earnings.” For the 363 companies in the S&P that have pension plans, this assumption in 2006 averaged 8%. Let’s look at the chances of that being achieved.

The average holdings of bonds and cash for all pension funds is about 28%, and on these assets returns can be expected to be no more than 5%. Higher yields, of course, are obtainable but they carry with them a risk of commensurate (or greater) loss.

This means that the remaining 72% of assets – which are mostly in equities, either held directly or through vehicles such as hedge funds or private-equity investments –must earn 9.2% in order for the fund overall to achieve the postulated 8%. And that return must be delivered after all fees, which are now far higher than they have ever been.

How realistic is this expectation?

Some companies have pension plans in Europe as well as in the U.S. and, in their accounting, almost all assume that the U.S. plans will earn more than the non-U.S. plans. This discrepancy is puzzling: Why should these companies not put their U.S. managers in charge of the non-U.S. pension assets and let them work their magic on these assets as well? I’ve never seen this puzzle explained. But the auditors and actuaries who are charged with vetting the return assumptions seem to have no problem with it.

What is no puzzle, however, is why CEOs opt for a high investment assumption: It lets them report higher earnings. And if they are wrong, as I believe they are, the chickens won’t come home to roost until long after they retire.

After decades of pushing the envelope – or worse – in its attempt to report the highest number possible for current earnings, Corporate America should ease up. It should listen to my partner, Charlie: “If you’ve hit three balls out of bounds to the left, aim a little to the right on the next swing.”

After the markets are down 50% across the board, these pension liabilities are going to be a blackhole of liabilities for many stocks with household names.

Karl Denninger, has the right idea, of what these obligations could entail:

A huge number of big multinational companies - firms that have so far held up reasonably well in the indices (and in fact are all that is holding up the indices) have tremendous unfunded pension obligations on their books.

These firms have in many cases seen half of their net equity value destroyed due to MTM losses on these funds. These liabilities can only be discharged through a bankruptcy (transferring them to the PBGC), and yet that would wipe out their common stockholders.

Now here is your exercise for the weekend:

Take the large-cap companies that have held up "reasonably well" thus far and also are "legacy" firms - that is, firms that have been around for a long time and thus have pension obligations on their books.

Zero the stock price of 30-50% of those.

Now compute what that does to the index they are in.

Make sure you're sitting down when you do this computation.

I gotta run. I have a tee time.

And if Obama wants to to really help this economy, he should take a little of Charlie's advice.

"Aim a little to the right on the next swing"

De-Coupling? Not!

SHAOXING, China — This was a city that globalization built.

Not long ago, 20,000 textile and garment factories were bustling here, crowded with workers knitting and sewing for six, and sometimes seven, days a week to produce the wares sold at big American retailers like Gap and Wal-Mart.

Now, demand is waning in the United States, and Shaoxing, a coastal city that is one of the world’s biggest textile centers, has fallen victim to the global downturn.

Factories here are closing. Some bosses have fled town, leaving thousands of workers in the lurch. And other owners are worried about mounting debts and the prospect of bankruptcy.

Qian Jin, an industry expert, says Chinese textile companies are suddenly in a “struggle for survival.” A warning from Beijing last December was dire, too: As many as two-thirds of the country’s textile and apparel companies could go broke.

The latest bank "discrepancys"

Citibank: Carrying loans on book at $660.9 billion; 10K filed today discloses that "fair value" is $642.7 billion - a "discrepancy" of $18.2 billion dollars.

Bank America: Carrying loans on book at $886.2 billion; "fair value" of $841.6 billion, a shortfall of $44 billion.

Wells Fargo: Carrying loans on book at $843.8 billion; "fair value" of $829.6 billion, a discrepancy of $14 billion.

Timmy Geithner: The architect of the latest Citi bailout

The latest plan began to coalesce on Sunday, when the Treasury secretary, Timothy F. Geithner, alerted Vikram S. Pandit, Citigroup’s chief executive, that the government would seek to convert its preferred stock. The move was designed to allay fears that Citigroup’s plunging stock price might prompt customers to pull money from the bank, although there is no sign that is happening now.

So Geithner actually thought that his plan to increase Citi's tangible equity, would actually help the common stock price advance??

The equity, or stock price of these banks continues to get hammered, because this is the vote of the marketplace on what Citi is really worth.

The banks use fictitious levels or tier's of capital, that include mispriced assets when regulators assess the bank's health.

And those valuations are as far away as what the market bid for the banks toxic assets are worth, and what the bank's ask is for these same toxic assets!

So Timmy's next plan then, will be to suspend mark-to-market accounting.

Just to make sure, everything then can be marked to make believe!

Friday, February 27, 2009

We got your Citi Money!!


Impossible to tell!!!!

Did anyone catch that??? Mervyn King, of the Bank of England said, "It's impossible to tell how much capital is needed for Britain's banks!"

They're so insolvent, they can't even guess how much money would make them solvent!

It's Mission Impossible!

GE cuts dividend

Two months ago, GE made these statements about it's dividend:

"culturally important part of the company"

"We have prioritized dividends as the best use of capital right now"

"we are committed to the current dividend throughout 2009"

Three months ago, GE put out a press release:

November 13, 2008
An update on the GE dividend

There has been speculation in the media and among analysts recently about GE's plans for its dividend. Here are a few facts:

• GE has paid a dividend each quarter for more than 100 years.

• On Sept. 25, GE stated that its Board of Directors had approved management’s plan to maintain GE’s quarterly dividend of $0.31 per share, totaling $1.24 per share annually, through the end of 2009. That plan is unchanged.

• GE expects cash flow to be greater than the amount needed to fund the dividend in 2009.

• GE has taken a number of steps to strengthen its liquidity plan, including participation in the U.S. Government's Commercial Paper Funding Facility (CPFF) and FDIC's Temporary Loan Guarantee (TLGP). Both of these government programs provide additional levels of security for our investors,strengthen our ability to support the planned dividend in 2009, and do not place any restrictions on our dividend policy.

Find more information on GE's dividend at:

Today they cut it, to save $9 billion. Jeffrey Immelt at GE has managed the greatest "twofer" in GE's history. He has managed to melt down both the dividend and the stock price!

