The gigolo with the "Madoff" touch

I'm just a gigolo and everywhere I go,
People know the part I'm playin'.
Pay for every dance, sellin' each romance,
Ooohh what they're sayin'?
There will come a day, when youth will pass away,
What will they say about me?
When the end comes I know, there was just a gigolo's
Life goes on without me.

The 44-year-old wined and dined a string of rich wives and widows, including Germany's wealthiest woman Mrs Klatten, winning their confidence and then asking for money.

If they refused, he threatened to blackmail them with secretly filmed footage of their encounters in hotel rooms around Europe.

His lawyer told a court in Munich that the long list of charges against his client "are, at their core, true."

Before the hearing began, a spokesman for the Munich prosecutors office said that Sgarbi faced a prison sentence of several years but that he could expect some leniency if he were to plead guilty.

"If he makes a confession, if he spares his victims from having to appear here in public, he will get a corresponding reduction ... in his sentence," Anton Winkler said.

Sgarbi's most high profile victim was BMW heiress Mrs Klatten, a married mother of three who he seduced and swindled out of £6.2 million.
http://www.telegraph.co.uk/news/worldnews/europe/germany/4961385/Swiss-gigolo-Helg-Sgarbi-admits-blackmail.html

Buffett on CNBC; Jack Welch on Morning Joe

They are bringing out the big guns this morning.

Isn't that ironic? We have Treasury and Bernanke, providing us everything but the truth, but the two folks that the public listens to, tell it to the public straight.

When Bernanke is asked for the names of AIG's counterparties, he just says "no."

Now we have those names.

Today, we see that AIG put out a 21 page presentation to Treasury saying that they needed more money, or Treasury was going to lose their investment in AIG, and we would have giant repercussions.

American International Group Inc. appealed for its fourth U.S. rescue by telling regulators the company’s collapse could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers’ stake in the firm.

AIG needed immediate help from the Federal Reserve and Treasury to prevent a “catastrophic” collapse that would be worse for markets than the demise last year of Lehman Brothers Holdings Inc., according to a 21-page draft AIG presentation dated Feb. 26, labeled as “strictly confidential” and circulated among federal and state regulators.

“What happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means,’’ said the presentation by New York- based AIG. “Insurance is the oxygen of the free enterprise system. Without the promise of protection against life’s adversities, the fundamentals of capitalism are undermined.’’
http://www.bloomberg.com/apps/news?pid=20601087&sid=a72q7hFPu5Cs&refer=home

We have teleprompter talk from Obama, and news leaks for Geithner, when we need somneone to land the plane!

Maybe they should just call Sully!

Geithner: We don't have a clue

Administration officials say they are postponing their plan to produce a detailed road map for overhauling the nation’s financial regulatory system by April, in time for the Group of 20 meeting in London. Though officials say they will still develop basic principles in time for the meeting, the plan will not include much detail.

Treasury officials are also still scrambling to decide details of their plan to buy up as much as $1 trillion in toxic assets from the nation’s banks, one month after being widely criticized for presenting a plan that lacked any specifics on how it would work.

Analysts say it is far too early to know if Mr. Geithner and his team will be effective. But some worry that political and financial constraints have made them reluctant to grapple with the full magnitude of the crisis.
http://www.nytimes.com/2009/03/09/business/economy/09treasury.html?_r=1&ref=business

JP Morgan's chief strategist tries again

On June 6, 2008 when unemployment was increasing, Thomas Lee of JP Morgan said:

The biggest rise in the unemployment rate since 1986 is an "aberration" and investors who sold equities today are "completely misreading" the outlook for economic growth, according to JPMorgan Chase & Co.
http://aaronandmoses.blogspot.com/2008/06/put-some-lipstick-on-this-pig.html

The S&P 500 then was at 1370. Today it is at 680, and Thomas Lee said in a WSJ article tonite that--A level of 500 on the S&P is "possible, but I wouldn't put it in the realm of probable," says Thomas Lee, chief U.S. equity strategist at J.P. Morgan. Mr. Lee on March 2 removed a tentative "buy" recommendation he had placed on the S&P in February.
http://online.wsj.com/article/SB123654810850564723.html#mod=testMod

Four months later in October 17, JP Morgan's Thomas Lee picked 16 "franchise stocks." They were the following, with their prices then, and now

3M Co. 56.49 41.83 -26%
Baxter International Inc. 59.62 51.92 -13%
Colgate-Palmolive Co. 62.19 56.05 -10%
CA Inc. 15.90 16.01 unch
Devon Energy Corp. 70.80 39.92 -44%
General Mills Inc. 64.73 50.96 -23%
Gilead Sciences Inc. 43.03 44.01 +2%
Google Inc. 372.54 308.57 -17%
Hewlett-Packard Co. 39.71 26.98 -32%
McDonald's Corp. 53.8 52.12 -2%
Merck & Co. 28.50 22.74 -20%
Monsanto Co. 80 71.65 -10%
Nucor Corp. 33.56 32.34 -4%
Philip Morris International Inc. 19.32 15.72 -18%
Union Pacific Corp. 55.49 34.98 -37%
Visa Inc 52.22 50.19 -4%

If you followed his strategy, you lost about 16% of your money, while the S&P dropped 26%, showing that Thomas Lee might be better at picking stocks that will lose less than his macro calls on the market.

Lee's macro calls on the market are worthless. He acknowledges that the S&P could hit 500, but he thinks it could end 2009 at 1100. Would that information help JP Morgan price any of their derivative transactions?

But it does highlight his point, that stocks do have a franchise value, and that much of these names are now at prices unforseen by many.

And some of these names, like Nucor are now worth a really hard look.

Where's Schedule A of Maiden Lane III?

“WHEREAS as of October 31, 2008, AIG-FP was party to the derivative transactions listed on Schedule A (the “Derivative Transactions”), with an aggregate notional value of $62,129,719,487;”
(b) Schedule A to the Shortfall Agreement shall be replaced in full with Schedule A hereto.
http://www.sec.gov/Archives/edgar/data/5272/000095012309000667/y73982exv10w1.htm

The confidential portion of this Schedule A has been omitted and filed separately with the Securities and Exchange Commission. Confidential Treatment has been requested for the omitted portions.

* Goldman Sachs
* Deutsche Bank
* Merrill Lynch
* Société Générale
* Calyon
* Barclays
* Rabobank
* Danske
* HSBC
* Royal Bank of Scotland
* Banco Santander
* Morgan Stanley
* Wachovia
* Bank of America
* Lloyds Banking Group

Somehow it's a state secret that we don't know how this money was divvied up amongst the above parties, from those at the top who received the most, down to those at the bottom that received the least.

The taxpayer funded bailout of AIG, was in essence another taxpayer bailout of Goldman Sachs.

The formula for a market rally

It's in the NY Times, written by Ben Stein, and it's painfully obvious to anyone in markets.

Markets and stocks are being torn asunder, because the ability to profit from it's fall has never been greater. So change the rules!

REIN IN A RULE Immediately end the near-universal applicability of the accounting rule formally known as FAS 157.

This is the “mark to market” rule that requires banks and other finance houses to value securities at current market prices, even when they may plan to hold those securities for some time.

The rule was intended to provide greater transparency. But its deficiencies are glaring. It allows short-sellers to basically price mortgage-backed bonds and to make them trade for pennies, even if the bonds are still meeting their payments. This “mark to market” price often does not come even close to the value of future cash flows that can reasonably be expected. The “mark to market” price is just the price at which the last short-seller made his sale.

This accounting rule kills banks and insurers, kills credit generally and makes taxpayers pay off the profits of short-sellers. It’s time to stop this giant gift to those sellers.

