Looking Back at Tim Geithner

Zero Hedge (LINK) points us tonight to a surprising bit of dialogue between FOMC member Jeffrey Lacker and then-Vice Chairman (and head of the NY Fed) Tim Geithner, from pages 14-15 of the following (LINK), which is to August 2007 minutes of the FOMC meeting in which I have previously dated the great, global financial crisis to have begun:

MR. LACKER. If I could just follow up on that, Mr. Chairman.
CHAIRMAN BERNANKE. Yes, go ahead.
MR. LACKER. Vice Chairman Geithner, did you say that they are unaware of what we’re considering or what we might be doing with the discount rate?
VICE CHAIRMAN GEITHNER. Yes.
MR. LACKER. Vice Chairman Geithner, I spoke with Ken Lewis, President and CEO of Bank of America, this afternoon, and he said that he appreciated what Tim Geithner was arranging by way of changes in the discount facility. So my information is different from that.
CHAIRMAN BERNANKE. Okay. Thank you. Go ahead, Vice Chairman Geithner.
VICE CHAIRMAN GEITHNER. Well, I cannot speak for Ken Lewis, but I think they have sought to see whether they could understand a little more clearly the scope of their rights and our current policy with respect to the window. The only thing I’ve done is to try to help them understand—and I’m sure that’s been true across the System—what the scope of that is because these people generally don’t use the window and they don’t really understand in some sense what it’s about.
CHAIRMAN BERNANKE. Okay. President Rosengren. 

There was no on-the-record further discussion of this, at least on the contiguous page.  Hmmm...

I began this blog in December 2008 in large part from disappointment that President-elect Obama had nominated Mr. Geithner to head up Treasury.  (There was not even a Zero Hedge yet.)  My position was based on his role as bailout-er, but then another issue surfaced.  Treasury contains IRS, and it turned out that Mr. Geithner had been challenged on his taxes.  This is what I first wrote about him, after the news broke (LINK):

TUESDAY, JANUARY 13, 2009 

Trust and a State 

You could not make this one up. Forget Zoe Baird (a Clinton AG nominee who was dropped because she had employed an "undocumented" nanny).
Mr. Timothy Geithner has been revealed to be a tax cheat of the first order. The Times hates to point it out, but has to spit it out, probably in return for a scoop. After an IRS audit showed that he underpaid his taxes by up to $17K for his 2003/4 returns, it turns out that the same "mistake" causing those returns to be a wee bit short were also present in 2001 and 2002. (You really can't make this up.)
When were the 2001-2 errors found? Last year, when Mr. Obama's "vetters" found the problem and "brought it to Mr. Geithner's attention", after which he paid tax and interest of $25,970.
So Mr. Obama has sat on this knowledge for 2 months and could not find anyone else in the entire US of A to be head of the Treasury Department. Which is in charge of the IRS, one might recall. So the Cabinet member in charge of the IRS is a tax cheat and this is just fine with Mr. Obama.
Recently, my wife did her part to combat the recession by giving the girls down the street some work making her nails gleam and glisten. One of those gals was Russian. She exclaimed with some emotion that in Russia, they knew the higher-ups stole, but they did not expect the same out of America. Her eyes are now open. And so are ours.
What does this have to do with markets and the economy?
Everything.

This was my next comment (LINK):

TUESDAY, JANUARY 13, 2009

          Geithner II (follow-up to "Trust and a State")

It doth worsen. The WSJ-online provides add'l details to the Times' article on Mr. Geithner's aggressive use of the tax code tonight in, "Geithner's Tax History Muddles Confirmation".
Read it and weep. Sleepaway camp? Some juicy extracts:
"As to why Mr. Geithner didn't pay all his back taxes after the 2006 audit, an Obama aide said the nominee was advised by his accountant he had no further liability. Senate Finance aides said they were concerned either Mr. Geithner or his accountant used the IRS's statute of limitations to avoid further back-tax payments at the time of the audit."
"Other tax issues also surfaced during the vetting, including the fact Mr. Geithner used his child's time at overnight camps in 2001, 2004 and 2005 to calculate dependent-care tax deductions. Sleepaway camps don't qualify."
"Amended tax returns that Mr. Geithner filed recently include $4,334 in additional taxes, and $1,232 in interest for infractions, such as an early-withdrawal penalty from a retirement plan, an improper small-business deduction, a charitable-contribution deduction for ineligible items, and the expensing of utility costs that went for personal use."
As someone who has been tres critical of the bailout(s), the secrecy, and the general incompetence of Government that allowed the crises to fester and then explode (and continue to fester), I have felt that the choice of Mr. Geithner was a sign that the new Administration would show continuity with the old, and that this was a bad thing for resolution of the problems.
Mr. Obama, take down this nominee. Real change is needed. Here's your excuse to do it.