That's rocket science the GE way!

Here we had the dividend cut story beforehand on Dow, GE and JPM.

The next big dividend cut will be Wells Fargo.

And they are on deck!

Citi's cramdown of the taxpayer

You, the taxpayer had a $25 billion preferred piece in Citigroup, that was paying you a couple billion a year of interest.

Today, at the behest of our Government, your $25 billion piece, was converted into stock at $3.25 a share. Citi closed today at $1.50.

Your investment lost 54% of it's value today, at Citi's benefit. And you, the taxpayer, lost the $5,555,555 a day in interest that Citi was supposed to pay you.

It's your gift to Citi!

And to top this off, you lost $13.5 billion dollars in the conversion!

And you also bailed out Singapore. Singapore's preferred in Citi was trading at .15 cents on the dollar. Now with a conversion price into common at $3.25, Singapore has an investment worth .45 cents on the dollar.

And once again, the taxpayer and the common shareholder of Citi get hosed!

So the bank lobbyists have now lobbied together, and have now persuaded our representatives in Congress that mortgage cramdowns in bankruptcy are now out of the question.

But Citi found it perfectly reasonable to cram down your investment in them!

But once again, these bankers don't know the collateral damage that it going to hit them again. Remember a few years back, when these bank and credit card lobbyists made it more difficult for John Q. Public to get their debts discharged in bankruptcy?

So John Q. Public just transferred their debt to HELOC's and cash out financing, which now sit on the banks balance sheet as toxic assets, and now, you are buying these assets back from the bank, with sham preferred conversions into common, that these geniuses from Treasury put together.

Now since the court system won't allow cramdowns into bankruptcy, these banks are now going to face cramdowns from the sophisticated white collar worker that has lost his or her job.

See it was easy for these bankers to steamroll the sub-prime borrower, and the marginal buyer that lost his home, but now they will face another hurdle.

In JP Morgan's investment presentation yesterday, we saw that the largest increase in sour mortgages were coming from those that were rated prime. Those that want to game the system, will now be a harder adversary for these bankers. They'll stay in the home, and use good lawyering techniques to do it. Heck, they may even ask for proof from these bankers that they own the securitized mortgage that they are trying to foreclose on!

A cramdown, would of forced many of these into bankruptcy in order to modify the mortgage. Now they'll have people that will play hardball with the banks.

But these same bankers think these high FICO scoring individuals will go away peaceably.

So these individuals who lost their job, who lost their 401K money, and who owned bank stocks that went to hell, are now going to go quietly away?

No, but they'll do it with pit bull lawyers. Bernie Madoff, made off with billions and billions of investors money, yet he still parks his ass in his gilded apartment, because he had a good lawyer. What happens when a banker wants to kick out a decent homeowner to the street because he lost his job? Does anybody think these displaced white collar workers can't find a good lawyer and find a judge up for re-election that understands that the most hated class of worker in America is an overpaid banker that steals taxpayer money?

Now we'll have the collateral damage of folks walking away from their mortgage but staying in their house. And some of them will win, and they'll live in their house for free.

And then these same bankers will be writing down their prime mortgages!

It's the collateral damage cramdown!

John Thain didn't reimburse Bank of America

Remember John Thain's commode with legs?

His $1.2 million dollar office renovation?

Remember how John Thain said he "intends to repay Bank of America?"

John Thain didn't give the money back. Here's his words from the above clip.

"I will make it right, I will reimburse the company..."

And like a good banker, John Thain, once again "misspoke!"

Last week, when Thain met with investigators, he wouldn't answer any bonus questions in regard to his previous employment with BofA.

Which is why BofA won't answer any questions about Thain's non-reimbursement of his office!

GDP down 6.2% for Q4!

Yet Obama has unemployment projections of just a smidge higher than 8% in their budget forecasts.

What planet are they on?

Oh that's right. The planet that says the stimulus plan will create 4 million new jobs!

The "brain trust" blows up banks equity

These capital injections into the banks are just like another Wall Street product that blows up, but like any Wall Street product, it's done incrementally, and like any Wall Street product, it's sold as good deal.

In this case, they pretend that the common will have value, and the banks won't be nationalized.

They talk about tangible common equity, because that's what they are going to "replenish." And now, the taxpayer, goes from a preferred position, to a position that is blown up!

And they take the shareholders down with them!

Now we have all this "brainpower" inventing more ways that the banks shareholders can get wiped out, while pretending the taxpayer isn't.

But we have a scorecard, and it's the stock market.

As zero hedge put it:

"Give me your toxic debt, your default mortgages, your worthless assets yearning to be offloaded on the taxpayer's balance sheet!"

But it's the only scorecard that Washington doesn't trust.

Except of course, if it's going through a late afternoon swoon, and then you'll hear that an announcement will be coming that will save the day.

Like they saved Citigroup!

Citigroup nationalized

Taxpayer money converts preferred into common so it will increase the "tangible common equity." Until the equity gets slaughtered!

It's just another gimmick!

Thursday, February 26, 2009

Textron divisions are up for sale

Textron (TXT 5.80) cut it's dividend to .02 per share yesterday, and was blasted by Cramer on Mad Money last night. They have exposure to automobile companies, golf carts, Bell helicopters and Cessna jets, all of which don't have any demand right now.

Goldman Sachs has been hired to hawk their industrial division, which sells EZ-Go golf carts, Jacobsen turf care, Kautex fuel systems, and Greenlee power equipment. This unit did about $3 billion in revenue last year, but it had net income of only $67 million. You'll probably find as many buyers for this division as AIG did for some of their's.

And if Goldman can find a buyer, in this environment, at least, for once they'll earn their fees.

The dividend cut, which brought in more selling to the stock, will save the company $200 million a year, but they need it to help the company's financial position, because Textron Financial Corporation is a train wreck.

But Textron should really hire a new PR team.

Has anybody seen their full page ads in the WSJ this week? It was so last year. "In the zero sum game of corporate survival...The victors will be the ones who keep a clear heads and develop a plan to stare down the beast." (As long as it's not Geithner's idea of a plan.)