REVIVE A RULE End “naked short-selling” and bring back the “uptick” rule.

The naked short-seller can sell shares without having borrowed the stock first. This is like tossing great white sharks into the kiddie end of the pool.

And then there’s the mystery of why the Securities and Exchange Commission ever ended the rule that requires an uptick in a share price before a short sale. The elimination of that restriction brings a major downside bias into prices.

Mary L. Schapiro, the new chairwoman of the S.E.C., should bring back the uptick rule. Yesterday wouldn’t be soon enough.

ADD A RULE Don’t allow speculators with no insurable interest to buy credit-default swaps on bonds.

When used properly, these instruments can function as a legitimate kind of insurance. Yes, if you are a real buyer of the bonds of a given company, you should be able to buy insurance. But you shouldn’t if you are just a shark circling prey, bringing blood into the water.

Allowing speculators to buy C.D.S.’s merely to bet against a firm in difficulty just blasts the prices of bonds, kills the balance sheets of banks, insurers and hedge funds, and throws fear into the system.
http://www.nytimes.com/2009/03/08/business/08every.html?_r=1&ref=business

There's also should be one more rule.

ADD ANOTHER RULE

If the seller of CDS Insurance cannot make the payment when default occurs, the buyer takes the hit.

That's the formula for a gigantic market rally! It would clean up all the gaming of the financial system, and make credit default swaps insurance, instead of just a "prop" bet!

The attack on Berkshire Hathaway

Warren Buffett said this at the 2007 annual meeting regarding "naked" shortselling:

Buffett begins his response with a sort of amused recap of the question for Munger, who for the first and only time of the day could not make out the question: “It’s about this so-called failure-to-deliver and naked shorting,” he tells his partner, clearly unimpressed by any supposed naked shorting crisis. He doesn't even have a problem with legitimate short-selling.

“I do not see the problem with shorting stocks,” Buffett says, “But it’s a tough way to make a living.”

Recalling that Berkshire Hathaway made good money lending shares of US Gypsum to short-sellers when it was under siege from asbestos lawsuits, before the stock went up ten-fold, Buffett says: “If anyone wants to naked short Berkshire, they can do it until the cows come home. In fact, we’ll hold a special meeting for them,” he says, to laughter.

Who's laughing now?

Buffett is being shorted in spades with credit default swaps, and AAA Berkshire with it's supposed fortress balance sheet trades in credit default swap land comparable to Vietnam!

Buffett said in his annual letter this year, that he likes it when stock prices come down, because it allows him to buy.

The market is ripping these myths espoused by Buffett apart as the Oracle of Omaha meets the oracle at Delphi, but this time the net of the omphalos stone consists of naked shorts and credit default swaps!

http://en.wikipedia.org/wiki/Omphalos

After 9/11 Buffett put out a press release indicating that Berkshire would take a hit of about $2.2 billion from the terrorist attack.

http://www.berkshirehathaway.com/news/sep2001.html

And look how pissed Warren was discussing his underwriting and this loss in Berkshire's 2001 shareholder letter:

When property/casualty companies are judged by their cost of float, very few stack up as satisfactory businesses. And interestingly . unlike the situation prevailing in many other industries . neither size nor brand name determines an insurer.s profitability.Indeed, many of the biggest and best-known companies regularly deliver mediocre results. What counts in this business is underwriting discipline.

1. They accept only those risks that they are able to properly evaluate (staying within their circle of competence) and that, after they have evaluated all relevant factors including remote loss scenarios, carry the expectancy of profit. These insurers ignore market-share considerations and are sanguine about losing business to competitors that are offering foolish prices or policy
conditions.

2. They limit the business they accept in a manner that guarantees they will suffer no aggregation of losses from a single event or from related events that will threaten their solvency. They ceaselessly search for possible correlation among seemingly-unrelated risk

The events of September 11th made it clear that our implementation of rules 1 and 2 at General Re had been dangerously weak. In setting prices and also in evaluating aggregation risk, we had either overlooked or dismissed the possibility of large-scale terrorism losses. That was a relevant underwriting factor, and we ignored it.

http://www.berkshirehathaway.com/letters/2001pdf.pdf

So far this year, Warren's portfolio has taken a hit 7X greater than what Berkshire suffered during 9/11; yet Warren hasn't commented about Berkshire's current portfolio.

If Buffett was this annoyed for paying money out because of an unforeseen terrorist attack, then what is Buffett thinking of the evaporation of Berkshire's equity portfolio?

We'll soon find out. Monday morning, from 6:00-9:00 am Buffet will be live on CNBC taking viewers questions.

http://www.cnbc.com/id/29454824

It should be an interesting morning.

Maybe now we'll have that credit default swap meeting with the shortsellers!

Jon Stewart blasts Wall Street

Bernanke: We will forcefully use all our tools

WASHINGTON (Reuters) – Federal Reserve Chairman Ben Bernanke said on Saturday the U.S. central bank would use all of its tools to stabilize financial markets and pull the economy out of recession.

"At the Federal Reserve we will continue to forcefully deploy all the tools at our disposal as long as necessary to support the restoration of financial stability and the resumption of healthy economic growth," he said in remarks prepared for delivery at a naming ceremony in Dillon, South Carolina.

http://news.yahoo.com/s/nm/20090307/bs_nm/us_usa_fed_bernanke_1

The Teleprompter Government

A lot of folks on the right are claiming that Obama needs his teleprompter to give good speeches and to succintly talk about policy.

So I thought I would just give you a clip with Obama on the campaign trail when his teleprompter went out, to allow you to come to your own conclusions!

Watch the "great communicator" in action without the script!

What's ailing GE?

I'm so tired of Jeffrey Immelt saying that GE is in these "boring" businesses and that GE Capital just does these boring loans. Yesterday, on CNBC we saw GE's CFO Sherin making the case for GE.

Let's look at a statement from Sherin:

Over a three-year period here, we expect GE Capital to be profitable, even after $35 billion of losses and impairments. We're looking today for GE's total cash flow to be around $16 billion for the year. In our stress case we could be down in the $14 billion level. In either scenario, we can fund the company. If conditions were to deteriorate beyond what is in our stress scenario, we also have the option of scaling back originations in GE Capital to conserve cash and capital."

http://online.wsj.com/article/PR-CO-20090305-905197.html?mod=wsjcrmain

$35 billion?

What did Jeffrey Immelt say about GE Capital in his shareholder letter last week?

Going forward we expect 30% of our earnings to come from financial services....We are targeting our returns in financial services to be about 15%.

http://www.ge.com/ar2008/letter_3.html

How does this jibe with $35 billion of impairments?

Maybe someone could just ask a shareholder who bought some of the 547.8 million shares of stock that GE unloaded at $22.25, when they were spinning their bullish tune!

Now we know the whole world is suffering from pension costs, and insurance companies that sold GIC's (guaranteed investment contracts) are also under noteworthy pressure.

GE also has GIC exposure.

On page 53 of GE's 2008 10k recently filed with the SEC, the company says that at the end of last year, if it had a rating below AA-, GE Capital would have been required to provide about $3.5 billion of capital to support a group of entities that are funded by issuing guaranteed investment contracts (GICs). A GIC provides a fixed return on an amount of capital that the GIC issuer invests.

Another entity at GE Capital also issues GICs and then loans the proceeds back to the finance arm. If GE Capital's rating were to fall below AA-, GE Capital would have to provide about $4.7 billion to repay the GIC holder.

But had the company sold the GICs at the end of 2008, according to the annual report, the fair value of their assets were only $9.2 billion and the liabilities totaled $10.7 billion, which would make a loss of about $1.5 billion.