And my next one (LINK):

WEDNESDAY, JANUARY 14, 2009 

Geithner Must Go (Not Arrive)

The New York Times continues to push to make the appointment of Mr. Timothy Geithner appear inevitable. Its latest writeup is titled, "Geithner's Skill May Trump Tax Issue".
There is something wrong with this title. What is wrong is that everything important that Mr. Geithner has been involved with in the past year has failed. So where is the skill?
There is a howler in the Times article. What do you make of this part of it?
"On Oct. 17, at a New York hotel, Mr. Obama and Mr. Geithner met for an hour and talked about policy and personal matters, according to accounts of the session. . ."
"Obama advisers say the candidate “fell in love” with Mr. Geithner, in the words of one, while a Geithner associate said Mr. Geithner reported being “smitten” with Mr. Obama. “They both have that kind of quiet confidence in their demeanor,” the associate said."
DoctoRx here. "Fell in love" and "smitten"? Is this Brokeback Mountain come to the Potomac?
In any case, Mr. Geithner is a failure at his current job and a tax cheat. For him to become Treasury Secretary would be bad for the economy. It doesn't matter whether Mr. Obama loves him or how many Senators rally round him.

And the final one on Mr. Geithner (LINK):

THURSDAY, JANUARY 15, 2009 

Geithner Follow-Up 

The WSJ is reporting as of its Jan. 15 edition in "IMF Informed Geithner on Taxes":
"Timothy Geithner, whose nomination as Treasury secretary has been delayed by his past failure to pay taxes, was repeatedly advised in writing by the International Monetary Fund that he would be responsible for any Social Security and Medicare taxes he owed on income he earned at the IMF between 2001 and 2004."
His nomination may be toast.

Wrong!

Here's one more related post (LINK):
Here is the title:

SATURDAY, JANUARY 31, 2009I Second That Evasion: Tom Underpays Tim

And the most cogent part of a relatively long post:

Here is the Times' headline:

"Use of Free Car Lands Tom Daschle in Tax Trouble"

DoctoRx here: Doesn't sound too bad, does it? Perhaps just a forgotten couple of limo rides? 

President Obama's pick for health and human services secretary, Tom Daschle, failed to pay more than $128,000 in taxes, partly for free use of a car and driver that had been provided to him by a prominent businessman and Democratic fund-raiser, administration officials said Friday.
Note the word "partly", whichindicates that the headline of the article was too easy on Mr. Daschle, and also note that $128,000 far exceeds Treasury Secretary Tim Geithner's tax underpayments.
Mr. Daschle, concluding that he owed the taxes, filed amended returns and paid more than $140,000 in back taxes and interest on Jan. 2, the officials said. 

At least Mr. Daschle stayed in the private sector.

The Fed Begins to Reveal the Extent of Its Malfeasance in re Bear Stearns

Bloomberg. com is running Fed Releases Details on Bear Stearns, AIG Portfolios. The key part of the article is:

“No one should have been surprised that it looks like the Bear and AIG portfolios are junk,” said Robert Eisenbeis, a former Atlanta Fed research director who is now chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey.

What was suspected is now known. And the key man in the NY Fed purchase of this junk is quoted today as saying that it is "deeply unfair" that some financial institutions are coming out of this mess in such better shape as many individuals. Thanks, Tim. You've got quite the conscience.