Three weeks ago, Textron drew down all of it's $3 billion of credit lines. And that's part of the reason we have this financial mess.

If you want to hedge Textron debt, it costs you 24 points up front, and 5% a year. So if a bank wanted to hedge the $3 billion that Textron drew down, it would cost the bank $720 million upfront and then $150 million a year for the line that expires in 2012 that Textron just drew down.

I guess Textron already stared down the beast.

It's banks!

Blackstone's latest hustle

Tomorrow morning, we'll get an earnings report from Blackstone, and it won't be pretty but they'll put some lipstick on this pig.

And they'll probably throw it on heavy as they talk about Hilton, of which Schwartzman paid $26 billion for at the top of the market.

Maybe Mr. Schwartzman thought he would get a night in Paris, but this buy-out reminds me of an old Eagle's tune:

Welcome to the hotel California
Such a lovely place
Such a lovely face
They livin it up at the hotel California
What a nice surprise, bring your alibis..
Last thing I remember,
I was running for the door
I had to find the passage back
To the place I was before
relax, said the night man,
We are programmed to receive.
You can checkout any time you like,
But you can never leave!

Now Steve can't check out. And he can't get his new hotel in California built! Last year opponents in Beverly Hills had gathered enough signatures to put his new Waldorf-Astoria Beverly Hills plans on the ballot, so Steve had to walk away. Now he couldn't get the money!

Hilton's debt is so worthy, that you, the taxpayer, own $4 billion of it. But you owned it through the Federal Reserve and "Maiden Lane" the SPV on the Fed's balance sheet that took $30 billion of Bear Stearns most toxic assets, from JP Morgan.

Steve will spin the Hilton deal, because it's private, and because they put up $6 billion of equity to get the deal done, and they have plenty of time before they have to refinance their debt.

So to make ends meet, Blackstone is now hustling time shares! And he's giving away freebie vacations to those who sit through the presentation.

So I took Blackstone up on the offer, and stayed 3 days on him, with some tickets to Disney thrown in, as long as I would sit through a two hour Hilton Grand Vacation presentation.

So here's how this hustle works.

What Blackstone is really doing is selling real estate that wouldn't sell, but packaging it in a time share vacation. They'll add up cost of future vacations for the next 30 years, with a 6% inflation kicker to confuse the buyer, and to get an incredible amount that you supposedly would spend on vacations. Then they'll show you how much you can save by paying for your vacations now with an upfront piece of cash for a vacation apartment. And you'll sit through a romantic movie, that will glorify the vacations that you will take while staying at Hilton.
Hilton wants to sell you it's real estate that nobody wants, so they package it as a time share, and the time share piece that you buy, gives you points to stay at Hilton hotels or vacation apartments, for the rest of your life, or until Hilton goes into bankruptcy, whichever comes first!

These "points" let you stay at these vacation destinations, and these vary by the amount you put down to buy the weekly ownership that you acquire in the apartment.

The points you receive, depend on the amount of money you are spending for your timeshare. Of course, these time shares are called Vacation clubs, because no one wants to acknowledge that they are buying real estate. But here's the math on the hustle.

You can buy one week in a one bedroom "vacation" apartment for $20,000. What you are actually doing though, is buying the apartment, for one week. Thus there are 51 other weeks of buyers. So 52 weeks times $20,000 means you are paying $1,040,000 for an apartment that wouldn't sell for more than $160,000. This apartment will also cost you $700 in maintenance and $300 in taxes for the year. And you have it for one week. So Hilton is getting $36,000 in maintenance and $15,000 in taxes for the $160,000 apartment, that they sell for $1,040,000. Why do you think the taxes are where they are?

What you get for buying this over-priced real estate is a Hilton vacation that allows you to stay in another of the "vacation" apartments, or use their hotels, or to use the unit that you bought, for one week, for the rest of your life, or until Hilton goes bankrupt, whichever comes first! (I know I am repeating myself, but it's like the chicken roaster --"Just set it, and forget it!")

Now Hilton would like you to pay this amount of money up front, but if you are inclined to finance it, they'll let you in for a small fee and charge you 16.9% interest irrespective of your credit. Just make some payments! And do it today! Because you can't walk out of there with any paperwork or any details unless you sign on the bottom line and give a check.

Now you may wonder why they give you a free three day vacation. That's because you get three days to change your mind on these contracts. So they hit you up on the first day of your vacation. They want to make sure the deals stay done!

So tomorrow morning, we'll hear from Steve why the Hilton deal was so worthwhile, and that they'll make things work.

And he'll sound just like a stuck time-share owner!

Listening to the Eagles!

What's next for Manhattan Real Estate?

Chart from:

The grey bar on the right is Wall Street's latest bonus pool.

And in today's NY Times, we see that buyers are walking away from huge deposits:

THE real estate market in Manhattan has become so unnerving to buyers that some are forfeiting six-figure deposits rather than close on deals they have made.

At 304 Spring Street, a sleek condominium building in SoHo with stunning Hudson River views, the buyer for the duplex penthouse recently decided he would not go through with the deal and walked away from a $780,000 deposit.

At 1120 Park Avenue, a classic prewar co-op filled with multimillion-dollar apartments, it appears that a buyer forfeited a deposit of as much as $1.1 million.

Real estate agents representing buyers of at least three other multimillion-dollar properties also report clients who knowingly left deposits of more than $1 million or hundreds of thousands of dollars on the table.

In each case, the buyers had signed their contracts before the financial meltdown last fall, but decided in recent months that because values in the luxury real estate market have dropped 20 to 40 percent, it no longer made sense to go through with their deals.

It looks like you don't have to be a rocket scientist to calculate where the red line (median sales price) on the above graph is going!

Sometimes price isn't reality

Unless it is!

The action in gold looks like another bout of Government intervention, leasing gold to the bullion banks to bang it down, so the whole world will believe our paper, is once again king.

Today, we also heard that Jim Chanos, of Kynikos Associates, who had one of the better performing hedge funds last year, had redemptions for about 20% of the assets he had under management.

And if the best shortsellers investors are now already asking for their money back, what is happening to the average hedge fund that isn't performing?