GE's annual report also says that if the rating on GE, or applicable entities, falls below A-, then covenants will be triggered on its swap, forward and options contracts that force the company to pay money to its counterparties to account for the additional risk. The fair value of this risk was about $4 billion at the end of 2008, according to page 52 of the 10k.

http://money.cnn.com/2009/03/03/news/companies/benner_ge.fortune/index.htm

And we know that GE is optimistic about the stock market, because of their goofy actuarial assumptions in their pension plans. But despite this, it will still cost GE another billion dollars this year in their pension plans, even with their fantasy 8.5% "projections."

And GE's pension plan, which was overfunded by $16.8 billion at year end 2007, was underfunded by $4.4 billion at year end 2008, a swing of over $21 billion dollars.

GE, however, assumes that the future will be rosy, and as in any of their financial services operations where they have losses, GE feels that they will disappear over time. They just hold everything to maturity!

But if you really want to look at GE, just check out note 9 in their annual report. They have unrealized losses up the wazoo, but GE doesn't recognize any of them, because of the following reasons:

We presently intend to hold our investment securities that are in an unrealized loss position at December 31, 2008, at least until we can recover their respective amortized cost. We have the ability to hold our debt securities until their maturities. In reaching the conclusion that these investments are not other-than-temporarily impaired, consideration was given to research by our internal and third-party asset managers. With respect to corporate bonds, we placed greater emphasis on the credit quality of the issuers. With respect to RMBS and commercial mortgage-backed securities (CMBS), we placed greater emphasis on our expectations with respect to cash flows from the underlying collateral, and with respect to RMBS, we considered the availability of credit enhancements, principally monoline insurance.

http://idea.sec.gov/Archives/edgar/data/40545/000004054509000012/frm10k.htm

Now Sherin, the CFO, just told us that GE was prepared to take $35 billion of losses in GE Capital.

How accurate can this statement be, if GE doesn't recognize any losses because they have useless monoline insurance, or if they depend on the rating agencies for the solvency of the debts they hold?

And what happens then, if the rating agencies really look at what GE Capital is holding?

How ironic then, is it, that GE can be cut by the same sword that they use to defend?

GE is now in trouble, because they can't sell their poorly performing businesses. Remember Genworth that GE got rid of? How about FGIC? They also unloaded that, and they also dumped their life insurance to Swiss Re, who needed help from Buffett to absorb their losses!

GE tried selling their credit cards, and their appliance business, but in this environment, there just wasn't any takers.

How ironic is it also, that GE, who used to be such a smart seller, now has a stock price buffetted by "smart sellers!"

So we see what ails GE. GE is a good industrial company, built on a financial hedge fund, with a "private equity" component, that now has to eat their own cooking.

AIG was an insurance company built upon a hedge fund.

JPM is a good bank built upon a derivative hedge fund.

Those buying credit default swaps on GE, want them to be in the former category.

But GE, stays true to it's name, as it keeps investors in the dark regarding what really is on GE Capital's balance sheet.

GE only brings good things to light!

The new TARP-The FDIC fund

The FDIC is now looking for $500 billion to help bail out banks. This is the administration's back door approach to get more money into the banking system, in a round about way, without stoking the public's ire.

What else would you expect? Sheila Bair, Gentle Ben, and Timmy G. are the architects behind it.

The bill was championed by FDIC Chairman Sheila Bair, Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner. In a Feb. 2 letter to Mr. Dodd, Mr. Geithner said he supported a move as it would allow the government to respond to "exigent circumstances." Mr. Bernanke sent Mr. Dodd a similar letter the same day, suggesting a coordinated effort was at work.

"Clearly, it is a backdoor way to avoid the restrictions that could potentially come by means of TARP," said Rep. Scott Garrett, a New Jersey Republican who sits on the House Financial Services Committee.
http://online.wsj.com/article/SB123638774383958439.html#mod=testMod

In plain English, the FDIC fund, which insures $4.5 trillion of deposits is broke.

The next step is for you, the taxpayer to now bail out the banks with this new scheme. The FDIC fund supposedly was paid for by fees assessed to the banks.

Now instead, the banks will asses you the taxpayer, with new and greater fees on your banking, and then, you'll have to finance the new FDIC bailout!

And then, if you give these blessed bankers the $500 billion, they will now possibly allow you to have a mortgage cramdown, only if you go into bankruptcy!

And the bankers that looted your savings, and drove these stocks into the grounds will get their fat pensions and millions more of your money.

While you sweat yours!

Pensions for Britons now at risk

In a mere 24 hours the size of the pension deficits facing some of Britain’s biggest companies has jumped by around £100 billion to a record £390 billion - the equivalent of over £150,000 for every member of a final salary scheme.

The increase is a direct result of the Bank’s announcement this week to create £150 billion and pour it directly into the financial system, experts said.

The ballooning deficits sharply increase the chance that a swathe of companies shut down their pension schemes - not only for future employees but for those already paying into them.
http://www.telegraph.co.uk/finance/personalfinance/pensions/4950466/Retirement-plans-of-millions-of-Britons-at-risk-after-Bank-of-England-prints-money.html

Another bogus bonus at Merrill Lynch

Merrill has discovered that a London-based trader who said he made $120 million last year actually lost $400 million. Merrill describes this as "an irregularity." The trader described it as "a misunderstanding."
http://www.businessinsider.com/henry-blodget-rogue-merrill-trader-lost-400-million-2009-3

Merrill is poring over the books of Alexis Stenfors, a London currency trader, who was suspended after Norwegian and Swedish currency trades went wrong, according to people familiar with the situation. Merrill is in talks with UK regulators...
http://www.ft.com/cms/s/0/7b1077ac-0a57-11de-95ed-0000779fd2ac.html

Mr. Stenfors, was on Merrill Lynch's bogus bonus list; a list that Bank of America said would cause irreparable harm if it was made public.

How many people on Merrill's bogus bonus list had sour derivative bets that the firm doesn't know about? If BofA doesn't know what's going on in currencies, how do they know what's going on in their derivative books? And how about JP Morgan with their $88 trillion of derivatives? If the traders at JP Morgan are so smart that they can hide Bernanke's losses, what makes you think they aren't hiding losses and booking it as gains like Mr. Stenfors did over at Merrill Lynch?

He steals millions and millions from Merrill Lynch by pretending he was engaged in profitable trading, when in fact, he had lost $400 million, and it's called a "misunderstanding."

You hold up a 7-11, and it's called a felony, and you get 20 years.

You hold up Bank of America, and you get a bonus!

Barron's on credit default swaps

LIQUIDATION. A GOOD SOAKING. PLENTY OF TEARS. It is real wet out there in the markets.

Aside from getting washed out to a new 12-year low, the Dow has five of its 30 members bobbing below $10, a level under which more than a fifth of Standard & Poor's 500 members reside.

Given all the known big-picture reasons for this drenching, does it makes sense to continue enabling the folks who make and sell umbrellas to force it to rain at will? The people with a stake in umbrella prices who are able to trigger a downpour are the traders who bid up credit-default swaps on individual companies, whether they own their debt or not, and short the stock.

In combination, these actions feed signals into the market that companies are at risk of default -- often true, sometimes not, never a certainty. The mix of ballooning CDS premiums and collapsing share prices is a factor that can force credit agencies to issue debt downgrades, make real creditors nervous and scare would-be "real money" buyers away from the shares and bonds of the affected companies.

The results are some alarming pricing relationships. A Merrill Lynch analyst Friday noted it was more costly to protect oneself from the possibility of a default by Berkshire Hathaway (ticker: BRKA) than one by Vietnam. And General Electric (GE) CDS prices outstripped those of Russia -- a country that a dozen years ago actually did default on its foreign debt.

