Tag: banks

Noch einmal

The Bank of England is warning that we’re back in two-two-two thousand and eight:

The eurozone crisis has left UK banks unable to raise the funding they need to make loans to businesses, evoking the spectre of the crunch that followed the collapse of Lehman Brothers. And on one critical measure — the cost of insuring banks against going bust — lenders are already facing tougher conditions than at the height of the crunch, the Bank said.

For the benefit of those who don’t speak Central Bank, “on the brink of a credit crunch” means “we expect there to be a serious financial crisis within months”. In the spring of 2008, the bankers I knew were all talking endlessly about the tightening of credit and the senseless calling of major credit lines. And we all know how that turned out in the fall.

Speaking of wholly owned

Goldman Sachs conquers Europe:

As Greece, Italy and the European Central Bank appointed new leaders in the midst of the worsening Euro crisis, observers rushed to find something that might link the cost-cutting crusaders. And it seems the scrutinisers have found a connection in the form of Goldman Sachs. The new president of the European Central Bank, Mario Draghi, Italy’s new prime minister, Mario Monti, and the new Greek prime minister Lucas Papademos all reportedly have the US investment bank as a common denominator.

And Monti has just set the whispers going by refusing to appoint a single elected official to his new cabinet. So, Italy now has an unelected leader buttressed by an unelected consigliere. Fortunately, Goldman has no such undue influence in the United States… wait a minute.

The banker’s president

Who would have thought Obama would turn out to be as wholly owned as John McCain?

President Obama dearly wants to seal a deal in which the nation’s largest banks toss over a few bales of cash — $20 billion to help with foreclosure relief — and the state attorneys general agree not to pursue sprawling and explosive legal cases against the banks.

Mr. Schneiderman and Attorney General Beau Biden of Delaware, joined by a few others, say no. Banks, they say, should disgorge more documents, testify more precisely and prove more completely that they own millions of mortgage notes. These rebel attorneys general want the banks to hand over more than $200 billion, which would enable the government to write down tens of millions of mortgages.

But in the end, their argument is elemental: Wouldn’t the nation benefit from knowing the truth about the behavior of banks and bankers?…

[T]he Obama administration has Shaun Donovan, secretary of housing and urban development; the economic adviser Gene Sperling; and Attorney General Eric H. Holder Jr. dialing liberals, activists and bloggers, urging them to pressure the rebellious attorneys general to forgo emotionally satisfying inquiries and take the deal.

Take the deal? It’s absurd on its face. Notice how desperate the banks are to close the doors on their past actions. Anytime someone is delighted to pay a $20 billion fine, you have to ask yourself what they are so eager to put behind them. It’s not just mark-to-market or Europe that will cause them to implode, it’s also their criminal activity. This combination of factors means that the big banks are eventually going to go down sooner or later, the only significant question is which blow will prove to be the lethal one.

It’s fascinating to see this perspective being presented in the New York Times, of all places.

The fearful foundations of the Fourth Reich

I wrote that a few years ago in a column about TARP. But things are arguably even worse in Europe, where the bankers have forced two non-democratic changes in government in Greece and Italy. But don’t think things can’t go from bad to worse; the normally sane Ambrose Evans-Pritchard is freaked out to the point that he is calling for diplomatic and economic war rather than simply allowing the whole debacle to collapse under its own weight.

In Italy they have already made matters worse. I doubt that much will change with “technocratic governments” in either Greece and Italy, yet immense damage has been done to democratic accountability. The EU Project has become both dangerous and insane….

You cannot allow the biggest bankruptcy in history to run its course – with calamitous domino implications – before all options have been exhausted.

One can only guess what is happening in the great global centres of power, but it would not surprise me if US President Barack Obama and China’s Hu Jintao start to intervene very soon, in unison and with massive diplomatic force. One can imagine joint telephone calls to Chancellor Angela Merkel more or less ordering her country to face up to the implications of the monetary union that Germany itself created and ran (badly).

Yes, this means mobilizing the full-firepower of the ECB – with a pledge to change EU Treaty law and the bank’s mandate – and perhaps some form of quantum leap towards a fiscal and debt union.

In other words, because the EU is an evil financial empire on the verge of collapse, the US and China should intervene, prop it up, and help it transform itself into the literal Fourth Reich. Since Evans-Pritchard has generally been an intelligent and reasonable observer of past EU antics, the hysterical nature of this column should suffice to demonstrate the extraordinarily dangerous nature of the situation.

And he’s wrong. The bankruptcy is going to happen no matter what measures are taken. The financial media has learned nothing from 2008. Desperately delaying the necessary surgery is not going to improve the chances that the patient will survive.

WND column

Transfer or Tea Party?

Most Americans opposed TARP. They saw no reason to use taxpayer money for bailing out the very financial institutions that had been parasitically feeding off them for decades. But America is not a democracy. It is no longer even a representative democracy. The banking bailout, the GSE bailout and the subsequent automotive bailout were all rammed down the unwilling throats of the American public by the Goldman-controlled Treasury Department with the help of the Bush administration and congressional Democrats. It was rather like a doctor forcing a rape victim to pay for her own chemotherapy because it would benefit her rapist.*

Bipartisan support for the bailout made it clear to all and sundry that at the end of the day, the supposed divide between the Republican and Democratic parties is an imaginary one. Republicans and Democrats are nothing more than a unitary bank party.

