Tuesday, March 31, 2009
The economy's gone bust, and so have they.
Scores of professional New York women stripped of their six-figure jobs are now working as "gentlemen's club entertainers" at upscale Manhattan jiggle joints. Former Wall Streeters, fashion executives and real-estate agents are pole dancing and stripping for as much as $1,500 a night -- but also because they like the flexible hours.
Now Romain Mesnil, from France, a pole vaulter who was the 2007 silver medalist in the World Championships, got dropped by Nike. So he took a page from the strippers, and took his pole and ran around the streets in Paris naked, trying to drum up some new sponsorships!
It's the pole dance economy!
1. Which asset categories should be eligible for sale through the LLP? Should the program initially focus only on legacy real estate assets or should any asset on bank balance sheets be eligible for sale? Are there specific portfolios where there would be more or less interest in selling through the LLP?
2. Should the initial investors be permitted to pledge, sell or transfer their interests in the PPIF? If so, how should the FDIC ensure that subsequent investors meet the program's criteria for investors?
3. What is the appropriate percentage of government equity participation which will maximize returns for taxpayers while assuring integrity in the pricing by private investors? How would a higher investment percentage on the part of the government impact private investment in PPIFs? Should the amount of the government's investment depend on the type of portfolio?
4. Is there any reason that investors' identities should not be made publicly available?
5. How can the FDIC best encourage a broad and diverse range of investment participation? How can the FDIC best structure the valuation and bidding process to motivate sellers to bring assets to the PPIF?
6. What type of auction process facilitates the broadest investor participation? Should we require investors to bid on the entire equity stake of a PPIF, or should we allow investors to bid on partial stakes in a PPIF? If the latter, would a Dutch auction process or some other structure provide the best mechanism for bridging the potential gap between what investors might bid and recoverable value? If multiple investors are allowed to bid through a Dutch auction, or similar process, how should asset management control be determined?
7. What priorities (i.e., types of assets) should the FDIC consider in deciding which pools to set for the initial PPIF auctions?
8. What are the optimal size and characteristics of a pool for a PPIF?
9. What parameters of the note and its rate structure would be essential for a potential private capital investor to know at the time of the equity auction to provide equity?
10. Would it be preferable for the selling bank to take a note from the PPIF in exchange for the pool of loans and other assets that it sells? Alternatively, what would be the advantages and disadvantages of structuring the program so that the PPIF issues debt publicly in order to pay cash to the selling bank? Would a public issuance of debt by the PPIF limit its flexibility compared to the issuance of a note to a selling bank?
11. In return for its guarantee of the debt of the PPIF, the FDIC will be paid an annual fee based on the amount of debt outstanding. Should the guarantee fee be adjusted based on the risk characteristics of the underlying pool or other criteria?
12. Should the program include provisions under which the government would increase its participation in any investment returns that exceed a specified trigger level? If so, what would be the appropriate level and how should that participation be structured?
13. Should the program permit multiple selling banks to pool assets for sale? If so, what constraints should be applied to such pooling arrangements? How can the PPIF structure equitably accommodate participation by smaller institutions? Under what process would proceeds be allocated to selling banks if they pool assets?
14. What are the potential conflicts which could arise among LLP participants? What structural arrangements and safeguards should the FDIC put into place to address or mitigate those concerns?
15. What should the relative role of the government and private sector be in the selection and oversight of asset managers? How can the FDIC most effectively oversee asset management to protect the government's investment, while providing flexibility for working assets in a way which promotes profitability for both public and private investors?
16. How should on-going servicing requirements of underlying assets be sold to a PPIF and paid for? Should value be separately attributed to control of the servicing rights?
17. Should data used by the independent valuation consultant, as well as results of such consultant's analysis, be made available to potential bidders? Should it be made available to potential sellers prior to their decision to submit assets to bid?
Bronte Capital offered it's help. Anyone think the FDIC will use his suggestions?
Bronte Capital Submission - Request for Comments on LLP
Monday, March 30, 2009
Now that Rick Wagoner is out of a job, he's eligible to start receiving retirement benefits from his former employer of 32 years. Though having received over $63 million in salary since becoming a General Motors executive in 1992, Wagoner is eligible for a "Salaried Retirement Plan" and "Executive Retirment Plan" that are together valued at $20.2 million.
With all the rage directed towards executives in the banking industry who recently received tens of millions of dollars in bonus money, we're sure there'll be similar outrage expressed over an auto exec receiving a $20M+ retirement package after leaving his company propped up by federal aid on the brink of bankruptcy.
There are differences to note, however, as the money Wagoner will receive is neither bonus money nor a "golden parachute" severance package. GM is not allowed to pay executives severance money under the conditions to which it agreed when the automaker began accepting federal aid last December. Wagoner's retirement plan reportedly doesn't count as severance, and therefore he is legally permitted to receive it.
We wonder, however, if public opinion might influence Wagoner's decision to accept the retirement package. Some banking executives have chosen to voluntarily give back the bonus money that they are legally, though perhaps not morally, entitled to receive. Wagoner could do the same, we suppose, if he believed it would benefit GM. After being asked by the president to leave his job at GM, though, who knows if he cares?
How Goldman Sachs was at the center of the oil trading fiasco that bankrupted pipeline giant Semgroup.
When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant Semgroup Holdings, a $14 billion (sales) private firm in Tulsa, Okla. It had racked up $2.4 billion in trading losses betting that oil prices would go down, including $290 million in accounts personally managed by then chief executive Thomas Kivisto. Its short positions amounted to the equivalent of 20% of the nation's crude oil inventories. With the credit crunch eliminating any hope of meeting a $500 million margin call, Semgroup filed for bankruptcy on July 22.
But now some of the people involved in cleaning up the financial mess are suggesting that Semgroup’s collapse was more than just bad judgment and worse timing. There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup’s accounts.
“What transpired at Semgroup was no less than a $500 billion fraud on the people of the world,” says John Catsimatidis, the billionaire grocer turned oil refiner who is attempting to reorganize Semgroup in bankruptcy court. The $500 billion is how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days.
What's the evidence of this? Much is circumstantial. Proving oil-trading manipulation is difficult. But numerous people familiar with the events insist that Citibank, Merrill Lynch and especially Goldman Sachs had knowledge about Semgroup's trading positions from their vetting of an ill-fated $1.5 billion private placement deal last spring. "Nothing's been proven, but if somebody has your book and knows every trade, it would not be difficult to bet against that book and put the company into a tremendous liquidity squeeze," says John Tucker, who is representing Kivisto.