This is all legal, thanks to a law a few years ago exempting CDS from "bucket shop" laws that ban gambling on security prices indirectly. And, as New York State Insurance Superintendent Eric Dinallo testified in Congress last week, one likely reason they aren't termed credit-default "insurance" is that using that term would trigger state regulation and higher capital requirements for the underwriters, making the swaps expensive hedging instruments.

These rumblings moved Mike O'Rourke, a strategist at brokerage BTIG, to remark, "Rightly or wrongly, don't be surprised if at some point, regulators start poking around looking for investors who paired short bets in the common shares with long bets on the CDS."

Theoretically, an unlimited amount of credit-default swaps can be written and bought on any issuer, and there are incentives for buyers to make companies look sickly. If an investor buys a troubled issuer's deeply discounted corporate debt that has little chance of trading again at face value, and then buys CDS as protection, the investor could essentially want the issuer to default so the swaps pay off to the max.

Says Tony Dwyer, a strategist at FTN Equity Capital Markets: "You have turned the buyer of stressed corporate debt from a buyer incentivized to make the company better and worth more, to a buyer with the goal of default. If the total cost of buying a bond and insuring it to par is less than par, it creates an arbitrage that ultimately destroys capital."

But curbing CDS purchases by investors with no other economic exposure to the company seems akin to the creation of baseball's infield-fly rule more than 100 years ago.

It was an imposition on the purity of the long-established rules of play, producing an out in certain situations without the fielders having to actively retire the batter. Yet, it was deemed necessary to prohibit a single specific tactic of trickery (an infielder intentionally dropping a pop fly with two or three men on base and fewer than two outs, so as to get an easy double- or triple-play).

It wouldn't be the first time this baseball rule was invoked to justify legal restraints on what formerly were considered general, unwritten principles of fair play, as the career of this recently deceased legal scholar makes clear.
http://online.barrons.com/article/SB123638352312458031.html

AIG's counterparties who were paid by the taxpayer billions and billions on their sham credit default swaps

* Goldman Sachs
* Deutsche Bank
* Merrill Lynch
* Société Générale
* Calyon
* Barclays
* Rabobank
* Danske
* HSBC
* Royal Bank of Scotland
* Banco Santander
* Morgan Stanley
* Wachovia
* Bank of America
* Lloyds Banking Group

That's where the taxpayer money went with the AIG bailout.

Once again, rich people, get bailed out by the working stiff.

And Bernanke treats this as a state secret! He says he's unhappy about it.
http://obama.wsj.com/quote/0fuVa1kdji7VR?q=Ben+Bernanke

Just like Ken Lewis of Bank of America states that it will cause "irreparable harm" to the firm if BAC details who got the $3.6 billion of bonuses before Merrill Lynch imploded!

Irreparable harm? How about the damage to the average Joe's 401K? How about the evisceration of the equity value in the stock market?

What planet are these bankers living on? And why didn't these bankers take a haircut on their swaps with AIG?

Because they get paid first!

Remember, it was JP Morgan that created credit default swaps that let banks bet with another, without putting much money up. And now, this is the de-facto market that supposedly tells you the health of the companies.

These bankers can cause a run on the stock and incite panic and fear by buying credit default swaps at exorbitant spreads, and simultaneously buying cheap out of the money puts, so that other shareholders panic, and knock down the stock. The corporation then becomes hamstrung because it then cannot raise equity in the stock market to pay off it's debt, further increasing the vicious cycle of fear and increasing the pressure on the share price, and corresponding markdowns in their bonds.

And then, if these gangsters, are successful in their raid, and they force the company into bankruptcy, the credit default swap buyers are paid before anyone else!

Why would a credit default swap buyer exchange his debt? He usurps the traditional bond holder!

One of the features of the 2005 Bankruptcy bill was to put derivative counter parties at the front of the line ahead of other creditors in bankruptcy proceedings. Actually, from what I can tell, they don't just go to the head of the line. They got to skip the line entirely.
http://www.talkingpointsmemo.com/archives/2009/03/im_sure_the_knowledgeable_people.php

So now you have swap buyers, arbing their credit default swaps against bonds, with another bank backing their swaps, when they try and force these companies in bankruptcy.

After all, if you bought a credit default swap contract, your ultimate payoff is bankruptcy!

So you create a synthetic position, in a phantom bond that you don't own, that you get paid first, if you can drive the company out of business.

Thus the credit risk in the CDS market is only limited by how many contracts the dealers write. A corporation can have $1 billion of bonds, and $10 billion of swaps written against them!

It's like having 10 people that have fire insurance on your house. Everyone has an incentive to burn it down! And everyone then will get paid the full value of the house, even though only one person owns it.

It used to be that you would have to short the stock or the bonds to get paid. But everyone knows it always difficult to get a borrow for a corporate bond, and even shortselling now has a stigma attached to it.

Why bother? Leverage yourself to the gills in credit default swap land! Put a little down, and control billions! You have position limits on options, but not in swaps. And it's not reguulated! Isn't that special!

Remember when Lehman was imploding? John Paulsen bought credit default swaps on Lehman bonds for $22 million that he cashed out for over $1 billion dollars.
http://www.portfolio.com/executives/features/2009/01/07/John-Paulson-Profits-in-Downturn

But Treasury and Bernanke don't feel fit to regulate this arena.

Why would they?

They just let you the taxpayer pay the tab!

And if our Fed was serious in cleaning up this arena, they should of given all the above institutions gigantic haircuts on all their credit default swaps.

That would of been the first step to regulation.

Impose some pain!

Now instead of AIG, all these other gamers trade with JPM and their "fortress" balance sheet. Why else is JPM making $5 billion in their derivative book?
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_v5DTUmYDbA&refer=home

They can now negotiate higher prices, and the counterparty can rest assured that if JPM would go down, Gentle Ben and Tiny Tim would be in their corner.

After all, JP Morgan's derivative book is only $88 trillion!

Who would want to regulate that???

Geithner: We live for this kind of emergency

When Justin Rudelson, his former classmate at Dartmouth College, asked him how he was holding up, Geithner told his friend: "We live for this kind of emergency. This is when we feel most important, most needed as a central banker, regulator. It’s the crises that make our jobs worthwhile."

http://businessmirror.com.ph/home/bloomberg-specials/6927-in-geithner-we-trust-.html

Fire him!

Credit default swaps on GE

To insure $10 million of AAA GE Capital bonds against default, it was costing buyers $1,650,000 upfront, and an annual payment of $500,000.

How much of these contracts have traded the last couple of days?

“We looked at the actual CDS trades on Monday and Tuesday,” he said. “It was a total of $35 million over the two-day period. Normally, it’s $100 million a day. Was that really market fundamentals or was it just some sort of disruption based on very narrow trades in a volatile time?”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aM_471Ko1vMI&refer=home

Is that a market, or as GE says, just a scare tactic?

U-6 unemployment rate increases to 14.8%!

And now we have an 8.1% Unemployment rate in the official U-3 rate.

January job losses were increased from 598,000 to 655,000.
December job losses were increased to 681,000 from 577,000.
http://www.bls.gov/news.release/pdf/empsit.pdf

The market and the economy continue to melt.

Look at the problems in pensions. Let's use CALPERS as an example.

CALPERS had $237 billion in assets at June 30, 2008, and their pension plan assumes an annual return of 7.75% on their investments.

CALPERS had $41 billion in real estate, that had debt of $19 billion and they had unfunded real estate commitments of $17 billion and they had unfunded private equity commitments of $26 billion.

In January of 2008, CALPERS bought $1.6 billion of Timberland, and $1.4 billion in commodities to get some "inflation" exposure, we know they had "unrealized" losses exceeding 103% on housing and a billion plus on their $2.5 billion LandSource deal.

