The NYT demonstrates how out of touch the financial community appears to be with the headline of an article today:
Wall St. Hiring in Anticipation of an Economic Recovery
Ouch!
Not to be tendentious, but here's a bit of history review. Wall St. and its media allies led Main Street America astray with the wild overvaluation of stocks in the late 1990s and hypocritical descriptions of a New Era of investing, Dow 36,000 and all that stuff. When a mild recession came, stocks crashed, but at best only to normal valuations at the bottom. A credit bubble succeeded the stock bubble. The current result of the ensuing credit collapse is no greater employment than a decade ago and no greater industrial production than 12 years ago, despite population growth of 1% a year. In that decade, oil and gold prices have both quadrupled, and vast numbers of Americans have been suckered into "buying" houses they could not afford, and now have no equity in their homes.
The large American banks are in far worse financial shape than in the worst of the Great Depression. Even though they are publicly owned, there is no disclosure of the true value of their assets; most Americans have no idea of Level 2 and 3 (mark-to-myth) assets. Short term interest rates are lower than in the Depression, indicating even less demand for credit now than then. Stock market dividend yields are in the aggregate lower now than then, as well.
A growing and aging population needs more medical care, a young population that scores less well on math and reading tests than the generation before it needs better education, and there are few IPOs of American companies.
So why is one of the few growth industries the financial business, which mostly means selling pre-owned stocks and pre-owned or new debt?
And why, about 3 years after the domestic economy started slipping into a downturn, should the cosseted and bailed-out financial industry be hiring in advance of a true sustained economic recovery rather than in response to one?
This is an example of malinvestment. The country needs its real needs met rather than continuing down the road of over-financialization.
Copyright (C) Long Lake LLC 2010
Showing posts with label Big Finance. Show all posts
Showing posts with label Big Finance. Show all posts
Sunday, July 11, 2010
Saturday, May 8, 2010
Wishing the Times Were NOT So Interesting
The non-permabears I follow who were bearish in 2008 and perhaps 2007 and bullish for most or all of the up-move in stocks, are growling again. This blog has been growling as well for at least 2 weeks and has pointed out for months that stocks are fundamentally overvalued at almost record levels by two different measures, "q" and cyclically-adjusted P/E. Now that systemic contagion occurred with the famous meltdown last week, yours truly simply does not want to be in the U. S. equity markets. ETFs that own gold and foreign currencies are OK still, though some of them hit air pockets in the sell-off as well.
Charts tell the tale. The move up from the 2009 low was lengthy but the angle of the ascent was much weaker than the angle of the descent. If stocks were undervalued, they would laugh at Greek debt problems.
Given our wildly over-financialized economy, falling stocks will have an adverse feedback effect on the real economy. This is what happens when the powers that be try to revive "animal spirits" by printing money.
The problems we have with financial and monetary policy are worse than the excessive debt loads carried at all levels of society. They include lies such as those to Social Security recipients that it's your money, you paid in, you earned it, etc., disguising the pay-as-you-go nature of the scheme. We now have another lie in Obamacare, which passed due to almost certainly fraudulent assumptions such as that the Congressionally-mandated major cuts in Medicare physician reimbursement will finally occur and the pseudo-fraudulent tactic of providing years of tax increases before the costs really kick in.
Most of the country sees through the charade but can do nothing The time for real financial reform was a year ago, when Big Finance was on its knees. Instead Obama focused on remaking the U. S. health care system years from now. What a genius! Let the fire smolder while getting architectural plans for a major extension to the house. Helping Big Finance get on its feet was an essential part of the strategy that guaranteed that real reform would not occur.
The current Greek tragedy is small beer compared to what could come in the New World. Short-term, though, stocks are oversold. But they are too high. Treasuries may be over-bought. But there is no reported net inflation. Thus yields may arguable be too high. Interesting times, to say the least.
Copyright (C) Long Lake LLC 2010
Charts tell the tale. The move up from the 2009 low was lengthy but the angle of the ascent was much weaker than the angle of the descent. If stocks were undervalued, they would laugh at Greek debt problems.
Given our wildly over-financialized economy, falling stocks will have an adverse feedback effect on the real economy. This is what happens when the powers that be try to revive "animal spirits" by printing money.
The problems we have with financial and monetary policy are worse than the excessive debt loads carried at all levels of society. They include lies such as those to Social Security recipients that it's your money, you paid in, you earned it, etc., disguising the pay-as-you-go nature of the scheme. We now have another lie in Obamacare, which passed due to almost certainly fraudulent assumptions such as that the Congressionally-mandated major cuts in Medicare physician reimbursement will finally occur and the pseudo-fraudulent tactic of providing years of tax increases before the costs really kick in.
Most of the country sees through the charade but can do nothing The time for real financial reform was a year ago, when Big Finance was on its knees. Instead Obama focused on remaking the U. S. health care system years from now. What a genius! Let the fire smolder while getting architectural plans for a major extension to the house. Helping Big Finance get on its feet was an essential part of the strategy that guaranteed that real reform would not occur.
The current Greek tragedy is small beer compared to what could come in the New World. Short-term, though, stocks are oversold. But they are too high. Treasuries may be over-bought. But there is no reported net inflation. Thus yields may arguable be too high. Interesting times, to say the least.
Copyright (C) Long Lake LLC 2010
Thursday, February 18, 2010
The Wall Street Shuffle Has Led to a Bull Market in Off-Price Retailing
Matt Taibbi is out with a simplified and entertaining view of the past couple of years' financial shenanigans in Wall Street's Bailout Hustle.
The truth is that Federal and Fed policy became one and the same: keep the most major companies solvent or at least pretending to be solvent. What did we the people get out of this? Massive shared economic pain.
Of course, these companies were enablers of the credit and housing bubble, and their owners, meaning shareholders and bondholders, by all logic, history and principles of fairness should have been wiped out if necessary before the public put up a penny, aside from honoring FDIC commitments and the like.
If following Lehman's collapse it was necessary to save Goldman Sachs from the same fate, a massive price could and should have been enacted.
Where is there an end of it?
Today we learned that even in approximately the 2nd quarter since the bottom of the industrial production cycle, Wal-Mart's sales per store shrank last quarter and came in below plan. Something is rotten here. Big Finance must shrink so the rest of the economy can grow.
As an aside, gold was initially down about 1% on the news that the IMF is selling more gold. This is non-news "news". For whatever reason(s), it is now up about 1%. Go figure. In any case, that's bull market action.
And while Wal-Mart continues to disappoint (I am always suspicious when retailers cease reporting same-store sales monthly and switch to quarterly, as WMT has done) operationally and its stock continues to churn, several deep discounters such as ROST, TJX and DLTR have much stronger charts and have recently had rising earnings estimates and improved operational results ahead of plan.
There is a bull market in deep discounters!
But when Wal-Mart does so poorly, times are bad.
Copyright (C) Long Lake LLC 2010
The truth is that Federal and Fed policy became one and the same: keep the most major companies solvent or at least pretending to be solvent. What did we the people get out of this? Massive shared economic pain.
Of course, these companies were enablers of the credit and housing bubble, and their owners, meaning shareholders and bondholders, by all logic, history and principles of fairness should have been wiped out if necessary before the public put up a penny, aside from honoring FDIC commitments and the like.
If following Lehman's collapse it was necessary to save Goldman Sachs from the same fate, a massive price could and should have been enacted.
Where is there an end of it?
Today we learned that even in approximately the 2nd quarter since the bottom of the industrial production cycle, Wal-Mart's sales per store shrank last quarter and came in below plan. Something is rotten here. Big Finance must shrink so the rest of the economy can grow.
As an aside, gold was initially down about 1% on the news that the IMF is selling more gold. This is non-news "news". For whatever reason(s), it is now up about 1%. Go figure. In any case, that's bull market action.
And while Wal-Mart continues to disappoint (I am always suspicious when retailers cease reporting same-store sales monthly and switch to quarterly, as WMT has done) operationally and its stock continues to churn, several deep discounters such as ROST, TJX and DLTR have much stronger charts and have recently had rising earnings estimates and improved operational results ahead of plan.
There is a bull market in deep discounters!
But when Wal-Mart does so poorly, times are bad.
Copyright (C) Long Lake LLC 2010
Wednesday, February 17, 2010
Comments on Treasuries: What's the Trend?
The accompanying graph is that of the continuous 7-10 year duration ETF with the ticker symbol IEF. Think of it as a proxy for the benchmark 10-year Treasury.
Now that the ECRI and David Rosenberg are agreed that the peak rate of expansion has already ended, historically this is a classic time for a rally in bond prices (and thus in the IEF) and a decline in rates.
Typically, the markets price in a cyclical reduction in governmental deficits as employment and the pace of business pick up and then positive surprises appear; and simultaneously, inflation actually diminishes as there is so much excess labor and machinery and other spare capacity that businesses and labor are both happy to just bring in net income as unexpected new business and new hiring appears.
On the chart, we have a well defined series of higher lows in price going back to 2007, following a double bottom in price in 2006 and then 2007.
Not shown are some ugly moving average charts.
Also, the charts on JPM and GS are looking toppy, and declines in financial stocks often correlate with declines in yields. Of course, we are at an extreme in short term rates and the Federal deficit is projected to be unusually large for some time to come, with many states hurting as well.
Going back to the chart above, one can envision that IEF is near a support level in price, bounded by a declining line between the peaks starting at the end of 2008. A break above that line could signal an upmove worth playing. Conversely, breaking support around 88 suggests a move to 85 as a first target.
If inflation really gets moving and the Fed stays easy, a meltup in rates is feared.
Unprecented times mean unprecedented possibilities.
Big Finance loves this. They have the best information, plus of course they help control what's to be.
Copyright (C) Long Lake LLC 2010
Wednesday, January 13, 2010
A Crumb of Good News onBig Finance from Britain While Obama Postures
In U.K. Bankers Give Up on Bonus Levy as Tax Rise Looms, Bloomberg gives us a rare bit of good news re Big Finance:
Banks in the U.K. will pay the one- time, 50 percent tax on bonuses levied by the Treasury rather than reduce compensation, according to accountants and lawyers who advise financial institutions. . .
Chancellor of the Exchequer Alistair Darling announced the tax on bankers’ bonuses last month. He said he introduced the measure, which covers payouts in cash and deferred stock, to encourage banks to build up capital, not raise revenue.
It may do the opposite. The Treasury, which initially said the tax would raise 550 million pounds, now estimates it may net as much as 2 billion pounds as banks opt to pay the tax rather than reduce bonuses, according to a government official who declined to be identified.
Banks in the U.K. will pay the one- time, 50 percent tax on bonuses levied by the Treasury rather than reduce compensation, according to accountants and lawyers who advise financial institutions. . .
Chancellor of the Exchequer Alistair Darling announced the tax on bankers’ bonuses last month. He said he introduced the measure, which covers payouts in cash and deferred stock, to encourage banks to build up capital, not raise revenue.