"I want him to have a great relationship with his mom, because that's important, but I love him the same way as if he were mine. I already feel like he's my son, from the first day," Bundchen tells Vanity Fair in a revealing interview appearing in its upcoming issue...
"He's a little angel -- the sweetest, most cuddly, loving baby. I feel blessed to have him in my life," said the 28-year-old Brazilian stunner.
"I understand that he has a mom, and I respect that. But to me, it's not like because somebody else delivered him, that's not my child -- I feel it is, 100 percent.
The Jolie/Aniston catfight was getting a little long in the tooth, so now we may have the start of a new one!
From today's WSJ:
American International Group Inc., whose spending is being monitored by the Federal Reserve, has cut or delayed payments to some AIG real-estate ventures, potentially leaving shopping centers and apartment complexes across the U.S. short on cash to pay lenders and fund repairs and renovations, according to court documents and people familiar with the matter.
Affiliates of one real-estate firm, which teamed with AIG in a $2 billion purchase of a low-income apartment portfolio in 2007, have sued AIG for missed and delayed payments. Affiliates of the developer, Mitchell L. Morgan Management Inc., claimed in their lawsuit that they were told by AIG's top real-estate executive that "the current Federal Reserve funding arrangement with AIG does not provide for funding of AIG Global's commitments to its joint venture partners."
But what happens when AIG's contra party ins a New York bank? The trade gets unwound expeditiously, and advantageously to the bank.
From Zero Hedge:
During Jan/Feb AIG would call up and just ask for complete unwind prices from the credit desk in the relevant jurisdiction. These were not single deal unwinds as are typically more price transparent - these were whole portfolio unwinds. The size of these unwinds were enormous, the quotes I have heard were "we have never done as big or as profitable trades - ever".
As these trades are unwound, the correlation desk needs to unwind the single name risk through the single name desks - effectively the AIG-FP unwinds caused massive single name protection buying. This caused single name credit to massively underperform equities - run a chart from say last September to current of say S&P 500 and Itraxx - credit has underperformed massively. This is largely due to AIG-FP unwinds.
I can only guess/extrapolate what sort of PnL this put into the major global banks (both correlation and single names desks) during this period. Allowing for significant reserve release and trade PnL, I think for the big correlation players this could have easily been US$1-2bn per bank in this period."
For those to whom this is merely a lot of mumbo-jumbo, let me explain in layman's terms:
AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this, for lack of a better word, fraudulent scam.
All the banks touted their profitability in January and February. Friday JPM's Jamie Dimon said March was a little softer.
Then the banks didn't have AIG's help!
Sunday, March 29, 2009
It is said to be the most impregnable vault on Earth: built out of granite, sealed behind a 22-tonne door, located on a US military base and watched over day and night by army units with tanks, heavy artillery and Apache helicopter gunships at their disposal.
Since its construction in 1937 the treasures locked inside Fort Knox have included the US Declaration of Independence, the Gettysburg Address, three volumes of the Gutenberg Bible and Magna Carta.
For several prominent investors and at least one senior US congressman it is not the security of the facility in Kentucky that is a cause of concern: it is the matter of how much gold remains stored there - and who owns it.
They are worried that no independent auditors appear to have had access to the reported $137 billion (£96 billion) stockpile of brick-shaped gold bars in Fort Knox since the era of President Eisenhower. After the risky trading activities at supposedly safe institutions such as AIG they want to be reassured that the gold reserves are still the exclusive property of the US and have not been used to fund risky transactions.
In other words, they want to be certain that the bullion has not been rendered as valueless as if a real-life Goldfinger had stolen it.
“It has been several decades since the gold in Fort Knox was independently audited or properly accounted for,” said Ron Paul, the Texas Congressman and former Republican presidential candidate, in an e-mail interview with The Times. “The American people deserve to know the truth.”
Mr Paul has so far attracted 21 co-sponsors for a Bill to conduct an independent audit of the Federal Reserve System - including its claims to Fort Knox gold - but an organisation named the Gold Anti-Trust Action Committee (GATA) is taking a different approach.
It has hired the Virginia law firm William J.Olson, PC, to test President Obama's promise to bring “an unprecedented level of openness” to the Government and next month it will file several Freedom of Information requests for a full disclosure of US gold ownership and trading activities.
“We're taking the President at his word,” said Chris Powell, of GATA. “If you go online you can find out how to build a nuclear weapon but you won't find any detailed records on central gold reserves.”
All the gold in Fort Knox is worth $137 billion dollars, and the taxpayer gave more of that out with AIG.
So maybe, some of the people don't take the Government at their word, when the say "Trust us."
But an open audit on Fort Knox?
It will never happen.
That you can "trust us" on!
And stories like this, are just being used to make anyone that wants transparency in the financial dealings done on behalf of the taxpayer, to appear to be in bed with Oliver Stone!
But somebody wants to know these answers, and they want the Government to give a real audit.
Heck, we know what the Gold ETF has in it's vaults. They have 36,248,334 ounces worth $33.5 billion dollars.
That can be audited but Fort Knox can't?
CalPERS, the California public pension fund that is one of the biggest investors in hedge funds, is demanding better terms from funds, including lower prices and "clawbacks" of fees if performance weakens. The $172 billion pension fund is a bellwether in the money-management business. A Calpers investment can help money managers like hedge funds attract other clients.
While other investors are pushing for fee cuts, Calpers, which has $5.9 billion in hedge-fund investments, holds significant clout. "Calpers is the 800-pound gorilla, pushing so much money through the system," said Eric Roper, chairman of the hedge-fund practice at New York law firm Gersten Savage LLP.
That's the least of Calpers problems! How about their unfunded private equity commitments?
Look at Calpers private equity commitments as of September 30, 2008. It's off the charts. And these returns are also skewed because they don't include the valuations of private companies which are almost hopelessly underwater.
Here's a partial listing of those private equity folks that benefited from Calpers. The first figure is the commited capital. The next figure is the actual cash invested. The difference is the unfunded private equity committment.