CALPERS, like State Street, and AIG, has a securities lending program, where they lend shares to shortsellers, and then use this money to invest in other short term securities. They do this with $37 billion of California's taxpayer money. Before the markets in these instruments completely blew up, CALPERS had lost $158 million.

So how much has CALPERS lost the past year? At a minimum it's $80 billion. And who is backing up their pensions when they blow up? The state of California!

Today, we see that the FDIC is looking for another $500 billion. If stocks keep getting crushed, how much will the PBGC be on the hook for?

We have heard that this economy has led to a resurgence in board games, led by Monopoly. Now you could use monopoly money to purchase stocks!

It's even affecting Mr. Monoploy himself, Warren Buffett.

Last week he gave his annual report, and it showed that as of December 31, 2008, he had an equity portfolio (excluding Moody's and BNI) valued at $49 billion with a $37 billion cost.

That unrealized gain is now gone.

Yesterday, the market finally starting getting to JP Morgan. Whenever JPM starts to breakdown with a downward spike, our Government seems to get concerned, and a rally seems to come out of the woodwork.

It could be the same today.

Otherwise we're all just going to be playing monopoly!

Wells Fargo cuts dividend to a nickel

It will save $5 billion of capital, but it won't save Bufett's position!

The Wyeth ruling

The FDA approved the anti nausea Phenegran for migraine use, even for injecting in extreme circumstances. The patient was injected intravenously, and packaging warned that if it hit an artery, gangrene or amputation could be possible.

It happened to the patient, who sued Wyeth, successfully, even though the FDA gave it's approval.

Bush appointees wanted Federal law to supersede state law; the ruling indicated by the Supreme Court's 6-3 showed otherwise.
http://online.wsj.com/article/SB123618148123830541.html#mod=testMod

Apparently, Wall Street is now worried that patients, (not all whose arms get amputated) will cause distress for the drug companies, because they can't now hide behind the shield of the FDA.

It will keep the lawyers busy!

The TALF subsidy---Pension funds

Who are the biggest investors in hedge funds now that the high net worth individual no longer trusts them?

Pension funds.

And the Alternative Investment Management Association (AIMA) found that retirement systems made up 1/6 of all new hedge fund assets.

The TALF will subsidize the hedge funds, who will help subsidize the pension funds, who will subsidize asset prices, helped with demand from China, Government stimulus around the globe, tightening from OPEC and now, even the initiation of a plans for a copper cartel around the globe.

Heck it will be enough to even make GE bounce!

The "free money" feeding trough is spelled TALF

If the TALF is offering up 20%+ returns for those hedge funds that want to get involved, what are the returns that the stock market is offering, now that it has the blessings of Government?

The Obama housing plan, which was just released, is good. China has another, newer stimulus plan. Oil is showing a bid.

On April Fool's day, the average Joe will get a little extra in his paycheck.

Mustard seeds for the bulls, but when the markets are in such a technical position where they are poised to rally, the effects could be pronounced on stocks.

Especially, when hedge funds will be lining up to get the government largess at the TALF feeding trough.

It will be tough to be bearish on stocks, when the Government is subsidizing your returns.

And even the Government has made it clear to these hedge funds, that they will pay them to be bullish.

Those participating in the TALF, won't have any restrictions on their pay despite Shelby's protests!

March 3 (Bloomberg) -- The Federal Reserve and U.S. Treasury eliminated executive-compensation limits for companies that bundle loans accepted under a new $1 trillion program, indicating the rules may have hampered efforts to start the plan.

The rules won’t apply to the Term Asset-Backed Securities Loan Facility out of “desire to encourage market participants to stimulate credit formation and utilize the facility,” the New York Fed said in a document on its Web site today. The government separately said it will expand the TALF to support vehicle-fleet leases and loans for business, construction and farm equipment.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a806udRmKcas&refer=home

The unemployed get another $25 a week to keep them in check, and the bears on Wall Street get millions to change their viewpoints!

And to get fed at the TALF trough!

Rally Time!

The shakedown of the bears

Last week, it was Gibbs of the White House shaking down Rick Santelli.

This week, it was Gibbs of the White House shaking down Jim Cramer.


Today, we heard that Bernanke wants to bring back the short selling ban, and President Obama said that stocks were good buys:

What you're now seeing is ... profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it.

To hear the words "good buy" in the stock market, when most investors have only said "good bye" to their money, means that too many people have gotten killed, and the system needs a respite.

After all, who was buying all the 2.5 puts in GE today? Someone trying to create even more fear?

But look what the losses are causing. How about the trillion dollar public pension liability?

Public pension funds across the U.S. are hiding the size of a crisis that’s been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy. The paper alchemy gives governors and legislators the easy choice to contribute too little or nothing to the funds, year after year. 30 Percent Shortfall The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion. With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.
http://www.bloomberg.com/apps/news?pid=20601109&sid=alwTE0Z5.1EA&refer=home

How about the half a trillion unfunded pension liability in the S&P 1500?

Now we haven't even burned through or written down a trillion dollars in banking yet, but our pension liability exceeds this by another half a trillion and counting. Does anybody think this is going to just go away? Only if we can have 20%+ annual returns in the stock market for the next 5 years. Maybe these pension planners should get involved in the TALF!

But why would they do that? These people are the low hanging fruit that the investment banks need to offload their losses on!

Today we saw that JPMorgan's profit doesn't come from banking, but an $88 trillion derivative book. JPM is a bank on top of a hedge fund, just like AIG was an insurance company stacked upon a hedge fund. But Bernanke today said this about AIG “If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG” while he praises JPM, his adopted son. That's probably because AIG just hid their losses, while JPM hid Bernanke's!

AAA rated Harvard with their sophisticated money managers, are losing money because they made a derivative bet with JPM that supposedly was going to help them with their funding! It only boosted Harvard's funding cost in municipals by $400 million and $150 million over the term of the $500 million of notes they sold due in 2039. These "costs" will accrue to the other party of the derivative trade-Ben Bernanke's adopted son-JP Morgan.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aouPA5ltirhk&refer=home

It looks like even Harvard was the low hanging fruit for these Investment banks!

But why should Bernanke get upset with these banks? Haven't we seen his accounting? After all, didn't he say that he didn't expect the taxpayer to lose even "one penny" with his investments? That despite the Fed's holdings of Bear Stearns assets in Maiden Lane being underwater by $3 billion on December 17, and well over $4.5 billion now. But the Fed's response to Maiden Lane's shortfall was this:

Despite the decline in the current fair value of the collateral, the Board does not anticipate the Maiden Lane loan will result in any net loss to the Federal Reserve or taxpayers. The Maiden Lane loan was extended with the expectation that the value of its portfolio would be realized either by holding the assets to maturity or by selling the assets over an extended period of time during which the full value of the assets could be realized.
http://www.federalreserve.gov/monetarypolicy/files/129periodicupdate.pdf

So there is a shakedown going on, because the bears are making too much money, and the losses in the stock market are significantly affecting and angering the public.

And now too much dirty laundry is hanging on the clothesline for everyone to see.

So it looks like the Fed's are trying to clothesline the bears!

And now 100 years later, the White House is airing their laundry in public again.

But this time, they are putting themselves on the cross!

The taxpayer's $20 billion gift to Goldman Sachs

Today on CNBC, Hank Greenberg said what everybody already knew. Goldman Sachs had exposure for $20 billion of credit default swaps that they had bought from AIG, and they were paid from taxpayer bailout money.

Goldman's CEO, Llyod Blankfein was in the room when the bailout for AIG was being implemented, and Hank Greenberg, AIG's largest individual shareholder was not.