Wall Street and government jointly engineered a housing and general credit boom/bubble, extended it with the subprime shenanigans and securitization thereof and wild and crazy corporate takeover action, and then per Michael Lewis' "The End" helped end the saga. Knowing all this, the former Nixon operative Henry "Hank" Paulson, was "persuaded" to accept the position of Secretary of the Treasury. The President then had plausible deniability. From this position Mr. Paulson worked hand in hand with supposedly independent Ben Bernanke and Timother Geithner to hand JPMorgan Chase the trophy of Bear Stearns on a platter. He also presumably worked hand in hand with the chiefs of Big Finance. Later, shortly after Barney Frank assured everyone that Fannie and Freddie were sound and an alleged housing fix legislation was passed in summer 2008, and Fannie and Freddie sold debt worldwide, all of a sudden they had to go into conservatorship. By not shutting them down, they became unending sources of commissions for stockbrokers. The same is true for AIG and even Citigroup.

The next phase of the looting involves the "surprise" failure Lehman. It was something out of a bestseller from the 1960's: "The Magus". At the end, the anti-hero realizes there is no god. He's on his own. So briefly, stockholders were panicked by the collapse of Lehman. The Fed God had stepped away! Goldman Sachs and the offspring of J. P. Morgan & Co., Morgan Stanley, became the only 2 survivors of the Big 5 investment banks, as the Fed bypassed normal procedure and converted them to bank holding companies on the spot. AIG was used a conduit to pass more newly-printed money to enrich various Big Finance institutions including foreign ones. And so on. All this of course was with the approval of candidate and then President-elect Obama. Thus the Geithner nomination despite the tax-fiddling revelations.

In a carefully planned set of operations, the favored large Big Finance traditional banks were each allowed (or commanded) to swallow one failing competitor. Wells Fargo got Wachovia; JPM got WaMu; BofA (in)famously got Merrill Lynch.

We learned that even money in the bank is of dubious value in a crisis, as the FDIC would have needed a bailout had Congress not pledged to do whatever it took to support it.

(We also learned once again that when pictures of the Depression make the front pages of Newsweek, it's getting near the bottom of the stock market.)

Anyway, unprecedented money-printed ensued. We are now reading about surging stock markets as economic growth accelerates. Since for every buyer there is a seller at the same price, all the indicators such as sentiment are of only mild value. Ultimately stocks and bonds are financial assets that have an unknowable value. How does an investor decide what to do in a world such as the above where the powers that be are in such control of macro matters and have so much more knowledge about what's really going on than you or I?

We always knew that Wall Street was never interested in anything but its own well-being, but we never knew how much on its side the Feds and the Fed were. Most Americans are effectively renters in their own homes and have minimal savings. Corporations and their chieftains are prospering in another "jobless recovery".

The debt:GDP ratio continues to climb even as households are tapped out, with government expanding its balance sheet to more than make up the difference.

With a left-of-center government, liberal economists rule the roost. Robert Shiller is calling for yet more government support for housing. The administration is doing more in that regard--at what cost?

The cost of government borrowing is at rock-bottom rates. An expanding state requires more taxes. We should look forward to a combination of rising business and personal taxes along with the effects of all the money-printing showing up as rising prices as the coincident economic indicators catch up with the forward-looking indicators that continue to be stable to rising. Yet as employment income and interest income lag, discount and deep discount stores look to stay strong. DLTR has sharply rising earning estimates and trades at about 14X current-year earnings.

Watson Pharma (WPI) has broken out to a multi-year stock price, has record earnings and a lowish valuation; as credit money flows more freely, takeover activity will pick up and unlike Teva, WPI is a bite-sized acquisition for many companies.

MCD fits the theme of financially strong companies with rising earnings estimates. Its dividend yield exceeds that of a 7-year Treasury and likely will rise substantially by 7 years from now. So it's a classic growth and income play.

Financial strategists who have gotten this bull move right, namely Barry Ritholtz and David Kotok, are on similar pages. They are thinking that most of the good news is out now and that S&P 500 1250-1300 represents an important target. It is 1169 now. Another 7% upward move will put Andrew Smithers' estimate of fair value as judged both by q and cyclically-adjusted P/E (CAPE) at around 60% above fair value. Going back to 1900, this was perhaps seen in 1929. It was only seen in about 1997 and then through 2001 and then not again according to his chart, though CAPE hung around the 60% overvalued mark through much of the aughties, q was a bit lower.