Apollo: $4.1 billion, $2.7 billion
Aurora: $650 million, $267 million
Avenue: $1.4 billion, $780 million
Blackstone: $1.4 billion, $1.2 billion
Candover: $643 million, $480 million
Carlyle: $4 billion, $2.1 billion
CVC: $2.3 billion, $1.3 billion
First Reserve Fund: $1.1 billion, $685 million
Leonard Green: $850 million, $455 million
Hellman & Friedman: $1.0 billion, $762 million
KKR: $1.6 billion, $880 million
Levine Leichtman: $450 million, $389 million
Lexington Capital: $400 million, $392 million
Madison Dearborn: $710 million, $634 million
MHR: $400 million, $218 million
New Mountain: $550 million, $165 million
Oak Hill: $375 million, $151 million
Pacific Corporate Group: $1.9 billion, $800 million
Permira: $573 million, $388 million
Providence: $525 million, $297 million
Silver Lake: $1.1 billion, $450 million
Tommy Lee: $640 million, $475 million
Tower Brook: $575 million, $220 million
TPG: $3.2 billion, $1.5 billion
Wayzata: $325 million, $218 million
Welsh Carson: $650 million, $601 million
WLR: $698 million, $405 million
Yucaipa: $764 million, $481 million
Now take a look at Zero Hedge's analysis of Calpers -10.7% IRR that they give for Apollo Investment Fund VI L.P.
We randomly picked as a case study the Apollo Investment Fund VI L.P., which CalPERS has committed $650 million to, actually invested $508 million into, withdrawn $10.9 million from and present the residual value (including the withdrawn amount) as $450 million, or a -10.7% IRR. Now we don't have reason to believe that CalPERS is fudging this number: after all it is reporting merely what Apollo is telling it.
So the next question is, is this -10.7% IRR indicative of the investments in Apollo VI?
The names that constitute the $10.2 billion in committed capital Apollo VI are:
Realogy (on verge of bankruptcy)
Harrah's (on verge of bankruptcy)
Claires (on verge of bankruptcy)
The debacle that was the Huntsman LBO
We highly doubt -10.7% is anything even remotely close to where CalPERS should consider its residual equity value in Apollo VI. And by fair estimates, this is merely the tip of the iceberg. Nonetheless, presenting public data that shows that the public pensions manager is disclosing over $14 billion in profits when it is hiding potentially much more than that in losses could be interpreted as borderline illegal. The question is, is this a responsibility of Apollo (to show the true sad state of affairs), or of CalPERS (to actually check these numbers and not to pull a Fairfield Greenwich "sorry, we had no clue what was really going on until it was too late").
So CaPERS talks tough with hedge funds, while their indulgences in private equity gets swept under the rug.
"Nontransparency in government programs is always associated with corruption in other countries, so I don't see why it wouldn't be here," he said.
You are pathologically incapable of accepting responsibility for these things, it's that you are carrying on willfully, worsening our situation, wantonly spending what little we have left...
You know and we know and you know that we know that it's nonsense. Everyone knows that Britain is worse off than any other country as we go into these hard times...
They can see what the markets have seen: that you are the devalued Prime Minister of a devalued Government.'
So Gordon brown wastes billions and billions of taxpayer money, and the papers don't cover the dressing down he took. Instead, they cover Home Secretary Jacqui Smith's husband, who watched a couple porno movies at home, and billed it to his wife's expense allowance!
She said she'll pay back the 10 quid her husband spent, but she won't pay back the £116,000 of expenses she has socked the taxpayer living in the back bedroom of her sister's home, of which she calls her main residence, or the annual £200,000 security cost!
Looks like we have more than the birthing of Labour pains!
Saturday, March 28, 2009
Many hardened protesters were said to be flying in from around the world from as far afield as the United States last night to stay in student union accommodation and squats and with British protesters.
In an email to activists last week, the group's leaders wrote: "We are their crisis. Reclaim the struggle for a global community fit for all, not the undeserving rich elite who are happy to see our lives ruined.
"As the bankers continue to cream off billions of pounds of our money let's put the call out, RECLAIM THE MONEY, storm the banks and send them packing."
One anarchist group from Whitechapel, east London, yesterday published promotional a large picture of Sir Fred Goodwin on their website in a target site, headlined "We're closing in – targeting benefit thieves".
The anarchists, marked out by their red and black flags, are planning to meet in Victoria Palace gardens, near the Houses of Parliament, before infiltrating the main march.
After the march, when the anarchists will encourage others to join them, they plan to break away from the main Hyde Park demonstration and set up their own alternative rally at Speaker's Corner at 3pm.
From there they will fan out in the late afternoon and, with some groups planning to force companies to "put out the lights" as part of the planned worldwide hour of darkness to mark "Earth Hour" at 8.30 tonight, as revealed by The Daily Telegraph on Tuesday,
Businesses in London are already starting to prepare for the worst by putting up boards over their windows. Yesterday the Ritz Hotel in Piccadilly put up boards to protect its windows.
Glen Tarman, who has helped organise the Put People First march, said he had no evidence that anyone intended to break the law or commit acts of violence.
Up to 2,000 police officers are expected on the streets, with all leave cancelled next week. The Metropolitan Police is understood to have established rapid reaction units around the City to respond to the first sign of trouble.
Any protest and march and the press gets up in arms warning us about riots that don't happen!
Dylan Ratigan, host of Fast Money, and the only anchor at CNBC consistently "outing" the misdeeds of the bankers theft of the taxpayer money, has now parted ways with the network.
He didn't host Fast Money Friday, and a spokeperson for CNBC said, ""Due to the serious economic times in which we live, we made a decision that it would be a distraction for Dylan to host 'Fast Money' today."
Cramer gets creamed by Jon Stewart, Santelli was censored by Obama, and now Ratigan, CNBC's only voice of the people, parts ways with the network.
If we had this environment when our country was founded, even Thomas Paine, The Father of the American Revolution would of been censored.
Because in today's times, we now see that the Internet's version of Thomas Paine, has even been called to the White House.
He was scheduled this week to appear on the "Jerry Doyle Show" when he told the radio host that Obama had personally invited him to meet in the White House "to discuss the disturbing nature of the videos."
China isn't the only one censuring YouTube!
In an unusual move, Goldman bought back stakes in some internal investment funds from Jon Winkelried, the bank’s co-chief operating officer, and Gregory K. Palm, its general counsel.
Both executives are among the largest shareholders in the bank, owning more than a million shares each, and directors were concerned that a large sale of Goldman shares by the two men would alarm investors during a period of market turmoil, according to a person briefed on the matter.
To avoid the stock sales, Goldman paid Mr. Winkelried, who retired last month, $19.7 million to purchase about 30 percent of his investments in internal hedge funds and private equity investments.
The bank paid $38.3 million to Mr. Palm for about a quarter of his investments.