If you saw the action in the financial stocks the last few days, you would of thought that "someone" had to bring in their shorts, or maybe, it was just the recognization that this environment is so poisoned that even shortsellers can't tell their stories to journalists anymore!

WFC went from under 9 to 15, USB went from 10 to 15, and Capital One went from 9 to 15 all in the past week. It looks like they all had the same script!

Remember back when all we heard about was the widening of credit default swaps? Now it even costs you more money to insure US paper!

And it's 100 basis points!

So if I want to buy a 5 year bond from Uncle Sam that's yielding less than 2%, theoretically I would have to put up over half of this yield up front to be assured that I'm going to get paid!

So who's the counterparty on the other side of this "insurance?"

And that's the market we have.

Where price is the new reality.

Until it isn't!

Where and who are the buyers?

The Government?


Goldman Sachs?

When you have just a few institutions buying, and our Government leaning on anyone that talks contrary about the economy, (because they are already all in) it means that the next buyers may come from the shorts.

Does anyone think that Jim Chanos will be on CNBC talking about his shorts in this economy? How about David Einhorn? Anyone think he'll be a honored guest on CNBC now that GE has a nine handle?

Goldman Sachs today lowered estimates for the S&P but also increased the target price. It seems that Goldman gets it.

Bernanke gets it. The banks don't have to face reality. They have already been given "forbearance."

The much heralded TALF is still on the on deck circle, but I don't think a lot of this matters.

The meltdown has been so strong, and so encompassing, and so discriminate (not indiscriminate because it has already taken everything down), that we really couldn't handle much more.

We've had a bid in oil, and we've had a fair amount of high grade credit issuance this past month. So the "unthawing" is slow, and it's only the unthawing of those that don't need the money!

But the winds of change are blowing, and they are blowing the bulls ways.

And this environment is so poisoned that even this statement sounds ridiculous.

But what we have seen over the past year, is that ridiculous wins.

Why would it be any different now?

GE's turn to rally

The bank stocks have all gotten a bid, but GE (9.31) still languishes.

I think that changes now.

Leveraged loan recovery rate

Loan investors are waking up to the harsh reality that they could end up with much less than they had bargained for.

Recovery rates on leveraged loans, a type of debt used by many companies during the credit boom to fund buyouts, indicated in recent bankruptcies have been less than 25%, well below the historical average of more than 80%.

Citigroup to be 40% government owned

What does this mean?

Whatever the cost, the taxpayer will pay it.

And wherever the dilution lies, it will lie with the taxpayer.

Madoff trusteee to clawback hedge fund "profits"

The trustee charged with tracking down money to repay victims of Bernard Madoff’s alleged $50bn Ponzi scheme will target big investors such as hedge funds that pulled what he termed substantial amounts of false profits out of the broker’s operation...

Mr Picard and Mr Sheehan declined to say categorically they would exempt charities or small investors, but they made clear their focus would be on the big fish...

The big question involves investors who went through third-party feeder funds, such as Fairfield Sentry and Santander’s Optimal funds. Legal experts are divided on whether Mr Picard can reach through them to their individual investors.

ANd Luxembourg's financial regulator, want UBS to come up with the $1.4 billion that made it's way into Madoff:

The regulator ordered the bank to pay compensation, saying the “poor execution of its due-diligence obligations constitute a serious failure of its surveillance role as a depositary bank.”

Westridge Capital Management Scam

Here's some of the institutions that got taken:

Carnegie Mellon $49 million

University of Pittsburgh $65 million

Iowa Public Employees $339 million

Sacramento Public Employees $89 million

Where did the money go?

Of the over $1.3 billion invested, notes from Paul Greenwood and Stephen Walsh made up $553 million of the over $794 million of "receivables."

$160 million was used for personal expenses. In other words, they stole the money, spent it, and wrote an IOU for it, including an $80,000 Steiff Teddy bear and a $3 million home for Walsh's ex-wife, and a horse farm bought from Paul Newman.

Wednesday, February 25, 2009

Take another look at the banks

Tonite, the WSJ has another negative outlook on Bank of America

For example, among 17 issuers of securities backed by adjustable-rate jumbo mortgages, Bank of America's BAFC series has performed the worst, with payments on about 16% of the underlying loans 60 days or more overdue, according to a report from Walter Schmidt and other analysts at FTN Financial Capital Markets. FTN is a unit of First Horizon National Corp., a regional bank based in Memphis, Tenn.

Screw the articles! There is just too much money being made trading BAC common, and the preferred to worry about some of these mortgage holdings.

I know this doesn't get a lot of ink, but the Bank of America preferred Series L is a traders dream! It was under $200 Friday, and closed at 315 today!

You get huge swings in this number.

Now BAC common trades 500 million shares a day, and obviously the preferred is senior to the stub, but when you get get the juice out of these numbers like they've been giving the last few days, it engenders confidence in the stocks.

Look at Wells Fargo also. Since Friday it went from 9 to 13 back to 11 and up to 13.

And the moves are easy to trade. USB gives plenty of action also. They are all worth a shot at these levels.

And the trading is easy. Heck even Citi was up over 20% today. Even though Citi wouldn't know a $27 million Nigerian scam from email spam!

The point is, traders will gravitate to where they can make money, and money provides liquidity. And now trading the bank stocks isn't just a one way ticket to hell.

And yes, the banks are "insolvent" on a bookkeeping level but that doesn't matter. The slashed dividends are partially paying for their toxic assets, and there is a value to the income streams that these assets generate.

But, does any of us really know what these banks have on their books? But does anybody of us really know the undeclared short positions in these numbers also?

Easy money trading attracts attracts more flies than honey, and it looks like some of the shorts are getting nervous, because like the toxic assets on the banks balance sheets that we can't see, we don't know how many funds are shorting these numbers with naked shares trying to drive them into oblivion!

And since we can't see either of their books, I think from a trading perspective, at these prices, the large short positions offset the toxic assets. Especially because we'll soon get some white-washed explanation that these banks balance sheets have now been "stress tested!"