It may do the opposite. The Treasury, which initially said the tax would raise 550 million pounds, now estimates it may net as much as 2 billion pounds as banks opt to pay the tax rather than reduce bonuses, according to a government official who declined to be identified.
Meanwhile, the Obama administration has floated the general idea of raising 40 times as much, or $120 billion, via some sort of levy or levies on financial companies. Specifics are lacking. We shall see if this was just a news release equivalent of a photo op signifying nothing.
Copyright (C) Long Lake LLC 2010
Wednesday, January 6, 2010
Never Again?
Once again, we are moving farther into Never-Never Land of excessive financial speculation. Why? Point 1 below presents a version of the argument laid out by Dr. Simon Johnson in his 2009 instant classic, The Quiet Coup. Just as rail interests dominated the U. S. post-Civil War, leading to overcapacity, financial panics and numerous railroad bankruptcies, financial interests have overexpanded and have led to numerous financial company collapse; yet their power continues and as their interests derive from volatility and surprises, Fed and Federal policies support Big Finance at the one unthinkable cost of pay cuts to ordinary workers, post-Depression unprecedented financial strains in state and local finances, and zero returns to savers. Here are 3 points laying out a view of how things stand and, first, how they came to be so durable.
1. It's not my usual source for commentary, but Mother Jones (linked to by Naked Capitalism this AM) has quite a summary and screed about Big Finance's influence titled Capital City. Here are some excerpts.
"If you get Chuck Schumer on your side, you are okay," one former SEC official told [16] the New York Times, and that's exactly what the finance lobby has done. The New York Democrat is a member of both the Senate Committee on Finance and the Senate Committee on Banking, Housing, and Urban Affairs, and he's received so much money from Wall Street over the years—more than $14 million—that he actually shut down his personal fundraising efforts between 2005 and 2008. Since then he's raised a staggering $284 million for the Democratic Senatorial Campaign Committee, which he headed until recently, and much of it has come from Wall Street. In June 2007 alone, when lobbying for the carried interest rule reached a fever pitch, employees of private equity firms contributed nearly $800,000 to the DSCC.
It was money well spent: Schumer agreed to support a repeal of the rule only if taxes were also raised on things like venture-capital and real-estate partnerships, a stand that guaranteed resistance from enough interest groups to let the hedge funds' special treatment survive unscathed. A million-dollar investment had allowed the hedge fund industry to keep a billion-dollar loophole. Not a bad return. . .
To get a better sense of just how much money, let's take a virtual stroll down K Street and see what everyone is spending on the world's second-oldest profession. It's all laid out for us by OpenSecrets.org. The defense lobby? Pikers. They contributed $24 million to individuals and PACs during the last election cycle. The farm lobby? $65 million. Health care? We're getting warmer. Health care was the No. 2 industry, at $167 million.
And the finance lobby? They're No. 1, with a very, very big bullet. They contributed an astonishing $475 million during the 2008 election cycle. That's up from $60 million almost two decades ago. . .
After a brief dip in political outlays at the end of 2008, the financial industry spent $402 million in the first 10 months of 2009 on both lobbying and campaign contributions, enough to put them on track to break 2008's record. Members of the House Committee on Financial Services alone received more than $8 million in industry contributions.
Whether the CFPA eventually survives is still up in the air, but the finance lobby scored a big victory almost immediately when Obama's proposal went to Capitol Hill and was quickly stripped of its requirement that banks offer consumers "plain vanilla" products—things like standard 30-year fixed mortgages and low-interest, low-fee credit cards—in addition to their more convoluted options. A couple of weeks later banks with less than $10 billion in assets—a category that includes 98 percent of all US banks—were exempted from the CFPA's scrutiny entirely. And proposals to regulate derivatives by forcing them to be traded on supervised exchanges, as stocks and commodity futures already are, were watered down as well.
How could all this happen so soon after the financial industry's reckless behavior nearly caused a global meltdown? Ironically, it's probably because the bailout was so successful. Without a sense of crisis to drive things, the political will to take on the industry has largely dissipated. Even after nearly destroying the world economy, the finance lobby is, still, simply too big to fight.
Interestingly, the FDR-era reforms that were most appealing to conservatives were probably the financial system reforms, as recounted by then-Judge Pecora in Wall Street Under Oath, a polemic defending these reforms and using that point as one of its key closing arguments.
2. I don't watch much TV, but I saw my first "buy gold" ad in the 6:30 slot on a well-viewed cable news show last night. And then there's this illogic that we started seeing a few years ago in the energy market, when refinery shutdowns, which depress demand for crude oil, reflexively led to rises in crude pricing. Huh? Even Mark Haynes on CNBC questioned that dynamic. Per Bloomberg.com today in Metals Gain as Cold Threatens Output; Yen, Greek Bonds Decline:
Metals rose for a fourth day as icy weather across the Northern Hemisphere threatened to disrupt production. . .
Copper advanced to the highest price since August 2008 at 11:23 a.m. in London and aluminum increased the most since October 2008. . .
Near-record snowfalls and below-average temperatures from Beijing to London closed airports and roads, while the U.S. may suffer its worst winter in 25 years, AccuWeather.com predicted. (Ed.: At which time there was residual concern about global cooling) The freeze may hamper the global economic recovery after the deepest slump since World War II. Investors speculated that China, the world’s biggest aluminum producer, will struggle to maintain output.
“The cold snap in many parts of the world will weigh on gross domestic product,” Steven Barrow, head of Group of 10 foreign-exchange strategy at Standard Bank Plc in London, wrote in an e-mailed note today. “The impact might not be huge but coupled with hints of underlying softness in the global economy’s performance it could raise question marks over recent stock strength and bond market weakness.”
OK again. The cold snap will decrease economic activity and will likely (temporarily) decrease Chinese demand for bauxite (aluminum precursor). How on earth can this cause a rise in raw materials pricing? Yes of course, if production is disrupted, there could be some small increase in finished goods pricing. Not logical.
Only in a world of heavy speculation can this occur.
3. A reader recently passed on some prices, yields and maturities on sovereign debt (let us assume the data are current enough to use the present tense for purposes of discussion). While the U. S. 30 year Govvie its long-term average of about 4.7%, what is astonishing is that Russian and Indonesian debt is almost as dear, running for 20+ years in the 5% range for Russian debt and under 7% for 28 year Indonesian paper. How would you like to lend to Peru with a 2014 maturity at 3.92% per year? Heck, you can get higher yields from Merck or Total, and almost as high a yield as is provided by McDonald's stock. Russia? Peru?
This can only come from a wild abnegation of responsible lending. Remember: who borrows your money has your money. Go sue Russia for it back. Who in his/her right mind would lend hard-earning savings to the Kremlin for 20 years at about 5% per year when one can earn a 5% dividend by owning a piece of the oil giant Total, with retained earning to boot? Any lender bears two risks: credit risk (default) and interest rate risk. Over 20 years, lending to Russia has both of those big-time. But the lender's upside is capped. Sounds like a miserable deal to me. It was only about 20 years ago that Boris Yeltsin stood on a tank fighting off a coup attempt. And it's only a little over a decade ago that Russia "restructured" its debt.
Exactly why so many funds have been and are being created that would allow money to bid up the price of long-term Russian, Indonesian, Peruvian etc. debt, not to mention increasingly aggressive speculation in commodities, can't be known, but it must involve leverage keying off of central bank zero interest rate policies.
What is an investor to do?
In a world where the Fed has floated the idea of issuing its own debt--which of course can be paid off by simply creating the "money" with which to pay it back, the unthinkable is thinkable. Can the S&P 500 reach 2000 in 3-4 years, as I heard touted on CNBC yesterday while exercising? Or could it go to new lows much sooner than 2013?
We need but are not getting a "never again" set of actions from the powers that be.
Copyright (C) Long Lake LLC 2010
1. It's not my usual source for commentary, but Mother Jones (linked to by Naked Capitalism this AM) has quite a summary and screed about Big Finance's influence titled Capital City. Here are some excerpts.
"If you get Chuck Schumer on your side, you are okay," one former SEC official told [16] the New York Times, and that's exactly what the finance lobby has done. The New York Democrat is a member of both the Senate Committee on Finance and the Senate Committee on Banking, Housing, and Urban Affairs, and he's received so much money from Wall Street over the years—more than $14 million—that he actually shut down his personal fundraising efforts between 2005 and 2008. Since then he's raised a staggering $284 million for the Democratic Senatorial Campaign Committee, which he headed until recently, and much of it has come from Wall Street. In June 2007 alone, when lobbying for the carried interest rule reached a fever pitch, employees of private equity firms contributed nearly $800,000 to the DSCC.
It was money well spent: Schumer agreed to support a repeal of the rule only if taxes were also raised on things like venture-capital and real-estate partnerships, a stand that guaranteed resistance from enough interest groups to let the hedge funds' special treatment survive unscathed. A million-dollar investment had allowed the hedge fund industry to keep a billion-dollar loophole. Not a bad return. . .
To get a better sense of just how much money, let's take a virtual stroll down K Street and see what everyone is spending on the world's second-oldest profession. It's all laid out for us by OpenSecrets.org. The defense lobby? Pikers. They contributed $24 million to individuals and PACs during the last election cycle. The farm lobby? $65 million. Health care? We're getting warmer. Health care was the No. 2 industry, at $167 million.
And the finance lobby? They're No. 1, with a very, very big bullet. They contributed an astonishing $475 million during the 2008 election cycle. That's up from $60 million almost two decades ago. . .
After a brief dip in political outlays at the end of 2008, the financial industry spent $402 million in the first 10 months of 2009 on both lobbying and campaign contributions, enough to put them on track to break 2008's record. Members of the House Committee on Financial Services alone received more than $8 million in industry contributions.
Whether the CFPA eventually survives is still up in the air, but the finance lobby scored a big victory almost immediately when Obama's proposal went to Capitol Hill and was quickly stripped of its requirement that banks offer consumers "plain vanilla" products—things like standard 30-year fixed mortgages and low-interest, low-fee credit cards—in addition to their more convoluted options. A couple of weeks later banks with less than $10 billion in assets—a category that includes 98 percent of all US banks—were exempted from the CFPA's scrutiny entirely. And proposals to regulate derivatives by forcing them to be traded on supervised exchanges, as stocks and commodity futures already are, were watered down as well.
How could all this happen so soon after the financial industry's reckless behavior nearly caused a global meltdown? Ironically, it's probably because the bailout was so successful. Without a sense of crisis to drive things, the political will to take on the industry has largely dissipated. Even after nearly destroying the world economy, the finance lobby is, still, simply too big to fight.
Interestingly, the FDR-era reforms that were most appealing to conservatives were probably the financial system reforms, as recounted by then-Judge Pecora in Wall Street Under Oath, a polemic defending these reforms and using that point as one of its key closing arguments.