Goldman Sachs is forbidden to extend loans to executives such as Mr Winkelried or Mr Palm because of the Sarbanes-Oxley Act. Either man could have raised cash by selling stock, but such sales by executives would have had to be disclosed to the market.
“In the fall of 2008, the firm purchased interests in certain hedge funds and private equity funds from Jon Winkelried and Greg Palm,” said a spokesman for the firm.
“Stock sales would easily have covered their requirements but, given the turbulent market conditions, we and they were concerned that such sales would be misconstrued by the market as indicating a lack of confidence in Goldman Sachs.”
Friday, March 27, 2009
-Approximately 80% cash; 20% non-cash.
-Includes workforce reductions and closure of 10 manufacturing plants.
-80% of charges associated with the Automotive Experience business.
-Initiatives expected to be completed in 2010.
-Expected payback of 1.5 years.
The dollar bin, speculative corner plays on JCI's weakness this morning are Lear (LEA 1.10) and Tenneco (TEN 2.29).
Sharp reductions in investments and low oil prices could curb future supplies by almost eight million barrels a day within the next five years, according to a study scheduled for release Friday, the latest warning that the world could face a new energy shock when the economy picks up.
The report by Cambridge Energy Research Associates, an oil consulting firm, said that the potential drop in production capacity is a “powerful and long-lasting aftershock following the oil price collapse.”
The global slowdown has forced oil companies to slash their investments, postpone or cancel expansion plans, or delay drilling in many corners of the world.
In today's WSJ:
LONDON -- The slowdown in investment in oil and gas production could lop off nearly eight million barrels a day of future oil supply growth, setting the stage for another big crude price surge in years to come, according to a new study.
The slowdown is troubling the International Energy Agency, the Paris-based adviser to oil-consuming countries, which also has trimmed its forecast for supply growth. The agency's deputy executive director, Richard Jones, told a conference in London this week that more than two million barrels a day of expected new oil production capacity looks likely to have been deferred for now.
"Unless sufficient companies have the will and financial ability to invest through the down cycle, there is a real risk that supply growth may lag the eventual rebound of demand, leading to substantial price increases -- possibly as early as this year," he said.
The report says about 7.6 million barrels a day of future supplies are “at risk” of being deferred or canceled, like heavy oil or deepwater projects...
So much for Wall Street's $30 oil targets.
When will Morgan Stanley's fantasy price of an average of $35 for 2009 be put on the chopping block? Oil would have to be miraculously under $30 for the rest of the year for that to happen.
Thursday, March 26, 2009
You only need to know one line from this report, to understand how much nonsense this regulation of credit default swaps is. It's just noise to placate the public. Read page 3.
The Credit Event and Succession Event Backstop Dates will apply to historic trades only after June 20, 2009.
In other words, unless AG Cuomo subpoenas AIG credit default swaps, these contracts with AIG, and all the other CDS contracts written before June 20, 2009 will be "grandfathered in" and swept under the rug, and not be subject to scrutiny.
Sort of like the grandfathering in of naked shorts in Regulation SHO.
Paul Bienstock, a former vice president at the unit of Moody's Corp., said in a lawsuit in U.S. District Court in New York that he was dismissed after complaining to Moody's compliance department about his manager. The lawsuit alleges the supervisor caused an upgrade for Express Scripts Inc. to be withheld, arguing that the company "doesn't pay us."
In his complaint, Mr. Bienstock says that on Dec. 4, 2007, he presented Express Scripts debt to a Moody's committee for an upgrade from a speculative Ba1 to an investment-grade rating of Baa3, based on improved company performance. Mr. Bienstock alleges that the committee voted 5-2 for the upgrade, but his supervisor, Patrick Finnegan, the ratings committee chairman and then director of Moody's corporate-finance group, called for a revote saying "Express Scripts doesn't pay us," and "they don't visit us and they don't deserve our upgrade."
Mr. Bienstock said he protested, but the committee voted again, this time 6-1 against the upgrade. The next day, Dec. 5, 2007, Mr. Bienstock said he complained to the Moody's compliance department about a "breach" of the company's conflicts policies. The lawsuit, filed by the law firm of Sack & Sack, alleges he was fired by Mr. Finnegan on Dec. 12. Mr. Finnegan, who has since left Moody's, didn't return calls seeking comment.
So Moody's rated all the junk in the world AAA, and now it appears that Moody's thinks the whole world is now just about junk.
Makes you wonder who's paying Moody's!
Wednesday, March 25, 2009
We have rating agencies that now appear to be just stupid, and worse, we have market participants who seem to get this information before anybody else, who also appear to be just stupid enough to think that the rating agencies now know what they are talking about, and to trade on that information!
That is so "last year!"
It seems that we always get these games. Today it was the downgrade of Bank of America and Wells Fargo.
This morning, Ken Lewis of BAC, said he wanted to start paying back TARP funds next month. Then in the late afternoon, Moody's comes out and downgrades Wells Fargo and Bank of America's preferreds to junk, and like clockwork, the credit default swaps of BAC widened by 40 basis points, and WFC widened by 25.
And like clockwork the lemmings sell!
And like clockwork, it gave the bulls a chance to pick up cheap inventory!
And like clockwork, the market jammed those that wanted to short and those that made the dumb sales, on the even dumber downgrades.
These downgrades don't matter. We are in a new bull market, and the bear story is over.
The bears just can't deal with that fact of life.
Every day, I have to convert these die hard bears, and I have more than an arsenal of arguments, but their inflexibility is still amazing to see, and they keep coming up with these elegant reasons, why the market needs to come down, but they can't see that the market isn't listening.
Elegance doesn't count for much when you are playing smash mouth football, and that's the game that we are now in. It's no longer the game of naked shorts, widening swaps, and silly rumors.
If you want to fear the bears, then you might as well fear your own shadow. If they were on the football field, I would pick them out and just run right over them.
No one dance, not one jig, not one juke, but just smash mouth power.
And that's what this market is now about. It's not a market for cowards. Every dip down, makes the weak handed fear that good times are going to re-appear for the shorts and the bears.
Today we ripped the bears on the downgrades, but yesterday, it was the zerohedge story on toxic assets that spooked the markets. Let me indulge you on how this works. Here was the story that came out Tuesday, and it came out at 1:27 EST.