Look at the verbiage they use. When we take a stress test, it actually means something. These bankers hearts are so dark, they wouldn't tell us the truth if it killed them. So how is it possible that these banks can't pass the stress test? Heck, even Bernanke said it wouldn't be "pass" or "fail!" The only stress test will be to the taxpayer. He's the one that is going to come up with the cash!

But look at the news the last few days. Rick Santelli does a rant on CNBC and the White House calls him out on it. Today a senator asks Bernanke a pointed question, and Dodd cautions him about affecting confidence! Pretty soon the media will be called out for talking about the "unprecedented" conditions in our economy! Heck, did anyone see the latest issue of Euromoney? A Goldman chief investment officer said that "unprecedented" was used in 4,000 research reports, which they found "unprecedented!"

But look at Goldman's earnings report on December 16:

These results were adversely impacted by unprecedented weakness across the broader credit markets, reflecting broad-based declines in asset values, substantially reduced levels of liquidity and dislocation between prices for cash instruments and the related derivative contracts and between credit indices and the underlying single names.

Unprecedented? Hah!

But did you see the action in Goldman Sachs today. It was up 13! That was unprecedented!

Bu that's what happens when you have a scarcity of financial stocks that you can commit money to.

But back to Bernanke. Whatever you want to say about Bernanke, today he was finally good. We of course, can pick apart his testimony, and say that we know what he says isn't going to happen, but who is going to check in on him?

Congress? Did anyone catch the looks on some of our "best and brightest" in the corridors of power?

Do you think that these folks will be able to police these bankers?

So we have to play the hand we are dealt with. We trade them!

Traders will short stocks until they can't make money shorting them anymore. Then they'll go long that what they were shorting.

It was the same with oil. When it was going up, every trader was smugly telling us about peak oil, but when it reversed, the traders just bet with oil down.

Wall Street doesn't care about the story. They only care about the money!

And the financials look like oil at 142, after it hit 147.

They look ready to turn.

Unless of course, Timmy Geithner screws up tomorrow!

But then again, traders will just buy the pullback!

More on "gaming" the USO

The Oil ETF's and double short ETF's are designed just to take investors money.
Last week, you got the "reader's digest" version of how traders game the USO.

Here's an in-depth great read on the same product:

Olivier Jakob at Petromatrix continues his crusade against the United States Oil Fund in his Tuesday note, an issue increasingly being picked up across the commodities and investment spectrum.

Jakob’s specific case is with the distortions being caused in the WTI market on account of the ETF’s size and predictability. He notes people are already rolling positions from the front-month April contract and into May just to avoid the distortions. This is making the front-month contract somewhat of a farce, with a number of oil traders telling FT Alphaville the contract’s viability as a hedging instrument is truly in question. The volatility, meanwhile, is also immense relative to any other contracts further down the curve.
Consequently, Jakob calls it a USO free-lunch:

Open Interest data for Friday is confirming that positions are already being rolled into May. This is unusual to have positions being rolled so early before the next expiry but the USO has created a different crude oil market. The front timespread on WTI (Apr/May) is logically starting to weaken as length is taken out of April WTI and as traders start to position themselves for the USO free lunch. This in turn is making for a wider Brent premium to WTI and an improvement of the product crack. If Petrologistics is right on the level of compliance then given that WTI will remain for a while distorted on the USO rolls, this could make for an even wider prompt premium of Brent versus WTI and a strong rebound of US Gulf cash physical values during the roll of indices.

Of note too, is the fact the industry happily front-runs the fund’s roll every month, presumably making a tidy profit from the distortations. Because of the nature of the contango, the ETF is also taking a loss on its NAV every time it rolls, leading to substantial underperformance versus the WTI contract which it is supposed to be tracking. On Monday, for example, closed at a value of $23.32 per unit. That’s significantly below the Nymex WTI settlement of $38.44 on Monday. Returns for anyone invested in USO ETF units have therefore been dismal, and yet the fund community would have everyone believe a mass of investment demand, presumably from retail investors who know no better (because surely a professional would see the problem), is what is forcing the fund to issue increasingly more units, taking up ever more WTI contracts as it does.

More here:

Time for change

It is time to for a real change. It is time to stop allowing the country to be held hostage by a relatively small number of financiers who have gamed the system and corrupted the regulatory and legislative process. It is time to stop allowing those deeply involved with the problem to manage the investigation and the solutions.

Put the money center banks into a managed restructuring, and stop calling it nationalization, which wrongfully suggests the British socialism of the post World War II era. We did not have to use that sort of language or raise these emotional issues when the Savings and Loan scandal was cleared.

Let's get this open sore cleaned, bound and stitched.

But one thing we might wish to keep in mind is that it may not be AIG, BAC, and C that are pulling the strings, that are at the center of this. They look more like patsies than prime motivators.

Transparency would be interesting in this case with regards to the CDS market and the derivatives markets.

Who has the most to gain and lose if Citi, Bank of America, and AIG are put into managed restructuring? Who has the most and biggest bets on their failure?

Let's have transparency of positions now. And we cannot afford to take anyone's word on this.

The real sticking point is not the shareholders or managers of these companies, although they may be making the most noise at this point.

We will be surprised, if transparency is actually provided, and new and independent regulators armed with the full array of investigative tools, dig into this mess to see where the strings lead, if we do not find many of them in the hands of the other major Wall Street banks, media giants, and corporate conglomerates, among others.

We will keep an open mind, but do not expect any light or serious new information to come from these Congressional Committees with their circus, show trial atmosphere.

Time to bring back Glass-Steagall and to enforce the Sherman Anti-Trust laws. Time to compel the three or four banks to unwind their trillions in opaque derivatives. Time to audit the Federal Reserve, and clarify their role in our system to them, and nail a copy of the Constitution to their front door.

We do not need or want fewer, bigger, more powerful banks as a drag on the real economy, taking a tax on each transaction whether it be through credit cards or fees or loans or subsidies.

Time for a real change. Time to remind Congress where the power and legitimacy of their offices resides. Time for the lobbyists, corrupt regulators, corporate princes and the enablers and motivators of this grand theft to find a place in an unemployment line or a witness stand.

We must demand action from the Congress and the Administration who we recently put in place through the elections to clean this mess up and then change the system that delivered it.