2. I don't watch much TV, but I saw my first "buy gold" ad in the 6:30 slot on a well-viewed cable news show last night. And then there's this illogic that we started seeing a few years ago in the energy market, when refinery shutdowns, which depress demand for crude oil, reflexively led to rises in crude pricing. Huh? Even Mark Haynes on CNBC questioned that dynamic. Per Bloomberg.com today in Metals Gain as Cold Threatens Output; Yen, Greek Bonds Decline:
Metals rose for a fourth day as icy weather across the Northern Hemisphere threatened to disrupt production. . .
Copper advanced to the highest price since August 2008 at 11:23 a.m. in London and aluminum increased the most since October 2008. . .
Near-record snowfalls and below-average temperatures from Beijing to London closed airports and roads, while the U.S. may suffer its worst winter in 25 years, AccuWeather.com predicted. (Ed.: At which time there was residual concern about global cooling) The freeze may hamper the global economic recovery after the deepest slump since World War II. Investors speculated that China, the world’s biggest aluminum producer, will struggle to maintain output.
“The cold snap in many parts of the world will weigh on gross domestic product,” Steven Barrow, head of Group of 10 foreign-exchange strategy at Standard Bank Plc in London, wrote in an e-mailed note today. “The impact might not be huge but coupled with hints of underlying softness in the global economy’s performance it could raise question marks over recent stock strength and bond market weakness.”
OK again. The cold snap will decrease economic activity and will likely (temporarily) decrease Chinese demand for bauxite (aluminum precursor). How on earth can this cause a rise in raw materials pricing? Yes of course, if production is disrupted, there could be some small increase in finished goods pricing. Not logical.
Only in a world of heavy speculation can this occur.
3. A reader recently passed on some prices, yields and maturities on sovereign debt (let us assume the data are current enough to use the present tense for purposes of discussion). While the U. S. 30 year Govvie its long-term average of about 4.7%, what is astonishing is that Russian and Indonesian debt is almost as dear, running for 20+ years in the 5% range for Russian debt and under 7% for 28 year Indonesian paper. How would you like to lend to Peru with a 2014 maturity at 3.92% per year? Heck, you can get higher yields from Merck or Total, and almost as high a yield as is provided by McDonald's stock. Russia? Peru?
This can only come from a wild abnegation of responsible lending. Remember: who borrows your money has your money. Go sue Russia for it back. Who in his/her right mind would lend hard-earning savings to the Kremlin for 20 years at about 5% per year when one can earn a 5% dividend by owning a piece of the oil giant Total, with retained earning to boot? Any lender bears two risks: credit risk (default) and interest rate risk. Over 20 years, lending to Russia has both of those big-time. But the lender's upside is capped. Sounds like a miserable deal to me. It was only about 20 years ago that Boris Yeltsin stood on a tank fighting off a coup attempt. And it's only a little over a decade ago that Russia "restructured" its debt.
Exactly why so many funds have been and are being created that would allow money to bid up the price of long-term Russian, Indonesian, Peruvian etc. debt, not to mention increasingly aggressive speculation in commodities, can't be known, but it must involve leverage keying off of central bank zero interest rate policies.
What is an investor to do?
In a world where the Fed has floated the idea of issuing its own debt--which of course can be paid off by simply creating the "money" with which to pay it back, the unthinkable is thinkable. Can the S&P 500 reach 2000 in 3-4 years, as I heard touted on CNBC yesterday while exercising? Or could it go to new lows much sooner than 2013?
We need but are not getting a "never again" set of actions from the powers that be.
Copyright (C) Long Lake LLC 2010
Tuesday, December 15, 2009
Bankers Show the President the Back of Their Hands, Not the Cards in Those Hands
Since this blog does not have a "Links" section, here is a link to a fun read that is a first-class post by Jesse on the recent "summit" at the White House with financial leaders:
http://jessescrossroadscafe.blogspot.com/2009/12/bankers-summit-and-some-significant-no.html
On first read, I agree with all the major points and implications. Good work!
Copyright (C) Long Lake LLC 2009
http://jessescrossroadscafe.blogspot.com/2009/12/bankers-summit-and-some-significant-no.html
On first read, I agree with all the major points and implications. Good work!
Copyright (C) Long Lake LLC 2009
Monday, December 14, 2009
Letting Citi Go
Citigroup is said to be near agreement to free itself of executive pay caps, within 24 hours of the President bashing Big Finance on network TV.
By Bloomberg's estimate, Citi is said to have a market value of about $90 Billion.
Since the Federal Government bailed out the company, which almost certainly would have gone bust in the panic a year ago making the common stock worthless, shouldn't the Feds have structured this so that the taxpayer reaps at a minimum 50% of that $90 Billion, and reaps it now?
And what about all the bondholders of the holding company? They have been receiving interest payments for years (depending on the vintage of the bonds). Why was there no haircut for them, as well?
All this is happening as the over $1 Trillion spending bill heads soon to the White House for signature. It is being widely reported that discretionary spending is rising 10-12% overall year on year. All this is under the PR guise of helping the economy . . . except that there's no funding for this extra spending. So much for the idea that the criticisms one Party makes of the other when out of power mean anything when power shifts from the outs to the ins.
So far as the economy goes, there appears to be a general comfort level that uneven better times lie ahead.
The major fly in the ointment, it seems here, is that asset prices have been propped up too high and that small business is objectively in the toilet. Multinationals and other large companies with political influence and good access to capital may prosper and keep the stock averages up, but the bailing out of Big Finance has not led to any trickling down of its alleged prosperity to the average person.
It is no wonder that as of yesterday, Rasmussen Reports had the President sinking to his lowest ratings ever. People get it. They get that the bailout went to Big Finance, Big Labor, et al. Thus they likely understand that the bashing of Big Finance by the President yesterday was for show, and that the reality was that Citi is now going to be free to pay its executives as much as it wants so that they can screw up on a grand scale for the umpteenth time.
Copyright (C) Long Lake LLC 2009
By Bloomberg's estimate, Citi is said to have a market value of about $90 Billion.
Since the Federal Government bailed out the company, which almost certainly would have gone bust in the panic a year ago making the common stock worthless, shouldn't the Feds have structured this so that the taxpayer reaps at a minimum 50% of that $90 Billion, and reaps it now?
And what about all the bondholders of the holding company? They have been receiving interest payments for years (depending on the vintage of the bonds). Why was there no haircut for them, as well?
All this is happening as the over $1 Trillion spending bill heads soon to the White House for signature. It is being widely reported that discretionary spending is rising 10-12% overall year on year. All this is under the PR guise of helping the economy . . . except that there's no funding for this extra spending. So much for the idea that the criticisms one Party makes of the other when out of power mean anything when power shifts from the outs to the ins.
So far as the economy goes, there appears to be a general comfort level that uneven better times lie ahead.
The major fly in the ointment, it seems here, is that asset prices have been propped up too high and that small business is objectively in the toilet. Multinationals and other large companies with political influence and good access to capital may prosper and keep the stock averages up, but the bailing out of Big Finance has not led to any trickling down of its alleged prosperity to the average person.
It is no wonder that as of yesterday, Rasmussen Reports had the President sinking to his lowest ratings ever. People get it. They get that the bailout went to Big Finance, Big Labor, et al. Thus they likely understand that the bashing of Big Finance by the President yesterday was for show, and that the reality was that Citi is now going to be free to pay its executives as much as it wants so that they can screw up on a grand scale for the umpteenth time.
Copyright (C) Long Lake LLC 2009
Wednesday, October 14, 2009
NFIB Uses Newspeak to Write an Upbeat Headline
Headline: NFIB SBET: Small Business Optimism Returns
Here's some of the text:
WASHINGTON, October 13, 2009 –The National Federation of Independent Business Index of Small Business Optimism gained 0.2 points in September to 88.8 (1986=100). Four of the 10 Index components posted gains, two were unchanged, and four declined.
“The good news is the Index didn’t decline. The bad news is that improvements were far less than what we hoped for,” said NFIB Chief Economist William Dunkelberg. . .
Almost 2 years from the economic peak, certainly there are some employment gains?
Employment
In September, small business owners reported a decline in average employment of 0.83 workers per firm during the prior three months, a substantial improvement from May but virtually no change from July and August and historically the sixth largest loss per firm in the 35 year survey history (the record is negative 1.26 in May, 2009). Seven percent of the owners increased employment and 23 percent reduced employment, yielding a seasonally adjusted net negative 16 percent of owners decreasing employment in the last three months, unchanged from August. The job generating machine is still in reverse. Sales are not picking up, so survival requires continuous attention to costs, and labor costs loom large.
(Unsaid in the above, and without opining on the merits of any healthcare legislation that may be passed soon, those business owners who do not carry health insurance for their employees are looking at materially higher costs from said legislation. Every single small business owner is considering this issue.)
What about capital spending? That drives growth, which since we are a full half year from green shoots language, has to occur to drive said growth?
Overall, a dismal performance, only vehicle purchases were up most likely due to the cash for clunkers program.
Are the small businesses moving the merchandise?
The net percent of all owners (seasonally adjusted) reporting higher sales in the past three months was negative 26 percent, up a point and 8 points better than the record low set in March and revisited in July.
It looks as though that answer is NO. Surely the "money-printing" from the Fed and the record gold price mean that there are pricing pressures:
The weak economy continued to put downward pressure on prices. Ten percent of the owners reported raising average selling prices, but 32 percent reported price reductions. Widespread price cutting is a major factor shaping the reports of lower nominal sales.
Unsurprisingly, earnings trends were poor:
Reports of positive profit trends were unchanged at a net negative 40 percent.
To end the press release and end the section about credit (difficult to obtain but much less a problem than sales), Dr. Dunkelberg states:
“It is no surprise that credit is more difficult to obtain since sales prospects and profit trends are very weak.”
So, where did that press release's headline come from? Perhaps even NFIB isn't so independent of the Newspeak wherein bad news is good news nowadays.
The DoctoRx summary:
Price increases for most common stocks have as little to do with the overall economy as the fall 1929 stock market correction from a hyped bubble peak had to do with the economic collapse that began later, after the passage of the Smoot-Hawley Tariff Act and all sorts of post-WW I political and financial machinations. The message of the facts and the markets appears to be: times are tough and not visibly improving. Government credit guarantees and back-t0-bubble financing of homes is doing what it is doing. "Banks" which are really not banks in the traditional sense of making well-secured loans with depositors' savings accounts but which are trading and gambling houses are thriving, but real banks are not doing well. In other words, the oligarchy is prospering. There is no money either in equity or loans for the vaunted scrappy start-up that wants to challenge an entrenched player.
I'm apathetic about the Dow crossing 10,000 again. But with U. S. banks holding hundreds of trillions of dollars of "notional" value in interest rate swaps, dwarfing the tens of trillions of dollars they may be holding in credit default swaps, the conclusion remains that the gambling that is going on is on such a grand scale that conventional financial instruments are pawns in a greater game.