The Ridiculous Marks of Toxic Assets
Posted by Tyler Durden at 1:27 PM
The Treasury's arbitrary transaction price of 84 for the "pool of residential mortgages" seems to not have been all that arbitrary after all. In fact, as it may turn out, it was gloriously optimistic. A report by Goldman today on the PPIP caught my eye, with one chart in particular, indicating that bank are still marking the bulk of their "assets" at 90-95! Of particular note is Citi's delirious optimism on marks in its assorted asset classes, especially commercial mortgages.
A PPIP transaction at 70 is one thing, one at 95 is very much different, especially when the FMV is in the 30-40s, as the potential equity upside is very limited, while the downside is... well... much less so.
After that came out, the financials, led the market down. Now this story was picked up by a more mainstream website, which has plenty of great market information, except that the editorializing journalists still haven't figured out that the salad days of being bearish are over! That was this morning, so we had a second go around on the same story, but the market didn't cooperate, because durable goods perked up--which was something the bears hadn't yet made adjustments for!
But the bears tried it today, with yesterday's story again!
Banks Still Pricing Toxic Assets Ridiculously High
Joe Weisenthal Mar. 25, 2009, 6:51 AM
A recent report from Goldman Sachs, obtained by Zero Hedge, indicates that the majority of bank holdings are still priced between $.90-$.95 on the dollar. Citigroup (C) is a particularly egregious offender, notes the Goldman report, though by and large they're all in lala land. It's more evidence, as Henry Blodget just noted, that when all is said and done, this new bailout scheme will bankrupt the banks.
Bankrupt the banks? When the taxpayer is taking their toxic assets off of their balance sheets? Give me a break! That statement is just dumb. It will get eyeballs but it will just make you poorer.
So today, we had the Moody's tag team. But haven't we always seen this weakness in stocks before Moody's makes one of these announcements? How about when they were playing around with their downgrades of GM?
It's just market information that is leaked, but now it doesn't matter.
In fact, let's take a look at Goldman Sachs and their downgrade of Disney Tuesday, after Monday's 500 point move. Why not take a name that everybody knows and downgrade to take the edge off that the bulls had in psychology?
It's Goldman's same old game. Remember March 13, when Goldman removed WalMart from their conviction buy list? The Dow had tacked on 350 points that week, and it never looked back, so Goldman threw out another name that everybody knows, to dampen psychology. Boy that was a helluva call, and so effective wasn't it? The market only tacked on 250 points in their face!
The point is, the professionals aren't long, but short, and they don't have stock exposure, and their are getting anxious and nervous.
And today, once again, the bulls steamrolled the bears with their silly little games. That rally, was smash mouth football. Offers were taken in size, and taken aggressively, and it cowered the bears-They had the "Steamroller Blues!"
Now Friday the banking executives are all meeting with Obama in the White House. I think they are going to cut the terms of the TARP money. Here's my opinion on that.
But maybe it's another plan!
I just know that those in charge need stocks higher, and last I checked, our Government has a printing press, and all those who think it is an ineffective instrument, should take a look at it again.
It's a steam roller!
First St. Andrews wouldn't let him in, and now his house and car were vandalized.
An unknown group calling itself Bank Bosses are Criminals sent an email to the Evening News in Edinburgh claiming responsibility.
It said: "Fred Goodwin's house in Edinburgh was attacked this morning. We are angry that rich people, like him, are paying themselves a huge amount of money and living in luxury, while ordinary people are made unemployed, destitute and homeless. Bank bosses should be jailed. This is just the beginning."
Ways to Play the Rescue Game
Timothy F. Geithner, the Treasury secretary, has offered generous financing to the private investors to help bail out banks. His promise of lots of cheap leverage could make investments in toxic assets attractive. But ingenious minds will probably find elaborate ways to play Mr. Geithner’s game. Here are two ideas.
The first game is for banks. A bank sells $7 million in so-called legacy loans. It then reinvests $1 million of the proceeds in a fund, receives another $1 million in equity from the government and borrows $12 million with a guarantee from the Federal Deposit Insurance Corporation.
The fund then buys $14 million in loans that are nearly identical to the ones the bank sold, paying the same price if it can. The bank can now reap half the gains on a $14 million portfolio, rather than retaining all of the upside from its original $7 million of loans. But it has capped its downside at $1 million, rather than $7 million.
The second game is for investors. Here the investor spreads his bets among funds with different approaches to buying legacy securities. Some focus on residential or commercial mortgages, others on credit card loans, in different vintages and geographies. The aim is to make sure that, even if some funds plummet in value, others do well.
Imagine playing Colony of Vultures with just two funds. Our investor, who has $2 million to play with, puts $1 million each into Vulture 1 and Vulture 2. The two Vultures now borrow $9 million apiece from the Federal Reserve, giving them each $10 million to invest. Vulture 1 makes 30 percent; Vulture 2 falls 30 percent.
This might seem like a dumb strategy that leaves the investor flat. But the availability of nonrecourse funds, meaning the loans are backed only by the assets they have purchased, changes the outcome. Vulture 1 is now worth $13 million. After paying back the $9 million loan, the investor has $4 million. He loses all the $1 million he has put into Vulture 2, but the remaining losses are absorbed by taxpayers. Our investor ends up doubling his original $2 million stake.
But you need to look at the headline underlying the headlines.
Which is what I gave you.
Because that's what stock buyers will look at.
Tuesday, March 24, 2009
I'm not buying it.
On Monday, Goldman wouldn't even come in, and the stock flat-lined at 107 until the last hour, when it ran into the close. Today, you had the same funky bid action until 115, when the buyers just disappeared.
If Goldman opens up tomorrow, I like shorting the April 120 calls on Goldman at around 5.
I just don't think this number can make me sweat at these elevated levels.
So the toxic plan is just another bank bailout on the taxpayer, and everybody (except Obama tonite) knows that the dollar has been weak since the Fed announced it's experiment in quantitative easing, of which it will start tomorrow.
A weaker dollar would help our companies, but it's not going to get tagged like the Armageddonistas envision. Look at Obama's press conference tonight. The pseudo journalists were asking questions about the possibility of a new reserve currency for the world. That same talk had to be categorically denied in the Congressional Inquisition of the Fed heads today!
And the talk of our debt being downgraded is just silly. After all, who is rating the new securitizations from the TALF?
It's been estimated that $1 billion will flow through the TALF to the rating agencies pockets. The WSJ estimates that the rating agencies will receive $30,000-$120,000 for every $100 million of structured securities that they will rate.
Pretty soon you are talking real money. The billion dollar Government bribe!
