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

Why the SIGTARP Report Suggests Both Looting and that a Depression Is Underway

Today's Quarterly Report of the Special Inspector General for the Troubled Asset Relief Program is quite troubling.  Early on, it summarizes matters:

The Troubled Asset Relief Program (“TARP”) now includes 12 separate, but often inter-
related, programs involving Government and private funds of up to almost $3 trillion
— roughly the equivalent of last year’s entire Federal budget. From programs involv-
ing large capital infusions into hundreds of banks and other financial institutions, to
a mortgage modification program designed to modify millions of mortgages, to public-
private partnerships purchasing “toxic” assets from banks using tremendous leverage
provided by Government loans or guarantees, TARP has evolved into a program of
unprecedented scope, scale, and complexity.

Any effort this immense, "unprecedented" in peacetime, including the Great Depression, will only be done for a truly major catastrophe, not just a "recession".  Paul Volcker, who is still at least nominally allied with the Administration, uses the euphemism "Great Recession" to describe the current downturn.  Since the word "recession" was introduced solely for PR reasons and means what "depression" meant before the Great D, we must interpret his use of the term for what it is.  TARP is response to an economic depression.  

Re the looting charge, SIGTARP has already initiated almost 20 preliminary or full criminal investigations.  These may be non-trivial:

. . . the cases include large corporate and securities fraud matters . . . insider trading, public corruption . . .

In addition, six areas of audit are underway.  These include special mention of BofA and BofA/Merrill; all 9 initial TARP funds recipients; and the payments to AIG's counterparties.

SIGTARP is specially critical of Treasury's refusal to monitor what has happened to the funds given to large financial institutions in return for preferred stock.  On its own, SIGTARP looked into the matter and received significantly detailed responses as to what the companies had done with the funds, sometimes in "granular" detail.  Why has Treasury refused such a simple matter?

SIGTARP has numerous complaints about the PPIP, which will be thoroughly analyzed by other bloggers much more expert than I.

There will be multiple "bottom lines" in this mess.   It is clear that at best Chairman Bernanke incompetently misdiagnosed matters as rosier than they were.  I wonder if Big Hank Paulson also misdiagnosed things.  In my humble opinion, he knew exactly how bad things were, given that he had recently run Goldman Sachs, which more or less runs Wall Street.  He exposed himself by waiting for the crisis that he knew was coming after he put Fannie and Freddie into receivership, then making sure in a 2 1/2 page document to request immunity for any misdeeds he might be accused of doing in implementing TARP.  How well is he sleeping these days?  

We have had unprecedented stock market manipulation by the SEC, twice putting short squeezes on to harm those who (correctly) were shorting financial stocks, then taking the pressure off after insiders and favored institutions were allowed to unload a lot of stock at unfairly high prices.

We have a Democratic Congress that would not even investigate a Republican President for alleged contractor abuses in Iraq.  One has to worry about how much zeal it will have to investigate a Democratic President's Treasury Department, especially when the Treasury Sec'y has been the glue in this disaster all along.

What is going on has elements of the Great Crash, in its financial and economic dimensions; and Watergate, with its political dimensions; as well as the S&L fiasco writ large.  One cannot think of anything like this festering toxic mix within the past hundred or more years in this country.  In this situation, where Big Finance and Big Government have been lying both by commission and by omission, there is no way to use historical economic tools to predict the future.  We just do not know what we may not know, other than that as a pretty young bride said to Rick in Casablanca, the devil has the people by the throat. 

Copyright (C) Long Lake LLC 2009

When Companies Get Very Big, They Get Stupid

Yours truly has been a substantial and loyal client of a large complex financial and banking institution that, of course, brands credit cards along with engaging in the usual practice of owning and distributing low-quality allegedly AAA-quality assets and then both accepting bailout money from the Fed and the Feds while claiming that it never needed it.

What impelled the above introduction was two envelopes received in the mail today, one addressed to me, the other to my wife. Each contained the identical pitch to get a new credit line for up to $20,000, with checks ready to use contained in the envelope, at an introductory rate of 5.99%. (How glad I was that they don't charge 6.00%! Customer-friendly in the extreme, don't you think?)

Now, this company has my wife as an individual depositor, me as an individual depositor, and the two of us jointly as individual depositors. It knows that we, therefore, are lending much more than $20,000 to the bank at the ridiculously low interest rates that the Fed has imposed so that the Bank can earn back all the money it has squandered on bad investments and bad loans, as well as on dividends and stock buybacks, not to mention overpaying its top management despite all their mismanagement. Why we would want to turn around and borrow up to $20,000 at 6% when we are lending much more than that to the bank is difficult to understand.

The fact that the bank has not bothered, a number of years after acquiring a leading credit card branding and issuing company, to tie that company's database in with the bank's database so that it could avoid embarrassing itself with these mailings means that the company has fallen yet another notch from my already low opinion of it.

The company has our phone number and has spoken with us many times in the recent past regarding the loans we have made to the company, called banking deposits, as well as the securities and large cash position with the securities firm the bank also owns with which we also have a significant account. Perhaps a phone call on whether we wish to take $20,000 out of savings, blow it on a vacation, and pay for that vacation by charging $20,000 on credit at 6% interest would be a nice courtesy, rather than an impersonal double mailer? Client relations, anyone?

This is a small example of the principle that these sorts of companies did not get big because of any synergies or other stuff mentioned in the press releases issued announcing the acquisition.
As with the two pharmaceutical company mergers discussed on this blog this year, Pfizer/Wyeth and Merck/Schering-Plough, the deal in and of itself rewards the company's buddies on Wall Street. Where the acquirer is itself "Wall Street", it has the extra critical benefit of helping make it "too big to fail" and therefore more immune from normal business forces.

Empirical research has apparently shown that when financial companies exceed a certain size, further bulking up actually harms profitability.

This is further grist for the mill of those who object to the propping up of these giant financial companies laughingly called "banks". They are hedge funds and gambling institutions that only exist because the Powers That Be have shown that they will commit virtually any funds they can beg, steal or borrow to their cause, all under the pretext that we the people need these entities to exist to so that they can lend us back our own money.

As I write, there is a concerted effort underway to convince the public that these companies are profitable this quarter, and a huge short-covering stock rally has already occurred. As the eye of the current economic banana/storm/recession/depression approaches, one doubts real economic profitability after write-offs and loan losses, but if so, it is only because the Government and the Fed have decided to starve the rest of the economy to create these profits.

Especially with regards to large financial companies, the stock market is now a rigged casino, no different than the one Rick ran in "Casablanca". Play if one wishes, but it should not be with any illusions that the playing has any resemblance to true investing.


Copyright (C) Long Lake LLC 2009