For those people who avoid gold for the reason that it has quadupled in nominal price in 8 years (from an almost 22-year nominal price low), consider that BofA stock (BAC) is up more than 7 times in 7 months. Was this a panic low? Yes. But wasn't BofA paying out dividends for years and buying its stock, leaving no retained earnings, when in retrospect it had no margin of safety when a little panic occurred, as it always might? Yes.
Whereas the point with gold is that it pays nothing, so its total return comes from what some call price appreciation but others call preservation of purchasing power. The most basic reason to invest in gold is a highly conservative one: keep what one has, rather than try to grow it as with a speculative growth vehicle.
Big Finance is playing poker against everyone else and, as with Goldfinger gambling in Miami Beach, they see your cards but you don't see theirs. And the government will provide downside protection for them but not you. Nice work if you can get it. How long will going with this sort of stock continue to be a one-way bet for the public without government backstop of the stock price?
Copyright (C) Long Lake LLC 2009
Here's some of the text:
WASHINGTON, October 13, 2009 –The National Federation of Independent Business Index of Small Business Optimism gained 0.2 points in September to 88.8 (1986=100). Four of the 10 Index components posted gains, two were unchanged, and four declined.
“The good news is the Index didn’t decline. The bad news is that improvements were far less than what we hoped for,” said NFIB Chief Economist William Dunkelberg. . .
Almost 2 years from the economic peak, certainly there are some employment gains?
Employment
In September, small business owners reported a decline in average employment of 0.83 workers per firm during the prior three months, a substantial improvement from May but virtually no change from July and August and historically the sixth largest loss per firm in the 35 year survey history (the record is negative 1.26 in May, 2009). Seven percent of the owners increased employment and 23 percent reduced employment, yielding a seasonally adjusted net negative 16 percent of owners decreasing employment in the last three months, unchanged from August. The job generating machine is still in reverse. Sales are not picking up, so survival requires continuous attention to costs, and labor costs loom large.
(Unsaid in the above, and without opining on the merits of any healthcare legislation that may be passed soon, those business owners who do not carry health insurance for their employees are looking at materially higher costs from said legislation. Every single small business owner is considering this issue.)
What about capital spending? That drives growth, which since we are a full half year from green shoots language, has to occur to drive said growth?
Overall, a dismal performance, only vehicle purchases were up most likely due to the cash for clunkers program.
Are the small businesses moving the merchandise?
The net percent of all owners (seasonally adjusted) reporting higher sales in the past three months was negative 26 percent, up a point and 8 points better than the record low set in March and revisited in July.
It looks as though that answer is NO. Surely the "money-printing" from the Fed and the record gold price mean that there are pricing pressures:
The weak economy continued to put downward pressure on prices. Ten percent of the owners reported raising average selling prices, but 32 percent reported price reductions. Widespread price cutting is a major factor shaping the reports of lower nominal sales.
Unsurprisingly, earnings trends were poor:
Reports of positive profit trends were unchanged at a net negative 40 percent.
To end the press release and end the section about credit (difficult to obtain but much less a problem than sales), Dr. Dunkelberg states:
“It is no surprise that credit is more difficult to obtain since sales prospects and profit trends are very weak.”
So, where did that press release's headline come from? Perhaps even NFIB isn't so independent of the Newspeak wherein bad news is good news nowadays.
The DoctoRx summary:
Price increases for most common stocks have as little to do with the overall economy as the fall 1929 stock market correction from a hyped bubble peak had to do with the economic collapse that began later, after the passage of the Smoot-Hawley Tariff Act and all sorts of post-WW I political and financial machinations. The message of the facts and the markets appears to be: times are tough and not visibly improving. Government credit guarantees and back-t0-bubble financing of homes is doing what it is doing. "Banks" which are really not banks in the traditional sense of making well-secured loans with depositors' savings accounts but which are trading and gambling houses are thriving, but real banks are not doing well. In other words, the oligarchy is prospering. There is no money either in equity or loans for the vaunted scrappy start-up that wants to challenge an entrenched player.
I'm apathetic about the Dow crossing 10,000 again. But with U. S. banks holding hundreds of trillions of dollars of "notional" value in interest rate swaps, dwarfing the tens of trillions of dollars they may be holding in credit default swaps, the conclusion remains that the gambling that is going on is on such a grand scale that conventional financial instruments are pawns in a greater game.
For those people who avoid gold for the reason that it has quadupled in nominal price in 8 years (from an almost 22-year nominal price low), consider that BofA stock (BAC) is up more than 7 times in 7 months. Was this a panic low? Yes. But wasn't BofA paying out dividends for years and buying its stock, leaving no retained earnings, when in retrospect it had no margin of safety when a little panic occurred, as it always might? Yes.
Whereas the point with gold is that it pays nothing, so its total return comes from what some call price appreciation but others call preservation of purchasing power. The most basic reason to invest in gold is a highly conservative one: keep what one has, rather than try to grow it as with a speculative growth vehicle.
Big Finance is playing poker against everyone else and, as with Goldfinger gambling in Miami Beach, they see your cards but you don't see theirs. And the government will provide downside protection for them but not you. Nice work if you can get it. How long will going with this sort of stock continue to be a one-way bet for the public without government backstop of the stock price?
Copyright (C) Long Lake LLC 2009
Friday, September 4, 2009
In Which I Disagree With a Nobel-Winner
In Stiglitz Says U.S. Economic Recovery May Not Be ‘Sustainable’ , Bloomberg.com reports on the Nobel-winning economist as saying almost nothing that makes sense to this blogger. Here are some quotes (taken out of order as they appear in the writeup) in italics, with my comments in plain text.
Between the fall of the Berlin Wall and the collapse of Lehman Brothers was “the short period of American triumphalism, where we dominated the global scene. That period is over,” Stiglitz said.
His history is way off. The U. S. was the world's leading industrial power and leading exporter by World War I. Forget the fall of the Berlin wall: the U. S. has dominated the world scene at least after the events of June 6, 1944 and then the dropping of two A-bombs on Japan in August, 1945. Stiglitz sets up a straw man re "triumphalism". The dominance of the U. S. was demonstrated last fall, when the Great Financial Crisis that began here led to the strengthening of the U. S. dollar. The U. S. will dominate the world scene for years to come.
Stiglitz, who is a member of a United Nations commission that will study the global financial system and currency regimes, said “the logic is compelling” for a new global currency.
“In most quarters, there is a feeling we should move away from the dollar system. The question is do we do it in an orderly way, or a chaotic way,” Stiglitz said. “The size of the deficit and the size of the balance sheet of the Fed have just increased the anxiety and the desire that something be done.”
What are "most quarters"? Dollars to donuts not many of those "quarters" are found within the US of A. Unless it is bringing gold into a more prominent role in international finance, what would most Americans say to a world currency? Perhaps fuggedaboutit?
As far as what to do with the Fed's manic actions, that's an internal matter. Going to a global currency wouldn't affect that.
With so much excess capacity, the American economy faces a short-term threat of disinflation and possibly deflation, Stiglitz said. Wages may even decline, given recent high productivity and the likelihood of an extended period of high unemployment, he said.
Assuming the paragraph represents Dr. Stiglitz's views accurately, they appear to show that he has missed at least half a year and perhaps a year. Disinflation has been here since mid-2008 and is a good thing, not a "threat". Deflation (price declines) is here and now. It is incorrect to say that wages may decline; government statistics show that they are declining, through small wage increases combined with a decreased workweek and numerous cuts of wages to zero via layoffs and firings.
Stiglitz, 66, said that while $787 billion in federal government stimulus is propelling growth this quarter, there’s no guarantee the economy will maintain its momentum. On whether the U.S. needs another injection of stimulus, Stiglitz said it’s best to “wait and see.”
“We did have a very big stimulus, and that stimulus has added to economic growth and will be adding in the current quarter,” he said. “But the question going forward in 2011 is the stimulus is coming off, and that’s a negative.”
This expresses the typical distorted view of Keynes' thinking. We barely understand the economy at mid-year (did the "recession" end in June or not?), and the good doctor is already worrying about 2011?
Has any Keynesian ever thought that perhaps businesses are not investing in growth because they have enough capacity? Have they ever tried to reconcile being good to Mother Earth and not continuing to tear raw materials out of her, spend energy making things, etc., when maybe there's enough of those particular things? Have Keynesians forgotten that Lord Keynes was not advocating unending "stimulus" and debt without end?
Thus in the final quote from Stiglitz here, please ask yourself if we need to "consume" more and more autos and gasoline, cheeseburgers, etc., in a society with more motor vehicles than people and an obesity epidemic? (The second sentence in the paragraph is unobjectionable though speculative and is presented for completelness.)
Stiglitz said he sees two scenarios for the world’s largest economy in coming months. One is a period of “malaise,” in which consumption lags and private investment is slow to accelerate. The other is a rebound fueled by government stimulus that’s followed by an abrupt downturn -- an occurrence that economists call a “W-shaped’ recovery.
There really only was a paragraph or two of "news" in this lengthy article that taught no one any new facts.
The U. S. consumer is being force-fed autos on credit that many buyers already regret taking on. Home-buyers are back to 3% down mortgages and may use taxpayer money to use an $8000 per first home tax credit as a down-payment. In other words, the Merchants of Debt think they have won. I wouldn't touch their stocks, and neither would I short them. They are Sauron or in a more modern sense the Dark Lord Voldemort.
The times, however, may be a-changin'.
The more the dead hand of government "stimulates" the economy in whatever ways it wants, with minimal economic multipliers, the more it crowds out entrepreneurship and innovation. The tragic part of this is that a truly reformed financial system could be part of an economic rebirth rather than an agonizing coda to an era that ended with GM's bankruptcy and that should have ended with AIG's and Citigroup's bankruptcies. Instead the U. S. has gone the path of Japan a decade ago, with zombie banks and massive Fed money-printing that is not truly Zimbabwean printing of currency (which is inflationary) but which instead is debt that accrues rather than getting written down to realistic levels and therefore has proven deflationary to date. If you have not, please read when you have several minutes the now-classic Simon Johnson article titled The Quiet Coup from May 2009. It's the single most important article-length read of the entire past two years that I have seen.
There will be no willing reform in the U. S. Therefore there will be much more volatility and crises, but with a pattern that Big Finance will hide. Is resistance futile?
I think not. Traders should go with the flow and not fight the tape or the Establishment; investors should ignore all the chatter that is meant to distract them and get them to over-trade and doubt their decisions no matter how well-thought-out they are.
Copyright (C) Long Lake LLC
Between the fall of the Berlin Wall and the collapse of Lehman Brothers was “the short period of American triumphalism, where we dominated the global scene. That period is over,” Stiglitz said.