Here is the NY Times version:

Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.
http://www.nytimes.com/2008/09/28/business/28melt.html?_r=1&ref=business

Now Goldman's version:

``Our exposure to AIG is not material,'' Lucas van Praag, a Goldman spokesman, said today in an interview. ``We have always managed our exposure to single names extremely conservatively. That was the case with Bear and Lehman.''

Viniar, the CFO, declined to comment on possible financial transactions between Goldman and AIG.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aqjnpTehB3lY

Then Goldman backpedaled and said:

Lucas van Praag, a Goldman spokesman, declined to detail how badly hurt his firm might have been had A.I.G. collapsed two weeks ago. He disputed the calculation that Goldman had $20 billion worth of risk tied to A.I.G., saying the figure failed to account for collateral and hedges that Goldman deployed to reduce its risk.

Regarding Mr. Blankfein’s presence at the Fed during talks about an A.I.G. bailout, he said: “I think it would be a mistake to read into it that he was there because of our own interests. We were engaged because of the implications to the entire system.”

Mr. van Praag declined to comment on what communications, if any, took place between Mr. Blankfein and the Treasury secretary, Mr. Paulson, during the bailout discussions.

Now Hank Greenberg tells us the real story today. How do we know his version was the real story? Let's take a look at page 178 on HGO 281.000; The House of Representatives Hearing on the Causes and Effects of the AIG bailout.
http://www.blbglaw.com/misc_files/ExE-AIG_Hearing_Preliminary_Transcript.pdf

Mr. Willumstad, did Goldman Sachs have anything to lose
if AIG went under?

Mr. WILLUMSTAD. Goldman Sachs was a significant
counterparty for AIG

Mr. YARMUTH. To what extent are the relationships
intertwined, and how much do you think Goldman Sachs would
have suffered financially? What kind of stake was there for
Goldman Sachs and AIG's survival?

Mr. WILLUMSTAD. I can't tell you what losses Goldman
Sachs might have suffered because I don't know. The only
thing I can tell you is that Goldman Sachs was a counterparty
on approximately $20 billion worth of credít default swaps
that AIG-FP had.

Hank Greenberg said AIG paid Goldman Sachs $20 billion dollars with their first injection of TARP money.

Blankfein at Goldman Sachs said their exposure to AIG was not material.

Today, you saw on CNBC who was lying.

And the farther the market goes down, the more dirty laundry will be aired.

So look for a rally from these levels--and quick!

The TALF terms

The much heralded TALF starts on March 25. This will allow hedge funds to borrow from the Fed at the following rates to purchase the following assets, in a leveraged, non-recourse, non margin call investment for the next three years.

Nice terms, to buy these assets.

• Auto, credit cards and private student loans--LIBOR +100bps
• SBA loans--Fed funds +75bps
• 504 SBA loans --three year LIBOR +50bps
• Govt. guaranteed student loans--LIBOR+50bps
  

The "leverage" will depend on the haircut.
http://www.newyorkfed.org/markets/talf_terms.html

The bottom line is that 20%+ annual returns will be "earned" by participants in the TALF.

JP Morgan derivative group earned $5 billion

Why regulate them, when you can make so much money selling them?

March 3 (Bloomberg) -- JPMorgan Chase & Co. managed to generate $5 billion in profit during the worst year in Wall Street history by trading over-the-counter fixed-income derivatives, two people with knowledge of the results said..

Among commercial lenders, JPMorgan dominates OTC derivatives trading, according to data compiled by the Office of the Comptroller of the Currency. The bank held $87.7 trillion worth of outstanding OTC contracts as of Sept. 30, more than the next two banks, Bank of America Corp. and Citigroup Inc., combined.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_v5DTUmYDbA&refer=home

Sell me some protection!

Politicians create policy by trial balloons. So now this administration is fleshing out the "Bad Bank" plan in today's WSJ:

WASHINGTON -- The Obama administration, filling in some of the blanks in its bank bailout, is considering creating multiple investment funds to purchase the bad loans and other distressed assets that lie at the heart of the financial crisis, according to people familiar with the matter.

The Obama team announced its intention to partner with the private sector to buy $500 billion to $1 trillion of distressed assets as part of its revamping of the $700 billion bank bailout last month. It's central to the administration's efforts to unglue credit markets, alongside a Federal Reserve program aimed at spurring consumer lending in areas such as credit cards and home loans that will be officially launched Tuesday.
http://online.wsj.com/article/SB123603913648314649.html#mod=testMod

The silver bullet, for this administration seems to be the TALF. Maybe they think it will stop the market's own Beast of Gevaudan, which is terrorizing shareholders and bulls with it's bloodthirsty ways!
http://en.wikipedia.org/wiki/Beast_of_Gévaudan

But Geithner was voted down by the Market on February 10, when we closed under 8,000. His bailout of Citi and AIG was voted down again by the market when we closed under 7,000 yesterday. His silver bullet won't work.

The TALF story, and the consequences are here. Now we get the same old story again.
http://aaronandmoses.blogspot.com/2009/02/market-votes-geithner-down.html

Policy by trial balloons! They pulled the same stuff February 8th!
http://aaronandmoses.blogspot.com/2009/02/bank-bailout-trial-balloons.html

Why isn't there any demand for these assets? Because the only buyers want protection! Did you miss this part of the story?

To encourage participation, the government would try to minimize risk for private investors, possibly by offering non-recourse loans.

You want lines? You want to go where there is some demand? Just go where they're selling protection. It's not Geithner's silver bullet but it's ammunition!

Why don't they go out to the local gun show and see the lines. Or maybe they should see how long ammunition stays on store shelves. Does Wall Street think that all those purchasers of ammo are using it to go to the local range? I know Mickey Rourke played a good spot in "The Wrestler" but maybe they can also forget about 9 1/2 weeks and realize that these folks aren't getting ammo to seduce the girl. They're getting it for protection.

Or maybe Wall Street should visit the local church or temple on the weekend, and try and get a parking spot. These folks have already been brought to their knees! They're selling protection of a higher power.

Maybe Wall Street doesn't get it, because the VIX hasn't gone through the roof. For some, what's left to protect? For others, who will sell them their protection? AIG? Will Buffett sell some more puts? How about the broker dealers? Now nobody wants to sell these "sexy" forms of protection, because they don't work, and there's nobody left with any capital that's been bullish!

But sex protection is still selling. Condom sales were up 5% in Q4, and up 6% in January. They're selling protection, and except for ex-attorney generals or for Wall Street bankers, most sex is free. But I'm sure some families are worried about the expense of having a kid in the current environment, especially when Mom doesn't have insurance.

I'm sure that they would be even having more sex, but 1/3 of the people can't sleep because they are worried about financial problems. Does anybody think that these folks will be big consumers? Their idea of "aspirational" shopping, is trading up to Kellogg's when they have the two for one sale of cereal, from the store's generic. The only Coach aspirational shopper seems to be their Chairman/CEO Lew Frankfort who picked up 50K shares yesterday at $13.24!

Last week, Bernanke was testifying before Congress, and he said, "We're not completely in the dark." He then said he saw a recovery in the second half of this year, and into 2010.

Heck, only 5 economists out of 52 see GDP falling throughout 2009. Is that why GE trades with a seven handle? Or Alcoa or IP at 5? Because the economy is going to turn? Is that why the banks are all slashing their dividends, cutting credit and not lending? Because the economy is going to turn?

Maybe these 47 bright eyed economists are the ones buying futures every morning!

The best line came from Richard Sylla who said, ""When you're in the expert business, after a while you realize there are no experts."
http://online.wsj.com/article/SB123603851698214519.html

They're just not completely in the dark.

Obama trade represenative nominee Ron Kirk pays back taxes

Ron Kirk paid back taxes owed for the years 2005, 2006 and 2007. Once again, we see why this administration doesn't mind raising taxes.