Contact the White House

Contact Your Senator

We do not want fewer, bigger banks exacting a fee on every commericial transaction in this country.

1. Bring back Glass-Steagall.

2. Clean up the derivatives mess, starting with J.P. Morgan.

3. Enforce the various anti-trust laws, enacting new ones where necessary, and break up the media and banking conglomerates.

4. Enact aggregate position limits in all commodity markets and transparency with immediate disclosure of all position over 5% in any market.

5. Effective restrictions and enforcement of naked short selling, price manipulation, reinstatement of the 'uptick rule,' the prohibition of regulated banks from engaging in any speculative markets either for themselves or as agents, and usury laws and regulation of all interstate financial transactions at the national level.

And for the sake of the country, establish a vision, a model, of what the system should look like in accord with the Constitution. And then strike out for it, as painful as that may be, and stop this management by crisis, and weaving a shroud for our freedom out of a web of endless fixes, concessions and necessities.

"If there must be trouble, let it be in my day, that my child may have peace." Thomas Paine.

Stanford employees had advisory roles at FNRA

Two employees of Allen Stanford's financial business, which U.S. regulators have accused of massive fraud, held advisory roles at a watchdog group overseeing U.S. broker-dealers aimed at preventing abuses.

Lena Stinson, director of global compliance at Stanford Financial Group, is listed as serving on the membership committee of the Financial Industry Regulatory Authority, or FINRA, which describes itself as the largest independent regulator of U.S. securities firms.

Frederick Fram, the chief operating officer of Stanford Group Holdings, serves on the FINRA continuing education content committee, "where he participates in creating material for the Regulatory Element continuing education program," according to a biography on Stanford's website.

Tuesday, February 24, 2009

Today, Bernanke was good

The stress test for banks won't be "pass" or "fail" but instead, it will be what the banks need to meet their obligation. Bernanke also said that banks won't be able to "hide anything."

Of course, we know these statements aren't true, but Bernanke sold it nicely on the hill.

So we rallied.

The bank "stress test"

Now we hear that the administration is going to put a stress test on the 20 largest banks to make sure they have sufficient capital. The stress test is a farce, but to sell it, they have the best capitalized bank, JP Morgan, slash their dividend, as an example of a bank being precautionary about the current banking environment.

Thus, the liars at the FDIC, Treasury, OCC, OTS and the liar in chief, Ben Bernanke seem to think that their statements can sell the public, especially when Sheila Bair comes out today and says the banks are "well capitalized!"

Do you really need a stress test to see if the banks have adequate capital? Use the $1 test. Vikram Pandit, the CEO of Citigroup is taking a salary of $1. He probably thinks this will allow shareholders to forget that he sold his now defunct hedge fund to Citigroup for $800 million!

And that Citigroup is essentially still insolvent!

Today the Chinese market lost over 4%. China also has a severe real estate bust. The buildings for the Bejing Olympics in China are now empty:

By Rodman's calculations, 500 million square feet of commercial real estate has been developed in Beijing since 2006, more than all the office space in Manhattan. And that doesn't include huge projects developed by the government. He says 100 million square feet of office space is vacant -- a 14-year supply if it filled up at the same rate as in the best years, 2004 through '06, when about 7 million square feet a year was leased.,0,5564951.story

But don't worry. China's second largest insurance company, Ping An, who lost $2.3 billion in Fortis, has decided to follow Vikram Pandit's lead of Citigroup and take a $1 salary also:

Feb. 24 (Bloomberg) -- Ping An Insurance (Group) Co., China’s second-largest insurer, said Chief Executive Officer Peter Ma will forgo his salary for 2008 after the company lost $2.3 billion on its investment in Fortis. Ma, who earned 66.16 million yuan ($9.7 million) in 2007, made the decision after the financial crisis “affected company performance,” Ping An’s Shenzhen-based spokesman Sheng Ruisheng said in a telephone interview today.

Stress test? How about the Chinese real estate that is on Ping An's books with a 14 year supply? But Ma was one-upped by China's Liang Wengen, who is chairman of Sany Heavy, China's biggest supplier of concrete-making equipment. (With a 14 year supply of commercial real-estate who needs concrete equipment?)

He cut his salary to 15 cents!

Who needs a bank stress test?

Just check out who's paying their CEO's a dollar!

AIG offers the Government it's Level III assets

AIG can't sell any of it's businesses at any of the prices that AIG thinks they are worth, so now AIG wants to offer these businesses to the taxpayer in lieu of cash!

AIG says, "There is a trade-off between protecting the value of the assets for the government and just selling them in the short term."

So in the meantime, AIG wants their deal with the Government renegotiated.

Remember the deal that Bernanke made with AIG? He said it was punitive so it would force the market to accept discipline and force AIG to quickly sell it's assets and pay back the loan. Bernanke said AIG was so important systemically that they couldn't allow it to fail, but at the same time it wasn't that important systemically to give it sweetheart terms.

Now AIG wants to treat it as a PIK loan!

And give the taxpayer businesses it can't sell!

And now the AIG gangsters are threatening to dissolute their marriage with the Fed with bankruptcy if they don't make it sweeter!

It's almost a Valentine made on Wall Street!

In the real world, Annie Leibovitz had to pawn her her work to Art Capital, so she could get out of debt.

Maybe AIG should have Annie photograph them wrapped up in the flag, so the world can know that AIG is so important to this country that it can't be allowed to fail.

Even though it already has.

It's just that the bankers on the other end of AIG's trades just want to be sure they get paid.

And that's why Treasury has wrapped up the flag around AIG!

FDIC's Bair: All big banks are well-capitalized

Oh that's news!

No wonder the WSJ had this article this morning:

Financial markets have clung to every word from policy makers' mouths throughout the raging financial crisis, with poor results. Stocks rebound on hopes the government will save everything, then fall on the realization it can't.

And today, we hear from the pontificator in chief, Ben Bernanke as he goes up on the hill. He'll tell us that credit markets are loosening up!