His history is way off. The U. S. was the world's leading industrial power and leading exporter by World War I. Forget the fall of the Berlin wall: the U. S. has dominated the world scene at least after the events of June 6, 1944 and then the dropping of two A-bombs on Japan in August, 1945. Stiglitz sets up a straw man re "triumphalism". The dominance of the U. S. was demonstrated last fall, when the Great Financial Crisis that began here led to the strengthening of the U. S. dollar. The U. S. will dominate the world scene for years to come.
Stiglitz, who is a member of a United Nations commission that will study the global financial system and currency regimes, said “the logic is compelling” for a new global currency.
“In most quarters, there is a feeling we should move away from the dollar system. The question is do we do it in an orderly way, or a chaotic way,” Stiglitz said. “The size of the deficit and the size of the balance sheet of the Fed have just increased the anxiety and the desire that something be done.”
What are "most quarters"? Dollars to donuts not many of those "quarters" are found within the US of A. Unless it is bringing gold into a more prominent role in international finance, what would most Americans say to a world currency? Perhaps fuggedaboutit?
As far as what to do with the Fed's manic actions, that's an internal matter. Going to a global currency wouldn't affect that.
With so much excess capacity, the American economy faces a short-term threat of disinflation and possibly deflation, Stiglitz said. Wages may even decline, given recent high productivity and the likelihood of an extended period of high unemployment, he said.
Assuming the paragraph represents Dr. Stiglitz's views accurately, they appear to show that he has missed at least half a year and perhaps a year. Disinflation has been here since mid-2008 and is a good thing, not a "threat". Deflation (price declines) is here and now. It is incorrect to say that wages may decline; government statistics show that they are declining, through small wage increases combined with a decreased workweek and numerous cuts of wages to zero via layoffs and firings.
Stiglitz, 66, said that while $787 billion in federal government stimulus is propelling growth this quarter, there’s no guarantee the economy will maintain its momentum. On whether the U.S. needs another injection of stimulus, Stiglitz said it’s best to “wait and see.”
“We did have a very big stimulus, and that stimulus has added to economic growth and will be adding in the current quarter,” he said. “But the question going forward in 2011 is the stimulus is coming off, and that’s a negative.”
This expresses the typical distorted view of Keynes' thinking. We barely understand the economy at mid-year (did the "recession" end in June or not?), and the good doctor is already worrying about 2011?
Has any Keynesian ever thought that perhaps businesses are not investing in growth because they have enough capacity? Have they ever tried to reconcile being good to Mother Earth and not continuing to tear raw materials out of her, spend energy making things, etc., when maybe there's enough of those particular things? Have Keynesians forgotten that Lord Keynes was not advocating unending "stimulus" and debt without end?
Thus in the final quote from Stiglitz here, please ask yourself if we need to "consume" more and more autos and gasoline, cheeseburgers, etc., in a society with more motor vehicles than people and an obesity epidemic? (The second sentence in the paragraph is unobjectionable though speculative and is presented for completelness.)
Stiglitz said he sees two scenarios for the world’s largest economy in coming months. One is a period of “malaise,” in which consumption lags and private investment is slow to accelerate. The other is a rebound fueled by government stimulus that’s followed by an abrupt downturn -- an occurrence that economists call a “W-shaped’ recovery.
There really only was a paragraph or two of "news" in this lengthy article that taught no one any new facts.
The U. S. consumer is being force-fed autos on credit that many buyers already regret taking on. Home-buyers are back to 3% down mortgages and may use taxpayer money to use an $8000 per first home tax credit as a down-payment. In other words, the Merchants of Debt think they have won. I wouldn't touch their stocks, and neither would I short them. They are Sauron or in a more modern sense the Dark Lord Voldemort.
The times, however, may be a-changin'.
The more the dead hand of government "stimulates" the economy in whatever ways it wants, with minimal economic multipliers, the more it crowds out entrepreneurship and innovation. The tragic part of this is that a truly reformed financial system could be part of an economic rebirth rather than an agonizing coda to an era that ended with GM's bankruptcy and that should have ended with AIG's and Citigroup's bankruptcies. Instead the U. S. has gone the path of Japan a decade ago, with zombie banks and massive Fed money-printing that is not truly Zimbabwean printing of currency (which is inflationary) but which instead is debt that accrues rather than getting written down to realistic levels and therefore has proven deflationary to date. If you have not, please read when you have several minutes the now-classic Simon Johnson article titled The Quiet Coup from May 2009. It's the single most important article-length read of the entire past two years that I have seen.
There will be no willing reform in the U. S. Therefore there will be much more volatility and crises, but with a pattern that Big Finance will hide. Is resistance futile?
I think not. Traders should go with the flow and not fight the tape or the Establishment; investors should ignore all the chatter that is meant to distract them and get them to over-trade and doubt their decisions no matter how well-thought-out they are.
Copyright (C) Long Lake LLC
Sunday, August 16, 2009
Another Reason Why Tim Geithner Should Leave His Job
The WSJ points out in Treasury Bailout's Limits on Lobbyists Still Haven't Taken Effect that:
A plan by Treasury Secretary Timothy Geithner to limit lobbyists' influence over the $700 billion bailout program has yet to get off the ground -- even as the program nears an end.
Just a few hours after being sworn in last January, Mr. Geithner promised to craft rules preventing external influence over bailout decisions. More than six months later -- and 100 days before the financial-industry bailout program is scheduled to stop taking applications for aid -- those rules have yet to be finalized.
Treasury whines that it has been busy, but the obvious conclusion is that it has not been trying very hard on this matter, as shown by the following:
When the Treasury announced its plans to curb bailout lobbying earlier this year, a spokeswoman said the department intended to publish weekly communication logs showing contact between public officials and external entities -- such as lobbyists -- discussing rescue plans for specific institutions. No such logs have been made available.
We have Government run by the allies of Big Finance for the benefit of Big Finance.
The Special Inspector General of the TARP bailout (SIGTARP) has reported that there have been $23.7 trillion or so dollars spent or backstopped to the financial sector within the past year. In contrast, a pittance has been spent on the people. The trio of actors: the Fed, the President/Treasury, and the Congress have all followed Sutton's law and have gone where the money is (was).
This is why the economic downturn has gone on so long and has been so severe. The guilty have been rewarded; the needy and innocent have had little help.
Copyright (C) Long Lake LLC 2009
A plan by Treasury Secretary Timothy Geithner to limit lobbyists' influence over the $700 billion bailout program has yet to get off the ground -- even as the program nears an end.
Just a few hours after being sworn in last January, Mr. Geithner promised to craft rules preventing external influence over bailout decisions. More than six months later -- and 100 days before the financial-industry bailout program is scheduled to stop taking applications for aid -- those rules have yet to be finalized.
Treasury whines that it has been busy, but the obvious conclusion is that it has not been trying very hard on this matter, as shown by the following:
When the Treasury announced its plans to curb bailout lobbying earlier this year, a spokeswoman said the department intended to publish weekly communication logs showing contact between public officials and external entities -- such as lobbyists -- discussing rescue plans for specific institutions. No such logs have been made available.
We have Government run by the allies of Big Finance for the benefit of Big Finance.
The Special Inspector General of the TARP bailout (SIGTARP) has reported that there have been $23.7 trillion or so dollars spent or backstopped to the financial sector within the past year. In contrast, a pittance has been spent on the people. The trio of actors: the Fed, the President/Treasury, and the Congress have all followed Sutton's law and have gone where the money is (was).
This is why the economic downturn has gone on so long and has been so severe. The guilty have been rewarded; the needy and innocent have had little help.
Copyright (C) Long Lake LLC 2009
Tuesday, July 14, 2009
The Bushbama Continuity Expands
Even Barney Frank claims to be shocked as his President acts like his predecessor. The WSJ reports in an interestingly-named article, Obama's Fiats Anger Lawmakers, that Mr. Obama was so eager for international lending to continue to expand that he misled his own party:
With $108 billion in International Monetary Fund loan guarantees in jeopardy last month, White House economic officials begged, cajoled and cut deals with Democrats to secure passage of legislation boosting the fund's power. Days later, President Barack Obama announced he wasn't bound by any of the agreements.
The ensuing flap over the president's June 24 signing statement is the latest in a series of clashes between the White House and Congress over an issue Mr. Obama once fought against himself: presidential fiat.
As a candidate, Mr. Obama vowed that he wouldn't abuse the presidential signing statement, a declaration issued by the president when he signs a bill to give his interpretation of that law. President George W. Bush used so many signing statements -- more than 750 -- that the American Bar Association criticized it as an abuse of power.
After Mr. Obama's issuance of his second signing statement last month, even some Democrats say he isn't keeping his word on reining in unilateral presidential actions.
"Of course there's a broader issue here," said House Financial Services Chairman Barney Frank (D., Mass.), referring to the brewing battles with Mr. Obama over presidential prerogative. "It's outrageous. It's exactly what the Bush people did."
Anything to keep Big Finance busy.
Copyright (C) Long Lake LLC 2009
With $108 billion in International Monetary Fund loan guarantees in jeopardy last month, White House economic officials begged, cajoled and cut deals with Democrats to secure passage of legislation boosting the fund's power. Days later, President Barack Obama announced he wasn't bound by any of the agreements.
The ensuing flap over the president's June 24 signing statement is the latest in a series of clashes between the White House and Congress over an issue Mr. Obama once fought against himself: presidential fiat.
As a candidate, Mr. Obama vowed that he wouldn't abuse the presidential signing statement, a declaration issued by the president when he signs a bill to give his interpretation of that law. President George W. Bush used so many signing statements -- more than 750 -- that the American Bar Association criticized it as an abuse of power.
After Mr. Obama's issuance of his second signing statement last month, even some Democrats say he isn't keeping his word on reining in unilateral presidential actions.
"Of course there's a broader issue here," said House Financial Services Chairman Barney Frank (D., Mass.), referring to the brewing battles with Mr. Obama over presidential prerogative. "It's outrageous. It's exactly what the Bush people did."
Anything to keep Big Finance busy.
Copyright (C) Long Lake LLC 2009
Tuesday, July 7, 2009
A Fine Romance
Big Finance "hearts" Big Government, which "hearts" it back. Please click on the link, courtesy of Jesse, to "The Wall Street White House", which lays out who's who and from where in this romance.
Copyright (C) Long Lake LLC 2009
Copyright (C) Long Lake LLC 2009
Monday, June 15, 2009
Sparing the Change
In ominous news for change we can believe in regarding financial system reform, Bloomberg is reporting that
Obama’s Bank Revamp May Stall as Congress Tackles Rival Issues:
The Obama administration’s revamp of U.S. banking and market regulations may be stalled into next year as Congress and the president set health-care reform and climate control as domestic priorities.
The ability of banks to repay U.S. aid and raise capital without government help may signal the economy is rebounding, easing pressure for sweeping change in financial rules. A delay this year may push the political debate into the 2010 congressional election campaign. . .
Obama’s regulatory proposals may be scaled back because lawmakers and the public perceive the financial crisis has abated and support for more aggressive options has faded, said Peter Solomon, founder of investment bank Peter J. Solomon & Co.