But a US debt downgrade? By the rating agencies that are being fed at the Government's trough?
Ain't going to happen folks.
The rating agencies already have "three" categories of AAA debt, as the picture on the top of the page shows. Resistant, Resilient, and Vulnerable.
And in this economy, does anybody really think that the rating agencies are going to downgrade our Government debt, and forego their fees?
Forbearance still reigns.
Despite the CNN headline articles like that below!
Should USA still be AAA?
....Some think the U.S. may not be able to hold on to its perfect credit rating indefinitely considering how much money the Fed, Congress and the Treasury Department have thrown at the economy in their attempt to lift it from this recession.
But the billion dollar bribe sure doesn't hurt!
But we are going higher!
Look at the 5 day chart on the FAS, the 3X ultra financial bull.
It traded 1.5 billion shares, the past week.
That's where the action is!
Obama speaks tonight on television, and meets with the bankers at the White House on Friday.
A recipe for a trade!
In the longer term and as its authorities permit, the Treasury will seek to remove from the Federal Reserve's balance sheet, or to liquidate, the so-called Maiden Lane facilities made by the Federal Reserve as part of efforts to stabilize systemically critical financial institutions.
See 1:56 in the above clip.
Treasury is taking these loans, because Bernanke wants to continue to say that the Fed has never lost a penny, and it's pretty hard to to say that you haven't lost a penny, when the collateral, in JPMorgan's Maiden Lane loan has already gone down $5 billion!
And it's not the gas from cow farts, or the gas coming from AG's, politicians or divorce trials, but that gas coming from the Appalachians.
You can look to pure play companies that want to explore the Marcellus Shale, or you can just check out, Penn Virginia Corporation (PVA 11.74) which was cut in half the last couple of months, which has made a nice bottom, and the start of a new uptrend.
It may not be a sexy stock, but they are telling their story, and they will be telling it again today.
It won't be on Page Six, but I'll advertise this pick again in a couple of weeks when I assume it will be materially higher!
For the story on cow gas, it's here.
He spent $200,000 a week giving her anything she wanted. Four or five furs. At least a half-dozen $26,000 Birken handbags. Weekends yachting off Sardinia.
She never had to lift a finger except to swipe his American Express card.
She doesn't even own her own $190,000 diamond engagement ring, for which he retains the title to this day, her lawyer charged. David admitted as much in his testimony it's technically his ring. But she should be content with having "constructive" possession of it, he explained.
"When you gave her her engagement ring, did you tell Mrs. David that while she was going to have physical dominion over it, she did not actually own her engagement ring?" the countess' celebrity divorce lawyer, William Beslow, asked the mogul.
He answered, "I took the position consistently that she had it constructively. I said to her, it's absolutely it's constructively yours."
Since her husband used to be CEO of United Technologies, and was paid $88 million in 2005, and averaged $37 million annual compensation the previous five years, and even in 2007, his last full year of CEO, he picked up $65 million, look for him, and this trial, to shine the light on other executives and their outlandish, excessive compensation.
After all, doesn't UTX feed at the Government trough for it's defence business?
Look at their 2007 annual report, and the centerfold of the pictures of UTX's leadership on page 8-9.
Big business, big ego's and big Government contracts, with big serious looks.
And an ex-wife that competes with Posh for Birkin bags!
At least Ms. Beckham's bags, weren't subsidized by shareholder money!
Some of the same banks that got government-funded payouts to settle contracts with American International Group Inc. also turned to the insurer for help cutting their income taxes in the U.S. and Europe, according to court records and people familiar with the business.
The Internal Revenue Service is challenging some of the tax deals structured by AIG Financial Products Corp., the same unit of the New York company that has caused political ire over $165 million in employee bonuses.
Monday, March 23, 2009
Goldman Sachs, which said that it was interested in selling a piece of ICBC (worth about $8 billion), also said that it was interested in buying the iShares business that Barclays was looking to unload.
The price was $5 billion this weekend. Now it looks like bids are coming in north of $6.5 billion.
The private equity folks that are interested, do not want the securities lending business, which lends out shares to shortsellers.
You can say that is because of AIG non-success in securities lending, or maybe, it's because private equity had a chance to read the tea leaves, and Wall Street is only now belatedly catching on!
But the tea leaf reading is pretty clear here.
One week ago, I advertised the private equity plays.
Fortress Investment Group (FIG 1.59), Blackstone (BX 6.06) and Kohlberg Capital (1.90) all had good moves the last few days, and all look like trades now.Even in this environment, nobody believe Kolhberg's marks on its CLO portfolio, but they spin a better story now that the shorts are being neutered.And the neutering of the shorts gives these companies time, which gives them forebearance.Which means you can get substantial moves higher in all of these names!
FIG went from $1.59 to $2.09 and closed at $2.22 in after hour action today, up 40%.
BX went from $6.06 to $7.81 and closed at $8.40 in after hour action today, up 39%.
KCAP went from $1.90 to $3.13 up 64%.
All in a week.
All as advertised!
After the close, it finally dawned on Forbes that maybe private equity would be enriched by the Geithner plan.
I prefer to give you the news before it happens.
Then I can advertise it after it does!
The confidence men of doom, were out in force this morning. Just take a look at all the stories panning TARP II today. I suppose that after today's 500 point rally, these journalists just might engage in some soul searching and some revisionist thinking!
It fact, the "best" blogger on the internet called it, "Geithner's Plan, A Giant Confidence Game."
In Herman Melville's book, The Confidence-Man, Chapter IX, titled Two Businessman Conduct a Transaction we read "professors of the wicked act of manufacturing depressions..return like sham Lazaruses."
At the end of January, we were visiting Lazarus in Dante's Hell, when he was visiting the financials.
But Lazarus had a resurrection at the market bottom!
Now you could of read about Wall Street's recovery here, before it happened, with an AA chip thrown in so you would remember.
But the ninth step in AA is the "apology." No apology was needed for those calls!
"The Apology" was also the ninth episode, of the ninth season of Seinfeld, when Stanky Hanky, had to apologize, as the ninth step in his AA recovery.
And the ninth step in Dante's hell, is when they meet Lucifer, the Prince of Darkness.
Maybe these confidence men should listen to the 4th track (After all, the fourth step in the bears rehabilitation is, also the 4th step in AA-"When you make the searching and fearless moral inventory of yourselves.") of The Confidence Man musical, when Julia Murney sings Edging into Darkness. The song will make you search yourself!
up in smoke
catching into darkness,
easing into darkness,
fading into darkness,
nothing near me,
stumbling into darkness,
groping into darkness,
calling into darkness,
can you hear me?