Biden's family had hedge fund marketed by Stanford

A fund of hedge funds run by two members of Vice President Joe Biden's family was marketed exclusively by companies controlled by Texas financier R. Allen Stanford, who is facing Securities and Exchange Commission accusations of engaging in an $8 billion fraud.

The $50 million fund was jointly branded between the Bidens' Paradigm Global Advisors LLC and a Stanford Financial Group entity and was known as the Paradigm Stanford Capital Management Core Alternative Fund. Stanford-related companies marketed the fund to investors and also invested about $2.7 million of their own money in the fund, according to a lawyer for Paradigm. Paradigm Global Advisors is owned through a holding company by the vice president's son, Hunter, and Joe Biden's brother, James.

Monday, February 23, 2009

The gift at the Washington Monument

55 feet wide, and 555 feet tall, the Washington Monument looks over the Lincoln Memorial Reflecting Pool with it's 864,000,000 ounces of water.

The monument was dedicated on Washington's birthday, which is February 22.

It's a day later, but today is the birthday of "the gift."

Tangible Common Equity

So how is the Fed going to convert Citi's preferred into common and magically create some equity? Look at the above chart. In Citigroup's case, it has $28.5 billion of deferred tax assets, that sits on their balance sheet--The same "assets" that did in Fannie and Freddie. Is it any wonder why Citigroup is toast?

Citigroup's figure of TCE also doesn't include the hundreds of billions of off-balance sheet items. But somehow, you, the taxpayer, are, with Geithner's blessing, going to convert your preferred stake in Citicorp to equity.

What kind of a joke is that??? What is with this smoke and mirrors?? Why do you think Geithner wants to give you, the taxpayer Citigroup's equity?

Because it's worthless!

Subtract the $28.5 billion of deferred tax assets from Citi's TCE, and Citi's leverage goes up to 360X, and Citi's Tangible Common Equity goes to zero.

And that's what you the taxpayer will get, with this new cramdown from Geithner.

The same Treasury Secretary that won't allow judges (so far) to cramdown the mortgage principle in bankruptcy, but he will surely cram down Citi's worthless equity to the taxpayer!

So much for the "bad bank"......

Feb. 23 (Bloomberg) -- Treasury Secretary Timothy Geithner’s financial-rescue plan may be doomed if he doesn’t offer low-cost loans to hedge funds and other investors to help them buy toxic assets weighing down bank balance sheets.

Creating a so-called bad bank or aggregator bank that would use federal funds to acquire and warehouse the assets, as some have proposed, would be costly for taxpayers and require too much government interference, say two experts on distressed securities who have pitched an alternative plan to officials.

Atlas Shrugged

Since how the pseudo intellectual bankers from Greenspan down, think Atlas Shrugged is one of the finest works ever, I'll leave you with a quote directed to the Government officials, Treasury, The Federal Reserve and the executives at the banks across the country who repeatedly lie to the American people:

"People think a liar gains victory over his victim. What I've learned is that a lie is an act of self-abdication, because one surrenders one's reality to the person to whom one lies, making that person one's master, condemning oneself from then on to faking the sort of reality that person's view requires to be faked. And if one gains the immediate purpose of the lie -- the price one pays is the destruction of that which the gain was intended to serve. The man who lies to the world, is the world's slave from then on."

AIG threatens the Government with a bankruptcy filing

AIG is going to have a $60 billion quarterly loss, and now needs money again from the taxpayer. AIG needs the money so badly, they hired Weil, Gotshal & Manges LLP to "prepare" a bankruptcy filing if they can't extort any more money from the Government-which is you!

So now we see, that $150 billion for AIG isn't enough! Let them put AIG's financial products business in bankruptcy. Why else do we get AIG sympathy pieces like the one in the Washington Post this weekend regarding AIG's Financial Products divison, that blew up over $100 billion dollars. Even then, the AIG workers were wondering-"What's in it for me?"

In recent years, Financial Products wrote a series of private contracts that faltered and came back to haunt its parent company in a very public way, leaving the insurance giant on the brink of collapse. Fearing that the failure of AIG could send shock waves throughout the financial system, the federal government stepped in last September with the single largest bailout of a company in U.S. history, a total rescue package of up to $152 billion...

"In a situation like this, it's hard to keep everybody on task, motivated, focused. People know they are going to be out of jobs," Pasciucco said. "So they are constantly doing that calculus in their heads, as to what's left in terms of what I get paid here? What can I get paid in a new career? When should I start my new career?" Haas, the Financial Products veteran, said no one at the firm is looking for sympathy. "The whole world hurts right now," he said. But he said the vast majority of current employees had no role in the problems that wrecked the firm, and many feel a measure of shame and guilt for how its troubles spread to AIG and helped poison the economy.

"People have great pride in this organization. Everyone is horrified at what happened," he said, adding they are determined to close down the firm with dignity and professionalism. "There's a duty. We owe it to AIG. And now we owe it to the government and the taxpayer."

These days, Haas avoids telling people where he works. But he and the others who remain still show up each week at the office park off Danbury Road. They keep framed pictures of smiling children on their desks. Letizia's Pizza in Norwalk still delivers each night to those who stay late, chipping away at the pieces of Financial Products until it is finally gone.

"The great irony in it," Haas says, "is the better job we do, the sooner we'll be out of a job."

Citigroup is also going back to the Fed for aid for the third time, showing that they too, understand the AIG model.

Ken Lewis of BAC, said they wouldn't need to go back to the Fed, as two times was supposedly enough for them. There was whispers on the street that the traders at Merrill had made a couple billion so far this year, and Ken said business for January was good.

We'll see.

I think Ken Lewis understands the AIG model, and he'll be back!

Just like AIG, and just like Citi!

Until they're terminated!

JP Morgan slashes their dividend

JPM cut their dividend to .05 quarterly from .38 cents.

It was just Wednesday when I wrote about Jamie Dimon's boardroom fantasy when he said he wanted to pay back the $25 billion of TARP money.

I said "Maybe Jamie Dimon should talk to Wall Street about paying back the TARP money after he first cuts the dividend! "

Today Jamie cut the dividend at JP Morgan, and said, "While we recognize our tremendous obligation to shareholders to maintain dividend levels, we also understand that extraordinary times require extraordinary measures. Our action today is being done as a strong precautionary measure to help ensure that our fortress balance sheet remains intact – even if conditions worsen significantly."