“Regulation’s going to be the same thing,” said Solomon, 70, counselor to the U.S. Treasury in the Carter administration. “There’s really been no fundamental change; there’s been a papering over, and this is it again.”
No surprise. Big Finance has raised big money and the stocks have been conveniently moved up. The stocks can now drop or be "dead money", and the toxic assets can be ignored and written off over time. Since Wall Street does not desire reform, let's call the whole thing off. What's $12 Trillion or so in financial subsidies, grants and guarantees amongst friends?
The undead bank holding companies swim on, providing an ongoing drag to the rest of the real economy.
Be sure to watch Citigroup stock. It is holding above $3. Many institutions cannot own a sub-$3 stock. If it goes below $3 for a sustained period, the next leg of this crisis may be upon us.
Copyright (C) Long Lake LLC 2009
Obama’s Bank Revamp May Stall as Congress Tackles Rival Issues:
The Obama administration’s revamp of U.S. banking and market regulations may be stalled into next year as Congress and the president set health-care reform and climate control as domestic priorities.
The ability of banks to repay U.S. aid and raise capital without government help may signal the economy is rebounding, easing pressure for sweeping change in financial rules. A delay this year may push the political debate into the 2010 congressional election campaign. . .
Obama’s regulatory proposals may be scaled back because lawmakers and the public perceive the financial crisis has abated and support for more aggressive options has faded, said Peter Solomon, founder of investment bank Peter J. Solomon & Co.
“Regulation’s going to be the same thing,” said Solomon, 70, counselor to the U.S. Treasury in the Carter administration. “There’s really been no fundamental change; there’s been a papering over, and this is it again.”
No surprise. Big Finance has raised big money and the stocks have been conveniently moved up. The stocks can now drop or be "dead money", and the toxic assets can be ignored and written off over time. Since Wall Street does not desire reform, let's call the whole thing off. What's $12 Trillion or so in financial subsidies, grants and guarantees amongst friends?
The undead bank holding companies swim on, providing an ongoing drag to the rest of the real economy.
Be sure to watch Citigroup stock. It is holding above $3. Many institutions cannot own a sub-$3 stock. If it goes below $3 for a sustained period, the next leg of this crisis may be upon us.
Copyright (C) Long Lake LLC 2009
Thursday, June 4, 2009
"They Probably Won't Be Making a Lot of New Loans"
From Bloomberg.com comes further news that the abusive PPIP program so detested by Econblog Review may be unraveling, in Dudley’s TALF Comments Add Signs of a PPIP Stall:
The Federal Reserve may not start lending against residential mortgage-backed securities under its Term Asset-Backed Securities Loan Facility, Federal Reserve Bank of New York President William Dudley indicated. . .
His comments add to signs that Treasury Secretary Timothy Geithner’s Public-Private Investment Program to boost debt prices and rid banks of devalued assets to expand lending is stalling, after helping to spark a rally in stocks and bonds. The Federal Deposit Insurance Corp. yesterday delayed a test sale of bad loans held by U.S. banks that had been billed as a tryout for its role. . .
“We still need more” than the capital that banks have raised to revive commercial-mortgage lending, Russ Appel, a managing director at Praedium Group LLC, a New York-based real- estate-investment firm, said during the conference. “Until they start clearing the old loans, they probably won’t be making a lot of new loans.”
After the apparent demise of the PPIP-FDIC program for loans, banks will probably try to mainly off-load commercial mortgages that investors would be “fools” to take on, because the debt would be more troubled than it seems, said Barry Sternlicht, chief executive officer of Starwood Capital Group Global, LLC, a real-estate investor in Greenwich, Connecticut.
“The only things they’re going to try to sell is stuff you probably shouldn’t buy,” Sternlicht said, speaking on the same panel as Appel.
DoctoRx here. Mr. Appel got it both right and wrong. Yes, they probably won't make a lot of new loans. That much he got right. What he got very wrong was that his business prospers when new loans are made. Whether they are good loans doesn't matter to him. The last thing this country needs is new investment in commercial real estate!
The article goes on to prove the point made at EBR over and over. The point is that the entirety of the machinations have been a giant pump 'n dump scheme to push security prices up:
The TALF and PPIP plans contributed to a rally among many types of home-loan bonds. Typical prices for the most-senior prime-jumbo securities jumped to about 83 cents on the dollar on May 14, from about 63 cents March 19, before steadying, according to Barclays Capital. Similar bonds backed by Alt-A loans with a few years of fixed rates rose to 45 cents, from 35 cents, according to the bank’s reports.
Case closed, in my humble opinion.
Please stay away from Big Finance as much as possible for the next economic cycle; and consider making a political statement by doing your banking with the good guys, the small community banks that have been penalized by the authorities, who overtly favor the continued formation of a financial oligarchy.
Copyright (C) Long Lake LLC 2009
The Federal Reserve may not start lending against residential mortgage-backed securities under its Term Asset-Backed Securities Loan Facility, Federal Reserve Bank of New York President William Dudley indicated. . .
His comments add to signs that Treasury Secretary Timothy Geithner’s Public-Private Investment Program to boost debt prices and rid banks of devalued assets to expand lending is stalling, after helping to spark a rally in stocks and bonds. The Federal Deposit Insurance Corp. yesterday delayed a test sale of bad loans held by U.S. banks that had been billed as a tryout for its role. . .
“We still need more” than the capital that banks have raised to revive commercial-mortgage lending, Russ Appel, a managing director at Praedium Group LLC, a New York-based real- estate-investment firm, said during the conference. “Until they start clearing the old loans, they probably won’t be making a lot of new loans.”
After the apparent demise of the PPIP-FDIC program for loans, banks will probably try to mainly off-load commercial mortgages that investors would be “fools” to take on, because the debt would be more troubled than it seems, said Barry Sternlicht, chief executive officer of Starwood Capital Group Global, LLC, a real-estate investor in Greenwich, Connecticut.
“The only things they’re going to try to sell is stuff you probably shouldn’t buy,” Sternlicht said, speaking on the same panel as Appel.
DoctoRx here. Mr. Appel got it both right and wrong. Yes, they probably won't make a lot of new loans. That much he got right. What he got very wrong was that his business prospers when new loans are made. Whether they are good loans doesn't matter to him. The last thing this country needs is new investment in commercial real estate!
The article goes on to prove the point made at EBR over and over. The point is that the entirety of the machinations have been a giant pump 'n dump scheme to push security prices up:
The TALF and PPIP plans contributed to a rally among many types of home-loan bonds. Typical prices for the most-senior prime-jumbo securities jumped to about 83 cents on the dollar on May 14, from about 63 cents March 19, before steadying, according to Barclays Capital. Similar bonds backed by Alt-A loans with a few years of fixed rates rose to 45 cents, from 35 cents, according to the bank’s reports.
Case closed, in my humble opinion.
Please stay away from Big Finance as much as possible for the next economic cycle; and consider making a political statement by doing your banking with the good guys, the small community banks that have been penalized by the authorities, who overtly favor the continued formation of a financial oligarchy.
Copyright (C) Long Lake LLC 2009
Wednesday, June 3, 2009
Schadenfreude
Nobody is immune from the housing crash.
From Bloomberg.com comes Geithner Rents Westchester Home After Failing to Sell:
U.S. Treasury Secretary Timothy Geithner is renting his home in Westchester County, New York, for $7,500 a month after failing to find a buyer, according to data on the Westchester-Putnam Multiple Listing Service Inc.
Geithner, 47, was trying to sell the brick and stucco Tudor-style home, the listing shows. The house on Maple Hill Drive has five bedrooms, about 3,600 square feet, and an eat-in kitchen with Siematic cabinetry and black granite countertops.
“Careful attention has been paid to the design of every feature of this sophisticated home,” according to the listing.
The home was marketed in February for $1.635 million, according to Scott Stiefvater, president of Stiefvater Real Estate in Pelham, New York. The price was reduced to $1.575 million in May, he said.
The inventory of similar homes for sale in the area may have affected the property’s prospects, said Debbie Meiliken, a broker at Keller Williams Realty New York.
“There was a lot of competition,” Meiliken said. “Sometimes people will put the house for rent if they’re not prepared to sell it and take a loss.”
Home sales in Westchester County fell 41 percent in the first quarter from a year earlier, according to an April 27 statement from the Westchester-Putnam Multiple Listing Service. The county’s median home price fell 14.5 percent to $532,000, the organization said.
As regular readers of EBR know, I have consistently felt that Mr. Geithner was the "bad penny", showing up repeatedly at disastrous governmental/Fed decisions that always and forever benefitted Big Finance. No matter that the companies have since lost their pristine credit ratings, if they are not bankrupt or acquired or in government conservancies.
I suppose it was his AAA credit rating that let him afford such an expensive house!
Copyright (C) Long Lake LLC 2009
From Bloomberg.com comes Geithner Rents Westchester Home After Failing to Sell:
U.S. Treasury Secretary Timothy Geithner is renting his home in Westchester County, New York, for $7,500 a month after failing to find a buyer, according to data on the Westchester-Putnam Multiple Listing Service Inc.
Geithner, 47, was trying to sell the brick and stucco Tudor-style home, the listing shows. The house on Maple Hill Drive has five bedrooms, about 3,600 square feet, and an eat-in kitchen with Siematic cabinetry and black granite countertops.
“Careful attention has been paid to the design of every feature of this sophisticated home,” according to the listing.
The home was marketed in February for $1.635 million, according to Scott Stiefvater, president of Stiefvater Real Estate in Pelham, New York. The price was reduced to $1.575 million in May, he said.
The inventory of similar homes for sale in the area may have affected the property’s prospects, said Debbie Meiliken, a broker at Keller Williams Realty New York.
“There was a lot of competition,” Meiliken said. “Sometimes people will put the house for rent if they’re not prepared to sell it and take a loss.”
Home sales in Westchester County fell 41 percent in the first quarter from a year earlier, according to an April 27 statement from the Westchester-Putnam Multiple Listing Service. The county’s median home price fell 14.5 percent to $532,000, the organization said.
As regular readers of EBR know, I have consistently felt that Mr. Geithner was the "bad penny", showing up repeatedly at disastrous governmental/Fed decisions that always and forever benefitted Big Finance. No matter that the companies have since lost their pristine credit ratings, if they are not bankrupt or acquired or in government conservancies.
I suppose it was his AAA credit rating that let him afford such an expensive house!
Copyright (C) Long Lake LLC 2009
Tuesday, June 2, 2009
Following the Script: As Crime Goes By
It's still the same old story
A fight for love and glory
A case of do or die.
The world will always welcome lovers
As time goes by.
-Herman Hupfeld, 1931
In spending or guaranteeing over $10 trillion for the benefit of Big Finance, the Establishment has adapted the script officially judged to be the greatest in movie history, that of "Casablanca".
Rick: There's something you should know before you leave.