You can listen to the track here, to hear the haunting, wonderful lyrics.
The great lyricist, Ray Errol Fox, wrote The Confidence Man. His blog is The Son of the Cucumber King!
Maybe this song can start the bears rehabilitation from darkness!
Now these Wall Street gangsters, with their naked shorting, have been systematically looting the stock exchange, by driving down prices and raiding stocks. That story is here.
We used to have "pump and dump" and then it morphed into "short and distort." It was helped along by the incompetent SEC under Bush's watch.
But now that this Government is all in, we see these scoundrels for what they really are. They're just confidence men, manufacturing stories of the depression, who hate the market's resurrection!
Which brings me back to the Seinfeld "The Apology" episode. (In AA, they say, that once you've become a pickle, you can't go back to being a cucumber. Which is why Jerry's girlfriend struggled opening a pickle jar, instead of peanut butter!)
What happens when you're naked, and nobody is interested in your story?
Jerry's girlfriend was just like the bears! We've seen too much of their nakedness!
And it's not "good naked" it's "bad naked!"
(I have some friends that struggle with or have recovered from alcoholism. When you read this, know that today, I was thinking of you.)
A lawyer for the court-appointed trustee liquidating Bernard Madoff's firm confirmed Monday they've located another $75 million in Madoff assets – a figure that would put the total above $1 billion.. and that French authorities are moving to seize Mr. Madoff's residence in France, to satisfy claims by Madoff's victims in France.
You may first want to read my viewpoint!
And then let's do the rating math. Just six trading days ago, Fitch downgraded Berkshire.
Since then Berkshire's position in Wells Fargo has added about $1.2 billion, and now his imputed value in his Goldman Sachs warrants is close to $2 billion.
The January 2011 115 calls on Goldman Sachs are trading around $35. Buffett has warrants on 43 million shares at 115. These options expire in less than two years, and Buffett has 4 1/2 years left on his, so if we price these with a 43% volatility we can get a value of $43 for these warrants.
43 million warrants at $43 gives us $1.85 billion.
Did Fitch figure that in?
How about his "scary" derivative put positions? Anyone think Buffett didn't pick up a couple billion on that position?
Fitch didn't have the foresight to wait, to see if the market had bottomed, in the week that it bottomed, before they downgraded Buffett.
Maybe a short hedge fund had Fitch's ear, and they needed the market down.
Somebody's position got spanked, but it wasn't Buffett's!
As it quite evident now, the stock market, even to those who missed the lows, has bottomed. The stock market, is a forward looking indicator, and even though the news has been bad, this news is already discounted in prices.
It's the same with housing.
And house prices, will now be going up, and these price increases, along with the rising stock market will get those who haven't bought, or who are contemplating buying a home, off of the sidelines, and it will help engender confidence in banks who love algorithms and models, but hate common sense!
Let's do the math. The numbers on the average home sale price came out today at $165,400. That my friends is the absolute low reading that you will see in this housing cycle, so get on board, or get run over by the train.
Now we also know, that the higher end homes are being foreclosed on also. Let's take a $1,200,000 home that goes into foreclosure and sells for $600,000.
Now the average home sold for $165,400, last month, didn't it? So lets throw in a $600,000 high end foreclosure into the mix in a sample of 20 homes.
So we have:
19 homes at $165,4000=$3,142,600.
1 home at $600,000= $600,000.
So now we have 20 homes that now sell for $3,742,600. Divide that by 20 homes and you get
$187,130 versus this month's figure of $165,400.
An increase of 13.13%!
More bad numbers for the non-believers!
The housing numbers will indicate better times, even if housing hasn't changed.
It's the same with the stock market. Higher prices attract buyers!
How about it bears--how's your "conviction" level now?
Are we still heading into Depression II?
Being bearish will turn your intellectual argument into just common cents, and then you'll just contemplate what Thomas Paine said:
A long habit of not thinking a thing wrong gives it a superficial appearance of being right.
Because common sense is still in short supply on Wall Street!
Private investors like hedge funds are expected to play a key role in the government's ability to help banks rid themselves of the toxic assets that are weighing down their balance sheets. The government's plan includes providing incentives, like financing, to encourage private investors to buy up these problem assets.
However, there is a fear among some of these would-be buyers that the government might subject them to some of the same backlash that's been plaguing Wall Street firms that accepted taxpayer money.
This Act may be cited as the ‘National Emergency Centers Establishment Act’.
SEC. 2. ESTABLISHMENT OF NATIONAL EMERGENCY CENTERS.
(a) In General- In accordance with the requirements of this Act, the Secretary of Homeland Security shall establish not fewer than 6 national emergency centers on military installations.
(b) Purpose of National Emergency Centers- The purpose of a national emergency center shall be to use existing infrastructure--
1) to provide temporary housing, medical, and humanitarian assistance to individuals and families dislocated due to an emergency or major disaster;
(2) to provide centralized locations for the purposes of training and ensuring the coordination of Federal, State, and local first responders;
(3) to provide centralized locations to improve the coordination of preparedness, response, and recovery efforts of government, private, and not-for-profit entities and faith-based organizations; and
(4) to meet other appropriate needs, as determined by the Secretary of Homeland Security.
China's property market is seeing signs of life
Sunday, March 22, 2009
By ZERO HEDGE
The greatest bait and switch of this generation in all its visual splendor. As a result of the TALF's non-recourse/non-margin nature, a hedge fund X can buy Bank X's MBS Portfolio which is marked on the bank's books at 80 cents on the dollar (but has a market price of 20 cents) for the marked price with a 3% equity check and TALF filling the balance. A day later, Bank X repurchases the portfolio from hedge fund X at the 20 cent market price, pays a $5 million fee for the "trouble" and waits for the portfolio to appreciate to 50 cents on the dollar by 2014. Hedge fund X takes a 75% loss on its nominal equity stake but more than makes up in transaction fees. The TALF portion takes a 75% loss with no recourse and no margin to fall back on.
As a result Bank X takes no writedown now, and in 5 years may book an equity profit of as much as $25 million (net of transaction fees paid to the Hedge Fund X), while Hedge Fund X books a profit of $3.2 million for one day's work...
Lastly the U.S. taxpayer loses $54.3 million on a $77.6 million TALF Investment, or 70% (net of 5 years of interest income).