Two weeks ago, Jamie Dimon said he was comfortable with the dividend and it was an important obligation.

Today it gets cut 86%.

JPM has such a fortress balance sheet that it has to cut the dividend after getting $25 billion of TARP money that it supposedly doesn't need. Money that would cover the dividend for the next five years.

Obviously, JPM needs the money.

But the dividend cut is a good first step, and it's also a good first step in recognizing the reality that JPM is facing right now.

Conditions will worsen significantly, and maybe Dimon may prod Jeff Imelt of GE to reconsider his idiotic stance on GE's dividend.

That dividend needs to be cut today!

John Thain pleads the 5th

The loquacious John Thain, now won't tell Andrew Cuomo about the bonus situation at Bank of America. Thain, of course, blames his reticence for answering because Bank of America's lawyers won't allow him to answer the questions.

It's amazing how the story changes when these thieves have to speak under oath!

Another Madoff story

A little more than a year before he blithely confessed to masterminding the largest Ponzi scheme in history, Bernie Madoff attended the wedding of his niece. That Saturday evening, September 29, 2007, Shana Madoff, the daughter of his younger brother, Peter, his partner for almost four decades at Bernard L. Madoff Investment Securities, married a former official at the Securities and Exchange Commission, an irony that Bernie couldn’t quite keep to himself. He tossed an arm around the neck of one young guest and directed the young man’s attention across the dance floor, toward a clean-cut group sipping cocktails. “See them,” Madoff said, pale-blue eyes flashing incongruously in his kindly face. “That’s the enemy.”

..Madoff, though, kept his own mess, his own monstrousness, hidden away. His operation was relentlessly predatory, systematically looting charities, longtime friends, family, as well as investors spread around the globe. And yet it seems unlikely that he was a sociopath in the classic sense, someone indifferent to the feelings of those around him. In daily life, he wasn’t callous or cruel. Just the opposite. He valued people’s good opinion and wanted to impress. He didn’t simply treat people as means to an end. He was a great boss. He took care of his employees as if they were family and, until the end, of his investors, too. “Everybody relied on Bernie,” says one longtime investor. “He was one thing you thought you could count on. And he enjoyed being counted on.”

Bernie's Academy Award! When's the screenplay?

Capital Assistance Program to Start Wednesday

Joint statement by the Treasury, FDIC, OCC, OTS and the Federal Reserve

The U.S. Department of the Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve Board today issued the following joint statement:

“A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.

“We announced on February 10, 2009, a Capital Assistance Program to ensure that our banking institutions are appropriately capitalized, with high-quality capital. Under this program, which will be initiated on February 25, the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment. Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital. Otherwise, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis. Instead, it is available to provide a cushion against larger than expected future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers. Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory. Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares. The conversion feature will enable institutions to maintain or enhance the quality of their capital.

“Currently, the major U.S. banking institutions have capital in excess of the amounts required to be considered well capitalized. This program is designed to ensure that these major banking institutions have sufficient capital to perform their critical role in our financial system on an ongoing basis and can support economic recovery, even under an economic environment that is more challenging than is currently anticipated. The customers and the providers of capital and funding can be assured that as a result of this program participating banks will be able to move forward to provide the credit necessary for the stabilization and recovery of the U.S. economy. Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands.”

Now, thanks to the Dodd ammendment we hear that the banks can give back their TARP money without raising new capital. That means that the capital that the banks have from the TARP, is now then, not long term capital.

The rating agencies will have a field day with this.

Everyone is tired of the bankers boardroom fantasies that they are planning to give the TARP money back.

Watch the rating agencies call the banks bluff!

So much for the summer vacation....

The sinking U.S. economy is forcing many Americans to cut back on or give up a hallowed tradition: the family vacation.

A USA TODAY/Gallup Poll finds that 58% of people who normally take an annual vacation away from home will shrink their vacation spending this year –– or just not go.

Government to take 40% stake in Citigroup

In tonight's WSJ:

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said.

Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock, people familiar with the matter said. The government obtained those shares, equivalent to a 7.8% stake, in return for pumping capital into Citigroup.

So $45 billion of TARP money, and the ring fencing of $300 billion of bad assets was just not enough for the bank that never sleeps.

Except for the board of directors, and the executive team, who appear to have never been awake!

Friday morning, Obama spokesman, Robert Gibbs, was condescendingly ripping into Rick Santelli, and then later in the day had this to say about the banks:

"This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government."

When Clinton was interviewed by Jim Lehrer about Monica Lewinsky he said, "there is no improper relationship."

Clinton had his "is" and "was" and now Gibbs has his "is" and "was" too!

Sunday, February 22, 2009

RBS and Lloyds in £500 billion Treasury deal

Gordon Brown, the Prime Minister, and Alistair Darling, the Chancellor, will meet with the Treasury's advisers in Whitehall tonight to hammer out details of the programme, which will involve the creation of a new class of non-voting shares to allow the banks to fund their participation.

Central to the negotiations will be the form of payment used by the banks to insure the assets proposed for inclusion in the scheme. Last night, people close to the discussions said it would see a new type of capital instrument devised that includes a dividend entitlement. However, because the new shares would not include voting rights, their issuance would not be dilutive to existing shareholders...

The solution avoids the immediate prospect of outright nationalisation for the two banks, which are both likely to be charged billions of pounds for their participation in the Treasury scheme. A Treasury source said "There will be some insurance provided for some assets, with the exact figure to be agreed and decided. Our priority is to get some conditions attached to that in the form of additional lending."

Another nationalisation deal that isn't nationalization!

It's the Geithner blueprint.

Madoff's missing billions

Supposedly, billions in the name of Norman Levy and the Picower Foundation, may be stashed in Switzerland and Africa; supposedly unbeknown to them.

The Picower Foundation abruptly closed after the Madoff scandal, (and they've dealt with shady rogues for twenty years according to Forbes)

and Madoff was in Norman Levy's paid death notice in the NY Times.

Maybe we have a Madoff money trail.