Wednesday, February 11, 2009

My Funny Pinata

They weren't quite the Dirty Dozen, but today- a few days before St. Valentine's Day- 8 CEOs of large financial conglomerates took public transportation from New York and came from elsewhere to face the bipartisan wrath of Representatives in the People's House today. A sorry lot they were- but they weren't really sorry- except for themselves, in that they had to be there in the first place. They should have been at the office, overseeing loan-granting and all that.

They knew they were pinatas. There were to be no chocolates for them this visit. They couldn't feel the love.

More or less the same Representatives who last fall passed legislation shoving hundreds of billions of dollars at the companies these men headed with no conditions attached pretended there had been conditions and obligations. Bloviation was the order of the day. Presumably, though, there was some real anger, not just feigned stuff, as these Representatives have lost money in the value of their homes, their pensions, their savings, etc., just as have most people, so they actually had some skin in the game for a change.

Some interesting moments were produced. No one can say these guys have no sense of humor. Here are some brief comments from the NY Times "Live-Blogging the Bankers’ Showdown on Capitol Hill".

12:10 p.m. The Pfizer-Wyeth deal: The bankers are asked about the merger of drug companies Pfizer and Wyeth, which is being financed by billions of dollars in loans, some from banks represented at today’s hearing. The question comes from Representative Nydia M. Velazquez of New York, who says that the merger is expected to result in the loss of 19,000 jobs and wants to know why banks are lending only to big companies but not to small business. None of the bankers answer the question.

We addressed this 2 weeks ago in "Pfizer Buys Wyeth: Layoffs Financed by You and Me". It is gratifying to see Nydia MV, who may have some pharmaceutical layoffs coming in her district, one wonders, bring up this outrageous deal.

11:58 a.m. Valuing bad assets: Responding to a question from Representative Luis V. Gutierrez of Illinois, Mr. Pandit of Citigroup says that valuing assets on a company’s books is a complicated process. One way to do it is for the government to take the bad assets, take the losses and then “send us a bill” when the economy recovers.

Mr. Pandit has a finely honed sense of humor. Send us a bill!

Actually, he expresses no knowledge of how one finds what something is worth. Put it up for sale, for gosh sakes. Hold an auction. Something is worth what a willing buyer and seller agree it's worth. If you don't like the bids, don't sell it but don't try to stick it on us at an inflated price. Go negotiate with the smart Paulson- John, not Hank. John Paulson knows what mortgage-backed securities are really worth. And he says that some have a real value, and some are completely worthless. Nada. Gornischt. Now, of those types of securities, guess which ones Mr. Pandit would proffer to the taxpayers as opposed to keeping in his own inventory?

11:51 a.m. Super-regulator: Representative Peter King of New York asks about the creation of a systemic risk regulator and how that would work. Mr. Mack (Morgan Stanley) says the idea of a systemic risk regulator “is critical” and praises the idea of combining several regulators and having more global coordination. “We need to have a super-regulator,” he says.

We need Superman, not another regulator. Or at least Alexander the Great, to cut through the Gordian Knot. But seriously, we simply need simpler depository institutions. Down with derivatives!

11:15 a.m. A TARP optimist: Mr. Bachus notes that he thinks the TARP funds will be a very good investment for American taxpayers. He praises the banks for their efforts to reduce risk and leverage. He also says he “was shocked that lending wasn’t down 15 or 20 percent.”

Do you suspect that Mr. Bachus has received a campaign contribution from the financial services industry? Perhaps at least once?

3:30 p.m. “Mr. Countrywide”: A congessman from Florida doesn’t seem to know who the bankers are. He mispronounces Mr. Dimon’s name and asks the panel who “Mr. Countrywide” is. Mr. Lewis said he is “not Mr. Countrywide.”

Whereupon the viewers begin to feel sorry for the CEOs having to be questioned by a cretin.

3:42 p.m. No less anger: A congressman from Texas says the American people won’t have any less anger after the hearing because they don’t know where the money has gone. He asks if the bankers can ascertain the amount of new money that has been lent out directly attributable to TARP. Everybody raises their hands except for Mr. Stumpf, who says all of the loans go into the same pool of capital.

Twelve minutes after feeling sorry for the CEOs, everyone feels angry again as seven of the eight CEOs are obviously lying. (Correction from the text: What Mr. Stumpf was saying is that the loans come from or are backed by the same pool of capital.)

3:50 p.m. Seeking commitments: Representative Mary Jo Kilroy, Democrat of Ohio, asks Mr. Lewis if he stands by his commitment that Bank of America will not need additional government funding. Mr. Lewis says stands by the statement. Ms. Kilroy asks the other members whether they can commit to fully paying back the government. Mr. Blankfein says that it is his expectation to pay the government back. Mr. Dimon, Mr. Kelly and everybody else says they also expect to repay the government. Mr. Pandit says he cannot commit to not accepting more capital under a government program because it may be beneficial to his shareholders.

The best that can be said about many of these comments is that not every one of the companies the CEOs head is insolvent.

4:16 p.m. Mark to market: Mrs. Biggert asks whether anyone would do away with mark-to-market accounting. Mr. Stumpf and Mr. Lewis said it should be modified for extraordinary times when there is no market for products.

Mr. Wells Fargo and Mr. BofA are of course "talking their book". Of course there is a market for their inventory of overvalued securities. They just are terrified of letting everyone see how large their losses are. They are in favor of mark to market when the market is strong. When the market is weak and their institutions are revealed to be naked now that the tide has gone out (to paraphrase Mr. Buffett), they need the Government to throw them some blankets.

The best things that can be said about these sorts of hearings is that they are
1) cheap entertainment
2) more likely to occur near the end than the beginning of a bear market.

Copyright (C) Long Lake LLC 2009

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