Putting the two themes together, the public has no idea of what anything is really worth or what it will do. We can say that we are already close to 1929 levels of stock overvaluation, which was only exceeded in the past 110 years by the millenial, post-Cold War fervor of the late 1990s. An economy cannot function on rising asset prices. Eventually we can hope for, or even expect, new technologies such as economical green energy-related ones to help improve our lives fundamentally. But those companies that will implement that will likely be ones you have never heard of and that will eat the lunch of some seemingly safe big names that are now in the indices.

There is no easy solution. Remembering the lessons of the historical record and the recent past are not certain to be useful in predicting the future, but at the least they are certain to be useful in understanding it as history unfolds.

As the Fed apparently moves toward a world in which depository institutions need NO reserves, there is every reason to think that the yang to that yin, gold, will at least retain its current relative value to other financial assets. The thing about gold is that one has to earn it, or at least steal it. It's either present or it is not. Whereas, electronically-created "money" with a corrupt Federal Reserve Bank of New York in charge of said creation and distribution, acting on behalf of its corporate owners such as JPM, is not a glittering example of responsible wealth creation or accumulation.

The speculation here is that gold prices will fall less than stocks if stocks fall and that they will more or less match or exceed the performance of stocks in a renewed up-move for stocks.

Copyright (C) Long Lake LLC 2010

Geithner, Rangel: Who's Next?

Following the revelations that Barack Obama loved Tim Geithner so much that the President-elect could look past Mr. Geithner's repeated self-favoring tax errors, we now have someone who it would appear did not report the truth, whole truth and nothing but the truth to Congress on financial matters allowed by leadership to continue to run the House Ways and Means Committee. From "The Hill", Pelosi to let Rangel keep post as GOP steps up its attacks:

Speaker Nancy Pelosi (D-Calif.) will let Rep. Charles Rangel (D-N.Y.) keep his chairmanship despite his failing to report hundreds of thousands of dollars in assets on federal disclosure forms, according to Democratic aides.

The chairman of the House Ways and Means Committee’s latest misstep has received strong media scrutiny and prompted good-government watchdog groups to call for a special counsel investigation.

Growing ethical turmoil surrounding Rangel has prompted calls for Pelosi to yank Rangel’s gavel. . .

These are the same Democrats who had two themes that allowed them to sweep the 2006 Congressional elections, one theme being to "drain the swamp" of corruption the Republicans in power for 12 years allegedly caused. It would appear that money-hunger is bipartisan.

The combination of bipartisan rewards to the financial industry that donates so much to politicos and that provides a superbly-compensated place for many in government to go after their work on behalf of the public, plus evidence of money-hunger by those in government, is corrosive to the faith of thoughtful observers that the system is fair toward the little guy or small investor.

Copyright (C) Long Lake LLC 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

Warren Commission Redux: Tim's Time Coming Close?

Courtesy of Jesse's Cafe Americain comes notice of this blockbuster out of the Guardian in the UK that the Harvard lawyer Elizabeth Warren is going to blast one of Harvard Law's own, Barack Obama (through the vehicle of Timothy Geithner) in (no link as the article is provided in its entirety:

US watchdog calls for bank executives to be sacked

• James Doran in New York
• The Observer, Sunday 5 April 2009

Elizabeth Warren, chief watchdog of America's $700bn (£472bn) bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration's approach to saving the financial system from collapse.

Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be "wiped out". "It is crucial for these things to happen," she said. "Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade." She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173bn in bailout money, and banking giant Citigroup, which has had $45bn in funds and more than $316bn of loan guarantees.

Warren also believes there are "dangers inherent" in the approach taken by treasury secretary Tim Geithner, who she says has offered "open-ended subsidies" to some of the world's biggest financial institutions without adequately weighing potential pitfalls. "We want to ensure that the treasury gives the public an alternative approach," she said, adding that she was worried that banks would not recover while they were being fed subsidies. "When are they going to say, enough?" she said.

She said she did not want to be too hard on Geithner but that he must address the issues in the report. "The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous."