None of these guys pay them!
http://www.breitbart.com/article.php?id=D96M4GH00&show_article=1

Ken Lewis: We asked for too much money

Look what BAC CEO Ken Lewis had to say today:

Bank of America’s request for $20bn of government money to prop up its acquisition of Merrill Lynch was a “tactical mistake” that made the bank appear as weak as Citigroup, Ken Lewis, BofA’s chief executive told the Financial Times on Monday...

BoA received an initial $25bn from the Treasury in September. It requested a further $20bn at the end of December as the scale of Merrill’s losses eclipsed BofA’s initial forecasts.

“In hindsight, it was a tactical mistake because it put us in the same category as Citigroup,” said Mr Lewis. “We could still have had 8 per cent tier 1 capital after a $15bn loss but we wanted a cushion.”

Mr Lewis said that it would have been better to request only $10bn for that purpose. He said that could have helped to curtail investor fears that further problems were in the offing.
http://www.ft.com/cms/s/0/50000286-074f-11de-9294-000077b07658.html

Then give the $10 billion back! How tough is that?

But why would BAC want to do that? After all, didn't their latest filing indicate that they are upside down by $44 billion on mortgages?

NEW YORK (Reuters) – Bank of America Corp is carrying loans on its balance sheet marked at more than $44 billion above their fair value, the company said in its annual report filed with U.S. regulators on Friday.

The bank said it ended 2008 with $886.2 billion in loans, but estimated the fair value -- or market price -- for these loans as $841.6 billion.
http://news.yahoo.com/s/nm/20090228/bs_nm/us_bankofamerica_loans

Ken said he's going to stay on with BAC until they pay back the TARP money.

Why not?

He bagged shareholders by getting paid $9.9 million for running BAC into the ground!

The Pension Gap in Obama country

Check out the pension gaps in Chicago businesses.
http://www.chicagobusiness.com/cgi-bin/article.pl?articleId=31402

The AIG lesson

The one lesson that is crystal clear, is that our Government will take on more and more suspect debt, and more and more obligations of suspect companies.

If, as we are lead to believe, that the European banks would have solvency issues if AIG 's swaps would not be honored, it means that the European banks can hardly prolonging the inevitable, and the eventual ramifications of these deals will be felt on our bonds and our currency.

Because if these banks were hedging with AIG, and we know that AIG's guarantee was worthless without our Government backing, then who else did they hedge with that wasn't backstopped?

If our Government is ready to take Citi's dreck, and they are more than willing to take AIG's dreck, then why don't they take everybody else's dreck?

And if, in fact, they are the only bidder, the market will hit the bid.

Too big to fail eventually will lead to too big to bail.

And that's where Geithner's policies will lead.

Vikram Pandit in NY Mag

For a few seconds, the question hangs in the air.

“Would you just raise your hand?”

The congresswoman from California peers down through her spectacles at the eight men in front of her, their faces as dour as war criminals at a tribunal. It’s the congressional Finance Committee hearing in February, and Maxine Waters has demanded to know who among America’s investment-bank CEOs had the gall to take billions in federal bailout money and then raise credit-card rates on the very taxpayers who’d helped prop up their sorry companies.

Heads crane to look. Then the long, thin arm of Vikram Pandit, the chief executive of global banking conglomerate Citigroup, goes up in the air like a flag of surrender. When it drops back down again, Pandit’s shoulders slump, a weak smile of acquiescence on his face. Behind him, the Reverend Jesse Jackson glowers with righteous anger.

“Thank you,” Waters says curtly.

It’s a moment of withering humiliation for Pandit, but it’s only the latest disgrace: In the preceding months, he has barely clung to his job, as Citigroup’s board considered replacing him with a former media CEO and offered the government his head in exchange for the billions in bailout money. President Obama himself publicly rebuked him for ordering a new $50 million jet. Forced to break up Citigroup against his own strategic aims, he’s taken so much government aid that one i-banker jokes that Citi has become “the Wall Street version of the DMV.” The rank and file at Citi, their net worth destroyed, accuse him of cronyism and absentee leadership. He’s become a virtual corporate eunuch, his options narrowed to nil, making a $1 salary as a public display of humility.
http://nymag.com/news/businessfinance/55035/

The whole story is a great read!

FDIC bonds another handout to the bankers

Last week, Dealbook at the Times, said that the banks were minting money selling debt.

Some of the debt issued by banks and the likes of General Electric was dependent on backing from the Federal Deposit Insurance Corporation, which set up a program in autumn to help banks issue such debt as investors fled the market. Because F.D.I.C.-backed debt involves a government subsidy, Wall Street is culling much smaller fees than usual for these types of deals.
http://dealbook.blogs.nytimes.com/2009/02/23/more-money-from-fees-gives-banks-good-start/

Maxine Waters, when grilling the bankers on Capitol hill, was confused with the facts and looked daft, and accused the bankers of taking fees for accepting TARP money.

The banks took money from the TARP, and then sold FDIC backed debt.

JP Morgan sold $27.9 billion of FDIC backed JP Morgan debt.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ad6vNIRZdlEY&refer=home

Their fees on this piece was .30%, or $83 million in fees.

Morgan Stanley estimates that the banks will sell close to $700 billion of this FDIC debt.

Another $2 billion of fees.

It's more gravy for the bankers!

AIG's new bailout

The taxpayer, for giving AIG another $30 billion, gets warrants to acquire 1% of AIG stock at $2.50 a share.
http://treas.gov/press/releases/reports/030209_aig_term_sheet.pdf

And today, AIG sues the IRS for back taxes of $306 that it says it doesn't owe.

Why can't we just let this criminal enterprise fail?

After all, it only lost $99.3 billion for the year!!

ETF madness

In today's WSJ, we had another article on the triple short ETF's. Look what the "designers" of these ETF's have to say about them:

The funds "are not a buy-and-hold vehicle," warns Michael Sapir, chairman of ProShare Advisors. "These products are designed for trading use, not to be hedging tools," insists Carl Resnick, vice president at Rydex Investments. Holding a leveraged ETF for longer than a day, says Andy O'Rourke, marketing chief at Direxion Funds, is "like using a toaster to cook a turkey."
http://online.wsj.com/article/SB123578237239398181.html

So if these ETF's aren't designed to hedge your portfolio, what is their use? If you can't hold them for more than a day, how to you use them to hedge a portfolio of stocks?

You don't!

These ETF's are just used to increase selling pressure.

And until these ETF's are reigned in, our markets will continually melt, and our pension liabilities will continually increase.

But now the melting is at the acceleration stage!

December's $409 billion pension shortfall for the S&P 1500 , is now close to a half a trillion dollars, and that's with the generous assumptions that these companies make.
http://globalpensions.com/showPage.html?page=gp_display_news&tempPageId=833592

Throw in the pension shortfalls for the states, and now you are talking real money, but no-one is talking about it.

Yet.

But the market is. Look at the insurance companies with their GIC's..

These ETF's are accelerating their demise!

Private equity markdowns

Warren Buffett had this to say about private equity:

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.
http://www.berkshirehathaway.com/2008ar/2008ar.pdf

Maybe people say that Buffett has a bone to pick with private equity, since he bought bonds on TXU, that KKR and TPG took private, and since he has also sold puts on high yield bonds.
http://money.cnn.com/2007/12/02/news/companies/buffett.fortune/index.htm

No one trusts the marks on banks balance sheets, and no one trusts the marks that private equity give their business. How much is the haircut?

Let's look at KKR. Last year KKR said that the value of it's holdings dropped 32% last year.

Does anybody believe them?

If financials commitments on "private equity" are selling in the secondary market at 40% on the dollar, who believes KKR's marks?