Laszlo: Monsieur Blaine, I don't ask you to explain anything. . .
Rick: She (Ilsa) came there for the letters of transit. . . She did her best to convince me that she was still in love with me, but that was over long ago. For your sake, she pretended it wasn't, and I let her pretend.
Laszlo: I understand.
Rick: Here it is.
(Rick hands the letters of transit to Laszlo.)
Laszlo: Thanks. I appreciate it. And welcome back to the fight. This time I know our side will win.
Ilsa (to Rick): God bless you.
Renault (to Rick): Well I was right. You are a sentimentalist.
Rick: I don't know what you're talking about.
Renault: What you just did for Laszlo, and that fairy tale that you invented to send Ilsa away with him. I know a little about women, my friend. She went, but she knew you were lying.
Rick: Anyway, thanks for helping me out.
Renault: I suppose you know this isn't going to be pleasant for either of us, especially for you. I'll have to arrest you of course.
Rick: As soon as the plane goes, Louis.
(Major Strasser, the Nazi, appears and tries to call the control tower to prevent the plane from letting Victor and Ilsa Laszlo escape.)
Rick: Get away from that phone.
Strasser: I would advise you not to interfere.
Rick: I was willing to shoot Captain Renault, and I'm willing to shoot you.
(Rick shoots and presumably kills Strasser. The gendarmes appear.)
Louis (to the gendarmes):
Major Strasser's been shot.
(Louis and Rick look at each other in one of the greatest pregnant pauses in movie history.)
Louis (resumes speaking): Round up the usual suspects.
Gendarme: Oui, mon Capitaine. . .
Louis: Well Rick, you're not only a sentimentalist, but you've become a patriot.
Rick: Maybe, but it seemed like a good time to start.
Rick (ending): Louis, I think this is the beginning of a beautiful friendship.
Why this trip down memory lane? First, the analogy. Team Bushbama Hankgeithner ben Bernanke is/was willing to do anything for the cause, just as Rick was willing to kill his friend Louis. Big Finance is Laszlo. The letters of transit are the bailouts. The goal in Casablanca was to spring Laszlo so he could lead the Resistance from America. The goal for the current enablers of Big Finance is to do anything to keep them alive to keep gambling and lending (i.e. looting); whether the corporations are profitable or not is not critical.
(Please ignore that Laszlo is the hero of "Casablanca" and Big Finance an anti-hero.)
Here's the sudden news that reveals the fraudulent nature of the stress tests, recent Big Finance "earnings", and the like: Bloomberg.com reports that Fed Said to Raise Standards for Banks’ TARP Repayment.
Federal Reserve officials surprised bankers in the past week by demanding they raise specific amounts of new capital before repaying taxpayer funds, applying a more stringent assessment than the stress tests in May.
JPMorgan Chase & Co. and American Express Co. were told they need to boost common equity, less than four weeks after being informed they had enough to withstand a deeper economic slump. Morgan Stanley was directed to raise more funds after already selling stock to cover its stress-test shortfall. One firm was told only yesterday, people with direct knowledge said.
The Laszlos were indeed surprised by Rick's maneuver. However, the idea that Big Finance was surprised by any Fed or Government actions is hilarious. This has been a carefully coordinated public-private operation, planned as minutely as Desert Storm was in 1991. In private, Big Finance definitely mouths "God bless you" to Team Bushbama and Team Fed.
Back to the not-so-curiously times Bloomberg article:
The central bank’s further scrutiny signals concern at the political and economic dangers of having a bank boomerang back to government aid once it leaves the program. . .
The Fed’s demands also partly reflect the biggest three- month rally in U.S. financial shares in at least two decades, which has made it easier for banks to raise the funds . . . (Ed. Obviously the Fed and the Feds caused the rally.)
Morgan Stanley, JPMorgan and American Express raised at least $7.7 billion this week as they learned of the new hurdles to leave the TARP. (Ed. Surprise, the stocks were up at least double their recent lows when they raised money!)
The Fed, Treasury, market manipulation, the supine folks at the Financial Accounting Standards Board, and Wall Street itself created the lie that the first quarter of this year was a great quarter for Big Finance. The idea that with surging loan losses and minimal demand for new loans that there could be huge profits for mega-bank holding companies is patently ridiculous; it was all a lie. The stress tests are suddenly not good enough because the operation has succeeded; the money has been or is about to be raised with minimal dilution. Of course, the Chieftains of Industry were brave enough to buy their companies' stocks at the bottom. No inside knowledge, of course!
Now it's on to the next Big Lie, the Public-Private Investment Partnership. Eventually Tim Geithner will walk off into the fog holding hands with J. P. Goldman.
Being in love means never having to tell the truth. And never having to say you're sorry. And never having to worry if the authorities will arrest you. The consequences of any crime you may have to commit for the Cause will be pleasant.
It's still the same old story.
Morgan Sachs uber alles.
Copyright (C) Long Lake LLC 2009
A fight for love and glory
A case of do or die.
The world will always welcome lovers
As time goes by.
-Herman Hupfeld, 1931
In spending or guaranteeing over $10 trillion for the benefit of Big Finance, the Establishment has adapted the script officially judged to be the greatest in movie history, that of "Casablanca".
Rick: There's something you should know before you leave.
Laszlo: Monsieur Blaine, I don't ask you to explain anything. . .
Rick: She (Ilsa) came there for the letters of transit. . . She did her best to convince me that she was still in love with me, but that was over long ago. For your sake, she pretended it wasn't, and I let her pretend.
Laszlo: I understand.
Rick: Here it is.
(Rick hands the letters of transit to Laszlo.)
Laszlo: Thanks. I appreciate it. And welcome back to the fight. This time I know our side will win.
Ilsa (to Rick): God bless you.
Renault (to Rick): Well I was right. You are a sentimentalist.
Rick: I don't know what you're talking about.
Renault: What you just did for Laszlo, and that fairy tale that you invented to send Ilsa away with him. I know a little about women, my friend. She went, but she knew you were lying.
Rick: Anyway, thanks for helping me out.
Renault: I suppose you know this isn't going to be pleasant for either of us, especially for you. I'll have to arrest you of course.
Rick: As soon as the plane goes, Louis.
(Major Strasser, the Nazi, appears and tries to call the control tower to prevent the plane from letting Victor and Ilsa Laszlo escape.)
Rick: Get away from that phone.
Strasser: I would advise you not to interfere.
Rick: I was willing to shoot Captain Renault, and I'm willing to shoot you.
(Rick shoots and presumably kills Strasser. The gendarmes appear.)
Louis (to the gendarmes):
Major Strasser's been shot.
(Louis and Rick look at each other in one of the greatest pregnant pauses in movie history.)
Louis (resumes speaking): Round up the usual suspects.
Gendarme: Oui, mon Capitaine. . .
Louis: Well Rick, you're not only a sentimentalist, but you've become a patriot.
Rick: Maybe, but it seemed like a good time to start.
Rick (ending): Louis, I think this is the beginning of a beautiful friendship.
Why this trip down memory lane? First, the analogy. Team Bushbama Hankgeithner ben Bernanke is/was willing to do anything for the cause, just as Rick was willing to kill his friend Louis. Big Finance is Laszlo. The letters of transit are the bailouts. The goal in Casablanca was to spring Laszlo so he could lead the Resistance from America. The goal for the current enablers of Big Finance is to do anything to keep them alive to keep gambling and lending (i.e. looting); whether the corporations are profitable or not is not critical.
(Please ignore that Laszlo is the hero of "Casablanca" and Big Finance an anti-hero.)
Here's the sudden news that reveals the fraudulent nature of the stress tests, recent Big Finance "earnings", and the like: Bloomberg.com reports that Fed Said to Raise Standards for Banks’ TARP Repayment.
Federal Reserve officials surprised bankers in the past week by demanding they raise specific amounts of new capital before repaying taxpayer funds, applying a more stringent assessment than the stress tests in May.
JPMorgan Chase & Co. and American Express Co. were told they need to boost common equity, less than four weeks after being informed they had enough to withstand a deeper economic slump. Morgan Stanley was directed to raise more funds after already selling stock to cover its stress-test shortfall. One firm was told only yesterday, people with direct knowledge said.
The Laszlos were indeed surprised by Rick's maneuver. However, the idea that Big Finance was surprised by any Fed or Government actions is hilarious. This has been a carefully coordinated public-private operation, planned as minutely as Desert Storm was in 1991. In private, Big Finance definitely mouths "God bless you" to Team Bushbama and Team Fed.
Back to the not-so-curiously times Bloomberg article:
The central bank’s further scrutiny signals concern at the political and economic dangers of having a bank boomerang back to government aid once it leaves the program. . .
The Fed’s demands also partly reflect the biggest three- month rally in U.S. financial shares in at least two decades, which has made it easier for banks to raise the funds . . . (Ed. Obviously the Fed and the Feds caused the rally.)
Morgan Stanley, JPMorgan and American Express raised at least $7.7 billion this week as they learned of the new hurdles to leave the TARP. (Ed. Surprise, the stocks were up at least double their recent lows when they raised money!)
The Fed, Treasury, market manipulation, the supine folks at the Financial Accounting Standards Board, and Wall Street itself created the lie that the first quarter of this year was a great quarter for Big Finance. The idea that with surging loan losses and minimal demand for new loans that there could be huge profits for mega-bank holding companies is patently ridiculous; it was all a lie. The stress tests are suddenly not good enough because the operation has succeeded; the money has been or is about to be raised with minimal dilution. Of course, the Chieftains of Industry were brave enough to buy their companies' stocks at the bottom. No inside knowledge, of course!
Now it's on to the next Big Lie, the Public-Private Investment Partnership. Eventually Tim Geithner will walk off into the fog holding hands with J. P. Goldman.
Being in love means never having to tell the truth. And never having to say you're sorry. And never having to worry if the authorities will arrest you. The consequences of any crime you may have to commit for the Cause will be pleasant.
It's still the same old story.
Morgan Sachs uber alles.
Copyright (C) Long Lake LLC 2009
Sunday, May 31, 2009
Haiku of the Day
Big Finance, drunk driver,
Causes multiple pile-ups.
Pays off the cops
Copyright (C) Long Lake LLC 2009
Causes multiple pile-ups.
Pays off the cops
Copyright (C) Long Lake LLC 2009
Wednesday, May 13, 2009
In Memoriam William Seidman
William Seidman, former Chairman of the FDIC and first chairman of the Resolution Trust Corp, has passed away at age 88.
My enduring memory of him was during the crisis last year when he was on CNBC along with Larry Kudlow. Kudlow suddenly floated, for more or less the first time to the public, the idea of the Federal Government bailing out Big Finance with TARP.
Seidman, obviously not in on the plan, exploded with anger. The idea that big companies, with shareholders and bondholders, would not suffer the first losses, seemed alien to him. In his capacity as chair of RTC, after all, he was dealing with the assets of companies that had been allowed to fail. The idea that he and other taxpayers would subsidize the stakeholders in large financial companies drove him crazy. I hope it did not contribute to his death.