The report will also look at how earlier crises were overcome - the Swedish and Japanese problems of the 1990s, the US savings and loan crisis of the 1980s and the 30s Depression. "Three things had to happen," Warren said. "Firstly, the banks must have confidence that the valuation of the troubled assets in question is accurate; then the management of the institutions receiving subsidies from the government must be replaced; and thirdly, the equity investors are always wiped out."

If the article is true, this is the first bit of common sense to come out of (semi-?) officialdom, but nonetheless it may be difficult for the powers that be to ignore the second Warren Commission's findings.

More to the point, Timothy Geithner was certainly the worst NY Fed-head in many years, if not the worst ever.  He recently groveled before Congress rather than defend his regulatory record as Wall Street ran riot since he took over the NY Fed in 2003.  He is certainly the worst Treasury Secretary since Hank Paulson (!); and in a more serious vein, the PPIP is a disastrous plan that is clearly only good for the financial community.  PPIP corrupts FDIC and disadvantages banks that are solely banks by forcing them to subsidize financial supermarkets that happen to own banks, such as Citigroup and BofA.  At least Paulson could claim in the late summer and fall that he had a sudden set of catastrophes.   Geithner cannot claim anything of that nature and cannot claim that he needed time to get up to speed. 

Barack Obama is no longer Senator Obama.  Mr. Obama does not happen to just live at 1600 Pennsylvania Avenue while Tim Geithner makes financial policy.  In a crisis, the President makes policy.  The policy buck and the bailout bucks stop with the President.  As stated at EBR several times, Barack Obama is no FDR.  FDR came to the White House prepared for the immensity of the crisis and took actions immediately.  Those actions were successful.  Talk that his 1932 election might be the country's last subsided, the stock market tripled in 4 years, and we know the rest of the story.  That story is that the banksters came back and in 1999 were where they were in 1929 (or so), but this time they stayed around and gave us a second act with a second and worse set of bubbles popping in the past 2 years. 

The PPIP bailout is Barack Obama's policy.  Mr. Geithner is obviously just a tool.  Let us hope for change in the administration's policies toward Big Finance.  That agent of change should be Barack Obama, who may, if the Guardian report is accurate, have a chance to reinvent himself by promptly firing Timothy Geithner and saying, as did Humphrey Bogart when told that he was wrong to have come to Casablanca for the waters, that he was "misinformed".  

Not All's Well Despite Ending Well

As far as weeks go, all's well that ends well?  We beg to politely differ.

Many people have seized on snippets of less-than-horrible economic data in February and March to proclaim that the newly-minted bull market (all major averages up over 20%) has "legs".  Let us hope, but here are some narrow-bore comments and bigger picture points gathered by EBR over the past few days.

Firstly, an expert opines negatively:

NEW YORK (Reuters) - U.S. credit markets are not showing the same optimism on the economy as U.S. equities, suggesting that the recession will run far longer than most expect, Mohamed El-Erian, the chief executive of bond giant Pacific Investment Management Co., said on Friday. . .

"In general, credit markets have not demonstrated the same sense of enthusiasm as the equity market," El-Erian said, adding corporate credit spreads are still elevated.

"I suspect technical factors are in play (in the equities market), and have been over the last few days," he added. "The weakening correlations suggest that fundamental drivers are being overwhelmed, for now, by short-term technical repositioning."

Next, Nouriel Roubini (RGE Monitor, subscription required), who has not been proven wrong yet throughout this economic and markets agony, has just now disclosed all his financial assets are in cash except for his (relatively small) 401(k).  He continues to reaffirm his bearishness both on the economy and stock market.  He looks for 11% headline unemployment by about midyear 2010 and for the economy to underperform consensus by shrinking every quarter in 2009 and only rebounding to keep pace with population growth in 2010.  Here is a summary from his website of different unemployment forecasts:

Unemployment rate forecast (not online)- RGE Monitor: 10% by 2009-end and 11% by Q3 2010 with close to 4.6 mn job losses in 2009; Morgan Stanley: 10% by 2009-end; Goldman: 9.5% by end-2009 and 10% by 2010-end; JP Morgan: 8.7% by 2009-end; Merrill: 9.9% by Q4 2009 and 10.4% by Q4 2010. Merrill Lynch: depression-style job losses with close to 3 mn net payroll loss during Oct-08 and Feb-09 with steepest employment loss since the 1940s. Fed: 8.5-8.8% in 2009, 8-8.3% in 2010 and 6.7-7.5% in 2011.