Note: the maximum TALF size is $1 trillion. Will U.S. taxpayers suffer $700 billion in losses from the TALF? Ask your congressman.
And if you don't want the fee for executing a toyal return swap with the hedge funds, just sell him some credit default swaps on the same!
But however the taxpayer is screwed, just make sure it is under cover!
Nor did anyone mention that when AIG finally got up from its seat at the Wall Street casino, broke and busted in the afterdawn light, it owed money all over town — and that a huge chunk of your taxpayer dollars in this particular bailout scam will be going to pay off the other high rollers at its table. Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.
People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.
The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.
In a span of only seven years, Cassano sold some $500 billion worth of CDS protection, with at least $64 billion of that tied to the subprime mortgage market. AIG didn't have even a fraction of that amount of cash on hand to cover its bets, but neither did it expect it would ever need any reserves. So long as defaults on the underlying securities remained a highly unlikely proposition, AIG was essentially collecting huge and steadily climbing premiums by selling insurance for the disaster it thought would never come.
Initially, at least, the revenues were enormous: AIGFP's returns went from $737 million in 1999 to $3.2 billion in 2005. Over the past seven years, the subsidiary's 400 employees were paid a total of $3.5 billion; Cassano himself pocketed at least $280 million in compensation. Everyone made their money — and then it all went to shit.Cassano's outrageous gamble wouldn't have been possible had he not had the good fortune to take over AIGFP just as Sen. Phil Gramm — a grinning, laissez-faire ideologue from Texas — had finished engineering the most dramatic deregulation of the financial industry since Emperor Hien Tsung invented paper money in 806 A.D.
By the fall of 2007, it was evident that AIGFP's portfolio had turned poisonous, but like every good Wall Street huckster, Cassano schemed to keep his insane, Earth-swallowing gamble hidden from public view. That August, balls bulging, he announced to investors on a conference call that "it is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions." As he spoke, his CDS portfolio was racking up $352 million in losses. When the growing credit crunch prompted senior AIG executives to re-examine its liabilities, a company accountant named Joseph St. Denis became "gravely concerned" about the CDS deals and their potential for mass destruction. Cassano responded by personally forcing the poor sap out of the firm, telling him he was "deliberately excluded" from the financial review for fear that he might "pollute the process."
(On where the money went):
If you look at the weekly H4 reports going back to the summer of 2007, you start to notice something alarming. At the start of the credit crunch, around August of that year, you see the Fed buying a few more Repos than usual — $33 billion or so. By November, as private-bank reserves were dwindling to alarmingly low levels, the Fed started injecting even more cash than usual into the economy: $48 billion. By late December, the number was up to $58 billion; by the following March, around the time of the Bear Stearns rescue, the Repo number had jumped to $77 billion. In the week of May 1st, 2008, the number was $115 billion — "out of control now," according to one congressional aide. For the rest of 2008, the numbers remained similarly in the stratosphere, the Fed pumping as much as $125 billion of these short-term loans into the economy — until suddenly, at the start of this year, the number drops to nothing. Zero.
The reason the number has dropped to nothing is that the Fed had simply stopped using relatively transparent devices like repurchase agreements to pump its money into the hands of private companies. By early 2009, a whole series of new government operations had been invented to inject cash into the economy, most all of them completely secretive and with names you've never heard of. There is the Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility and a monster called the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (boasting the chat-room horror-show acronym ABCPMMMFLF). For good measure, there's also something called a Money Market Investor Funding Facility, plus three facilities called Maiden Lane I, II and III to aid bailout recipients like Bear Stearns and AIG.No one knows who's getting that money or exactly how much of it is disappearing through these new holes in the hull of America's credit rating....
In January, when Rep. Alan Grayson of Florida asked Federal Reserve vice chairman Donald Kohn where all the money went — only $1.2 trillion had vanished by then — Kohn gave Grayson a classic eye roll ....
Grayson pressed on, demanding to know on what terms the Fed was lending the money. Presumably it was buying assets and making loans, but no one knew how it was pricing those assets — in other words, no one knew what kind of deal it was striking on behalf of taxpayers. So when Grayson asked if the purchased assets were "marked to market" — a methodology that assigns a concrete value to assets, based on the market rate on the day they are traded — Kohn answered, mysteriously, "The ones that have market values are marked to market." The implication was that the Fed was purchasing derivatives like credit swaps or other instruments that were basically impossible to value objectively — paying real money for God knows what.
"Well, how much of them don't have market values?" asked Grayson. "How much of them are worthless?"
"None are worthless," Kohn snapped.
"Then why don't you mark them to market?" Grayson demanded.
"Well," Kohn sighed, "we are marking the ones to market that have market values."
In essence, the Fed was telling Congress to lay off and let the experts handle things. "It's like buying a car in a used-car lot without opening the hood, and saying, 'I think it's fine,'" says Dan Fuss, an analyst with the investment firm Loomis Sayles. "The salesman says, 'Don't worry about it. Trust me.' It'll probably get us out of the lot, but how much farther? None of us knows."
When one considers the comparatively extensive system of congressional checks and balances that goes into the spending of every dollar in the budget via the normal appropriations process, what's happening in the Fed amounts to something truly revolutionary — a kind of shadow government with a budget many times the size of the normal federal outlay, administered dictatorially by one man, Fed chairman Ben Bernanke. "We spend hours and hours and hours arguing over $10 million amendments on the floor of the Senate, but there has been no discussion about who has been receiving this $3 trillion," says Sen. Bernie Sanders. "It is beyond comprehension." ...
And the Fed isn't the only arm of the bailout that has closed ranks. The Treasury, too, has maintained incredible secrecy surrounding its implementation even of the TARP program, which was mandated by Congress. To this date, no one knows exactly what criteria the Treasury Department used to determine which banks received bailout funds and which didn't — particularly the first $350 billion given out under Bush appointee Hank Paulson.
The situation with the first TARP payments grew so absurd that when the Congressional Oversight Panel, charged with monitoring the bailout money, sent a query to Paulson asking how he decided whom to give money to, Treasury responded — and this isn't a joke — by directing the panel to a copy of the TARP application form on its website. Elizabeth Warren, the chair of the Congressional Oversight Panel, was struck nearly speechless by the response.
"Do you believe that?" she says incredulously. "That's not what we had in mind."
Another member of Congress, who asked not to be named, offers his own theory about the TARP process. "I think basically if you knew Hank Paulson, you got the money," he says.