Copyright (C) Long Lake LLC 2009
My enduring memory of him was during the crisis last year when he was on CNBC along with Larry Kudlow. Kudlow suddenly floated, for more or less the first time to the public, the idea of the Federal Government bailing out Big Finance with TARP.
Seidman, obviously not in on the plan, exploded with anger. The idea that big companies, with shareholders and bondholders, would not suffer the first losses, seemed alien to him. In his capacity as chair of RTC, after all, he was dealing with the assets of companies that had been allowed to fail. The idea that he and other taxpayers would subsidize the stakeholders in large financial companies drove him crazy. I hope it did not contribute to his death.
Copyright (C) Long Lake LLC 2009
Sunday, May 10, 2009
Yves Smith, "Animal Spirits", and the Big Lie Technique
One of the important moments in the financial blogosphere occurred at the end of a lengthy and impassioned post by Yves Smith at Naked Capitalism, where she opined:
The dishonesty of this crowd is just breathtaking. The Bushies were blatantly high handed, while Team Obama prefers the Big Lie and assumes we are all too dumb to see through it.
Unfortunately, the financial and business has become political. Yves is hardly a right-winger; for her to use that terminology for a candidate who she fervently hoped would do the correct things is sad and shocking. (And appropriate!)
In that context, please consider the points made in a supposedly important book by two noted economists: a Nobel Prize winner- George Akerlof- and the even more famous Robert Shiller- in the popular book "Animal Spirits".
The book's subtitle is "How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism". Allegedly this is an Important work (for a popular economic tome). Perhaps within academic economics, it is worth reminding one's colleagues that Adam Smith and other empirical economists such as Keynes, who all theorized in words (not that Keynes did not also reduce his theories to equations) that at the root of economic actions are humans with emotions and non-rational expectations etc. etc. To non-economics such as a physician, however, this "insight" is jejune. of course individuals make non-rational decisions. How could one think otherwise?
The point of this post is how political "Animal Spirits" is, how mainstream it is, and how misguided it is.
Let us get right to the point. The book praises Asian economies for emphasizing saving. It ascribes the amazing long-term growth of the Singaporean economy to forced, massive savings. Yet it discusses the current American economic difficulty with a complete disregard to this philosophy:
The overwhelming threat to the current economy is the credit crunch. It will be difficult and perhaps even impossible to achieve the goal of full employment if credit falls considerably below its normal levels. (P. 86)
DoctoRx here. It's not clear if the authors are referring to the absolute level of credit or the growth level of credit.
The authors then go on to ascribe the current alleged credit crunch- which as I have previously blogged (citing such sources as the New York Fed to prove my point), only exists in relation to the loosest, most irresponsible granting of credit in generations- to a loss of animal spirits:
The segment of the financial system that initiated loans, and then passed them on, was fragile. It fell. In terms of our animal spirits, confidence disappeared. People became suspicious of transactions that they had previously undertaken to the tune of trillions of dollars. (P. 90)
DoctoRx here. The context of this passage makes it clear that government must cure the populace of this decline in animal spirits, of loss of confidence. How? With a hair of the dog strategy:
On pages 90-92, the authors have effusive praise for the Fed/Treasury solution of the Term Asset-Backed Loan Facility (TALF). They say (P. 92):
More generally, TALF shows us that there are two sides to creative finance: It may have gotten us into this crisis. But its genius may also get us out of it. (Emph. added; P. 92)
What is the "genius" of TALF? Basically, banks get to make a great deal of money with minor downside, with the Fed and Treasury taking substantial risk for limited upside. This is "genius"?
Now we get back to the beginning of this post. The entire set of actions of the government, which has really included the formerly-independent Fed ever since the Bear, Stearns/JPMorgan Chase bailout of March 2008, has been based on the combination of "high handed" and "Big Lie" tactics.
Why do I pick on Shiller and Akerlof? Well, consider that Dr. Akerlof is the husband of Fed Governor and Democratic stalwart Janet Yellen, and the authors have a classic 1960's Tobin-type liberal bias:
This had been the vision in prev ious generations of those who established central banks: the role of central banks is to insure the credit conditions that enable full employment. (P. 90)
From bogus "stress tests" and overvalued "legacy" securities, extending to the noted academics Robert Shiller and George Akerlof, we are besieged by lies large and small and political agendas everywhere.
The good government types found on the blogosphere, such as Yves Smith and many other such as Mish, Barry Ritholtz, Jesse and Simon Johnson, are powerless voices in the wilderness. Even the President who they by and large supported as a candidate has dissed them, saying that his administration pays no attention to (mere) bloggers.
And so Big Finance continues its primacy, and the culture of Serfing USA, with a government insistent on more and more debt even as the citizenry tries to escape its own personal debt, uses every tool of modern persuasive communications up to and including the Big Lie technique to continue to enrich the Merchants of Debt even as those companies such as auto manufacturers that actually make useful physical products are left to die and ordinary people who believed the Big Lie that house prices never decline and were therefore placed in overpriced homes by the Merchants of Debt are sent to tent cities to rot with no help from the Party of Franklin Delano Roosevelt and while the financiers of this disaster not only keep their estates and fine art purchased with the proceeds of these nefarious transactions but continue to receive all the fruits of this productive nation that Washington, D.C. can provide.
Can all this really be occurring for some paltry campaign contributions?
Copyright (C) Long Lake LLC 2009
The dishonesty of this crowd is just breathtaking. The Bushies were blatantly high handed, while Team Obama prefers the Big Lie and assumes we are all too dumb to see through it.
Unfortunately, the financial and business has become political. Yves is hardly a right-winger; for her to use that terminology for a candidate who she fervently hoped would do the correct things is sad and shocking. (And appropriate!)
In that context, please consider the points made in a supposedly important book by two noted economists: a Nobel Prize winner- George Akerlof- and the even more famous Robert Shiller- in the popular book "Animal Spirits".
The book's subtitle is "How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism". Allegedly this is an Important work (for a popular economic tome). Perhaps within academic economics, it is worth reminding one's colleagues that Adam Smith and other empirical economists such as Keynes, who all theorized in words (not that Keynes did not also reduce his theories to equations) that at the root of economic actions are humans with emotions and non-rational expectations etc. etc. To non-economics such as a physician, however, this "insight" is jejune. of course individuals make non-rational decisions. How could one think otherwise?
The point of this post is how political "Animal Spirits" is, how mainstream it is, and how misguided it is.
Let us get right to the point. The book praises Asian economies for emphasizing saving. It ascribes the amazing long-term growth of the Singaporean economy to forced, massive savings. Yet it discusses the current American economic difficulty with a complete disregard to this philosophy:
The overwhelming threat to the current economy is the credit crunch. It will be difficult and perhaps even impossible to achieve the goal of full employment if credit falls considerably below its normal levels. (P. 86)
DoctoRx here. It's not clear if the authors are referring to the absolute level of credit or the growth level of credit.
The authors then go on to ascribe the current alleged credit crunch- which as I have previously blogged (citing such sources as the New York Fed to prove my point), only exists in relation to the loosest, most irresponsible granting of credit in generations- to a loss of animal spirits:
The segment of the financial system that initiated loans, and then passed them on, was fragile. It fell. In terms of our animal spirits, confidence disappeared. People became suspicious of transactions that they had previously undertaken to the tune of trillions of dollars. (P. 90)
DoctoRx here. The context of this passage makes it clear that government must cure the populace of this decline in animal spirits, of loss of confidence. How? With a hair of the dog strategy:
On pages 90-92, the authors have effusive praise for the Fed/Treasury solution of the Term Asset-Backed Loan Facility (TALF). They say (P. 92):
More generally, TALF shows us that there are two sides to creative finance: It may have gotten us into this crisis. But its genius may also get us out of it. (Emph. added; P. 92)
What is the "genius" of TALF? Basically, banks get to make a great deal of money with minor downside, with the Fed and Treasury taking substantial risk for limited upside. This is "genius"?
Now we get back to the beginning of this post. The entire set of actions of the government, which has really included the formerly-independent Fed ever since the Bear, Stearns/JPMorgan Chase bailout of March 2008, has been based on the combination of "high handed" and "Big Lie" tactics.
Why do I pick on Shiller and Akerlof? Well, consider that Dr. Akerlof is the husband of Fed Governor and Democratic stalwart Janet Yellen, and the authors have a classic 1960's Tobin-type liberal bias:
This had been the vision in prev ious generations of those who established central banks: the role of central banks is to insure the credit conditions that enable full employment. (P. 90)
Having recently finished reading Niall Ferguson's "The Ascent of Money", I would have to call that statement a Big Lie as well. The evolution of the Bank of England into a central bank was most assuredly not to insure full employment for the subjects of the Crown. It was much more to help finance wars, imperialistic expansion, and other matters. Similarly, while the origins of the U. S. Federal Reserve are a bit controversial, full employment in the U. S. was for the most part a given before the Great Depression (though the level of wages was another matter). The country in those days was much to busy growing and much too rural not to use more workers somewhere to do something. From the New York Fed itself on the creation of the Federal Reserve in 1913:
The Federal Reserve Act presented by Congressman Carter Glass and Senator Robert L. Owen incorporated modifications by Woodrow Wilson and allowed for a regional Federal Reserve System, operating under a supervisory board in Washington, D.C. Congress approved the Act, and President Wilson signed it into law on December 23, 1913. The Act, "Provided for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes. (Ed: This post from the NY Fed lacks a close to the quote mark; alert readers who noticed the missing "end quote" should complain to the Fed!)
From bogus "stress tests" and overvalued "legacy" securities, extending to the noted academics Robert Shiller and George Akerlof, we are besieged by lies large and small and political agendas everywhere.
The good government types found on the blogosphere, such as Yves Smith and many other such as Mish, Barry Ritholtz, Jesse and Simon Johnson, are powerless voices in the wilderness. Even the President who they by and large supported as a candidate has dissed them, saying that his administration pays no attention to (mere) bloggers.
And so Big Finance continues its primacy, and the culture of Serfing USA, with a government insistent on more and more debt even as the citizenry tries to escape its own personal debt, uses every tool of modern persuasive communications up to and including the Big Lie technique to continue to enrich the Merchants of Debt even as those companies such as auto manufacturers that actually make useful physical products are left to die and ordinary people who believed the Big Lie that house prices never decline and were therefore placed in overpriced homes by the Merchants of Debt are sent to tent cities to rot with no help from the Party of Franklin Delano Roosevelt and while the financiers of this disaster not only keep their estates and fine art purchased with the proceeds of these nefarious transactions but continue to receive all the fruits of this productive nation that Washington, D.C. can provide.
Can all this really be occurring for some paltry campaign contributions?
Copyright (C) Long Lake LLC 2009
Subscribe to:
Posts (Atom)