Note the Fed is the outlier in the above listing!

Roubini is therefore bearish on the stock market at this level and incidentally is bearish on gold, as he is in the deflationist camp.

Meanwhile, the publicists highlighted the "good" news.  What was not highlighted as much was information such as the following:

A services index from the Institute for Supply Management, a Tempe, Ariz.-based trade group of purchasing executives, fell to 40.8 last month from 41.6 in February. Economists surveyed by Thomson Reuters expected the index to edge up to 42.

"We haven't stopped free-falling," said Joel Naroff, president of Naroff Economic Advisors (ed:  Bloomberg's top economist for 2008).

The highlighting of positive news items is seen in bull markets.  Look to buy economically sensitive assets when there is legitimate good news but it is being ignored, such as in the winter and spring of 2003.

Other bits of truly bad news from the March unemployment report were ignored or nearly ignored.  The unemployment rate increase was correctly dismissed as a "lagging" indicator.  However, January unemployment data were quietly revised to show almost a 100,000 greater count; and, there are 3 forward-looking bits in the unemployment data, and 2 of the 3 were unequivocally bearish:  hours worked (record low since data collected in 1964), and temporary help employment. 

It is good to go to as many experts who have predicted matters correctly this cycle.  Here are excerpts from an interview with the correctly-bearish financial company analyst, Meredith Whitney, in U.S. bank woes just the start, says Whitney:

As recently as six months ago, she was forecasting that at least $2-trillion (U.S.) of available credit card lines would be eliminated by nervous bankers by the end of next year. Now she thinks she underestimated the cutback and has revised the number to $2.7-trillion. Although it's not possible to gauge the direct impact on spending by already depressed consumers, the effect is bound to be enormous.

“Since 2006, you've had liquidity coming out of the market. That's caused consumer credit to worsen. Liquidity continues to come out of the market. Therefore, consumer credit continues to worsen,” she said logically.

And the effect on the banks? “The assets on bank balance sheets are worth less and less. And they need more and more capital.”

Without doubt, more U.S. banks will fail or end up effectively nationalized. And if that's not enough grim news, there's another black hole still to come – commercial real estate. No wonder she recently opined: “It remains clear to us that core liquidity fundamentals are deteriorating at an accelerated pace.”

Consider reading the entire (brief) article.  

In the meantime, the thought leaders in the blogosphere who detested G W Bush continue to move farther away from their last best hope for this country.  Barry Ritholtz of The Big Picture (www.ritholtz.com) wrote today, in the comments section of Part 2 of his flaying of Larry Summers, that he was "horrified" that Tim Geithner has done little more than "adapt" the Paulson approach to this crisis.  Mr. Ritholtz, a prominent Republican for Obama ("Obamacan") last fall, has to be only a hop-skip-jump away from naming Mr. Obama himself.

This issue is of special interest at this blog, which was founded in large part because the blogosphere that had harshly criticized the Bush-Paulson (+Bernanke-Pelosi-Reid-Frank etc) actions last year had expected the Obama administration to be much better, when in fact candidate Obama had supported every bail-out action by word or vote, andevery signal that came out of President-elect Obama was one of continuity with the Bush policies.

If the "bears" who have simply been correct realists continue to be correct, such as Dr. Roubini and Ms. Whitney, and assuming no dramatic change of course by President Obama, then the suspicion at EBR is that, public opinion will gradually follow that of the thought leaders, andin that case confidence in Barack Obama's policies toward Big Finance would then wane substantially.

As stated recently in an EBR post, we have already witnessed the greatest sudden wealth transfer by government from taxpayers to private companies in the history of the world.  The analogy made was to Watergate, where bombshells arose ex nihilo, and one of the most sweeping electoral victories ever by Richard Nixon in 1972 was reversed and then some.  Could Big Finance be in a situation similar to that of Nixon? 

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