KKR Private Equity trades at $2.25 on Euronext. It's net asset value is $12.78.

Nobody does.

Remember when Judas betrayed Jesus with a kiss? Peter was so ticked, that he cut of the ear of Malchus, the servant of the high priest.

Private equity betrayed main street. But these high priests of Wall Street haven't just given bondholders just a haircut.

They've cut off their ears!

And they can't even stop the bleeding!

Loan or own?

Finance 101:

A bond's a loan.
A stock you own.

And AIG, is now what the Fed owns. How did that happen???

Remember Liddy's little lies?
http://aaronandmoses.blogspot.com/2008/12/aigs-liddys-little-lies.html

Liddy said that AIG was the only company that had a plan to pay back the Government $60 billion, and that AIG needed to pay them bonuses bonuses or AIG's people would go.

So much for that. But the government said that all the people at AIG can stay employed. Despite costing the taxpayer $182 billion!

But I digress--But I thought the Fed was in the business of loaning money--so who are the counterparties on the other side of AIG?

"The counterparties on most of the book are (European) banks that would be hammered if the U.S. walked away."
http://www.reuters.com/article/topNews/idUSN0134457520090301?feedType=RSS&feedName=topNews

So now the taxpayer is in the business of bailing out European banks.

No wonder Buffett said:

At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one.

and

The First Law of Corporate Survival

Modest incompetence simply won’t do; it’s mindboggling screw-ups that are required.

A look back

At 1:26: "The house next door may be occupied by a retired bachelor banker."

Today's version: "A hedge fund manager on the run!"

AIG is getting another $30 billion from the taxpayer

Transparency? Where art thou?

Let's look back at the first bail-out of AIG, with the statement from the chief liar of the Federal Reserve, Ben Bernanke:

The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets.
http://www.federalreserve.gov/newsevents/press/other/20080916a.htm

That rate has now been cut to LIBOR with no points! And Treasury has given AIG another $30 billion. And that's on top of the $152.5 billion so far!

And now the government buys the assets AIG couldn't sell! And the taxpayer is paying $40 billion for assets that didn't get any bids! Anyone have any idea how this assets will be marked on the Government's balance sheet?

Two weeks ago, the Government was saying AIG was so complex they had no idea what things were worth! So now they bid $40 billion!
http://www.bloomberg.com/apps/news?pid=20601087&sid=a.yAFsg.Y5kU

The plan reflects the deepening exposure of the U.S. taxpayer to the embattled insurer. The assets AIG is transferring to the government in lieu of cash repayment are difficult to value. A recent auction for AIA, for example, failed to draw any bids. The goal of the original AIG rescue in September was to achieve repayment within two years. The latest version will likely leave the U.S. government entangled with AIG for years to come.
http://online.wsj.com/article/SB123589399651003021.html#mod=testMod

And how many other toxic assets will be off-loaded unto the entities our Government is buying?

And if AIG requires $182 billion, and counting, how much more bad debt lurks in the trillions of derivatives that paper over our banks?

Which is why, Buffett, who's not yet swimming naked, but is starting to tread water said:

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.
ttp://aaronandmoses.blogspot.com/2009/02/berkshire-hathaway-shareholder-letter.html

The New World Order?

The "order" of the bursting of the bubbles.

• Housing
• Treasuries
• The Dollar

Stanford International financial statements are "fiction."

"Stanford International Bank's financial statements, including its investment income, are fictional," the SEC said.
http://online.wsj.com/article/SB123577641445497313.html#mod=testMod

And the "billionaire" Allen Stanford? His money, of course came from theft from investors, but he called it "loans."

$1.6 billion worth.

For starters.

Allen didn't learn the bankers way of spending money. If you are legitimate, you supposedly spend your money on concerts with Hollywood stars. Just ask Northern Trust.

Allen, spent it on women, that he wanted to make stars.

It's the Jeffrey Epstein defense!

We're all vultures now

NY Mag this weekend had an interview this weekend with a distressed vulture investor:

NYM: How are you doing?
V: Since I saw you last, things have deteriorated more than even I could have imagined. We're invested in virtually all sectors, primarily through debt, so we have pretty good access to management. The color coming from them is mind-bogglingly awful. We need to flush all the banks and start again. I told my wife I'm putting gold bars and shotguns under our bed.
NYM: Can we take refuge with you, if it comes to that?
V: You're more than welcome. We have thick walls and a high perch from which to pick off the marauding throngs.
NYM: What's the least-bad news you've heard recently?
V: The only thing anyone on the desk can come up with is the fact that there have been a number of high-grade non-financials who have been able to raise debt in the market. That's it. GDP is going to be down 10 percent this quarter, is my guess.
NYM: Give me the bad news then.
V: I heard this yesterday: The top five U.K. banks have $10 trillion of assets and their GDP is only $2.13 trillion. The whole country could fall into the ocean. The top five U.S. banks represent only about 60 percent of GDP by comparison. The other thing is a survey that I just read about in the Times. Over six in ten Americans think that someone in their household will lose their job in the next year. That means six in ten people won't buy anything other than basics. The economy comes to a full halt even worse than now.
NYM: That means the other four out of ten better be out there buying Gucci. You're not losing your job. Are you buying any Gucci? Taking vacations? Leasing a new Mercedes?
V: I'm still taking vacations and renting a summer house but I ain't buying anything. Credit-default swaps scare me too much. For the banks, their portfolios of second-lien loans is terrifying and nobody, including the government, wants to talk about it. The banks carry them at par and have hundreds of billions of dollars of them. We just bought some at 33 cents on the dollar in the market. If they turn out to be worth 33, every bank would collapse.
NYM: How about the Obama speech? That float anybody's boat on the desk?
V: Mixed. Couple of die-hard Republicans hated it. Most others thought it was pretty good, balancing reality with optimism.
NYM: Shouldn't you be licking your chops these days — aren't there once-in-a-lifetime bargains all over the place for brave distress investors?
V:There are and they get cheaper every day. The private equity guys are going to be done.
NYM: So you are buying?
V: We're slowly buying but conserving cash for the tsunami of bankruptcies that are coming.
NYM: Do you think that before the big one a few years ago, people used the word tsunami as much as they do now?
V: It's been part of my vernacular for years.
NYM: What else is in your vernacular?
V: Catastrophe, debacle, putrid, relentless, overwhelming all come to mind.
NYM: Thank you very much. Please do your best to hold up the economy.
http://nymag.com/daily/intel/2009/02/we_are_all_vultures_now.html

So if the "country falls into the ocean" what will that do to social unrest?

Feb. 27 (Bloomberg) -- When Berlin resident Simone Klostermann returned from vacation and couldn’t find her Mercedes SLK, she thought it had been towed. Police told her the 35,000- euro ($45,000) car had been torched.

“They’d squirted something flammable into the car’s engine block in the gap between the windshield and the hood,” said Klostermann. “The engine was completely destroyed.”

..While youths in Athens protest by throwing Molotov cocktails, in Paris by toppling barricades, and in Budapest by hurling eggs at politicians, protesters in Berlin rage at their economic plight by targeting the most expensive cars -- symbols of German wealth and power.

A group calling itself BMW -- the initials stand for Movement for Militant Resistance in German -- has claimed responsibility for several attacks in left-wing magazines and Web sites, police spokesman Bernhard Schodrowski said.
http://www.bloomberg.com/apps/news?pid=20601109&sid=auZeM63nrgzo

So let's hear what Michael Hudson has to say, who is going to address a conference at the University of London. He calls the banking system a "parasite" (starts at 7:00) that tries to convince the world that the banking system (the parasite) will save the economy (the host).

Maybe the luxury cars will stay in the garages!