*I know this makes no sense. That’s the point. Neither did the bailouts.

The EU’s democracy deficit widens

No referendum for you!

A statement from Prime Minister George Papandreou scrapping the referendum on the $178 billion European bailout package has been provided to the Associated Press. “The referendum was never an end in itself,” Papandreou said. “We had a dilemma – either true assent or a referendum. I said yesterday, if the assent were there, we would not need a referendum.”

It won’t make any difference. The question isn’t whether it’s all going to come crashing down, it’s just a question of which of the many straws upon the camel’s back will be that does the trick.

My expectation is that once people realize they are not only being railroaded, but don’t even have the opportunity to protest, we’re going to start seeing the revival of the Red Brigades soon. As I told the DC radio guy who interviewed me this afternoon, it’s not the crash that concerns me, that’s inevitable and I’m just hoping to stay buckled in and enjoy the ride. It is what comes after and how the popular fury will be channeled that is worrisome.

If I was an elite strategist, that’s what I’d have focused on for the last two years, not wasting the time on playing King Canute.

A skeptic shows he’s a sucker

Whenever you encounter atheists claiming to be skeptical, rational, logical, and intelligent, you can be relatively confident that they will soon demonstrate that they are absolutely nothing of the sort. Consider these two contradictory claims from SkepticBlog:

1. “SkepticBlog is a collaboration among some of the most recognized names in promoting science, critical thinking, and skepticism.”

2. “Why has no one from Wall Street gone to jail for the financial meltdown? Bill Maher has asked this question several times on his HBO show Real Time. I have asked many experts myself, including economists, lawyers, and Wall Street traders. Answer: no one went to jail because they didn’t break any laws.”

Now, I rather liked Michael Shermer’s “The Mind of the Market” when I reviewed it a while back, but this post is almost astonishingly stupid and is so demonstrably clueless that I very much doubt Shermer has genuinely asked a single expert about this. One need look no further than the mainstream media to know that the Obama administration broke the law. Ben Bernanke broke the law. Henry Paulson broke the law. Every single “too big to fail” bank broke the law. Every bank that registered a mortage with MERS broke the law and evaded county taxes. Karl Denninger has a little list of four of the most obvious and egregious examples.

Shermer then goes on to ask “What, exactly, did these Wall Street people do that was so wrong?” That’s quite simple. Fraud, theft, forgery, money laundering, and tax evasion.

And after this preposterous demonstration of willful stupidity, the “skeptic” Shermer declares that “the government should regulate Wall Street more”. Right, because the answer to government regulators failing to enforce the law is obviously more government regulation. That’s some fine criticial thinking right there, isn’t it?

Shermer should know better. I know for a fact that he’s not as economically illiterate as this post makes him look, but it shows that he is demonstrably inept when it comes to logic. Keep this performance in mind when you consider the value of the science he is promoting and the legitimacy of his arguments concerning atheism.

EU crackdown or crackup

Most likely the former followed by the latter. The EU leaders can blather about the sanctity of the euro and inviolate nature of the Union all they like, but neither threats nor promises can salvage the situation. Their problem is that they can’t keep the Fourth ReichUnion together while continuing to drain the masses dry in order to bail out the bankers. To put the situation in context, imagine the various U.S. states had had the option to opt out of participating in TARP. Why would people in Texas ever choose to materially reduce their standard of living so that Washington could prop up Goldman Sachs and Bank of America and keep them in business? As usual, the bond yields tell a more informative story:

Greece 2-year 92.980% One year ago: 9.784%
Portugal 2-year 19.112% One year ago: 3.521%
Italy 2-year 5.455% One year ago: 1.966%
Spain 2-year 3.872 One year ago: 2.069%

In other words, the Greek default is certain regardless of what happens with the “bailout” or the proposed referendum. Portugal will probably default too, sooner or later. Italy is looking increasingly problematic, while Spain actually appears to be doing relatively well.

Arab Spring in Libya

Once again, the neocons have supported the expansion of popular and democratic Islam:

Mustafa Abdul-Jalil, the chairman of the National Transitional Council and de fact president, had already declared that Libyan laws in future would have Sharia, the Islamic code, as its “basic source”….

Mr Abdul-Jalil went further, specifically lifting immediately, by decree, one law from Col. Gaddafi’s era that he said was in conflict with Sharia – that banning polygamy. In a blow to those who hoped to see Libya’s economy integrate further into the western world, he announced that in future bank regulations would ban the charging of interest, in line with Sharia. “Interest creates disease and hatred among people,” he said.

So, how is this in the American national interest, exactly? And actually, if you think about it, what is the real difference between formally banning interest, as Abdul-Jalil has directed, and reducing the interest rate to zero, as Bernanke, King and Trichet have done.

Explaining the banking bailout

Karl Denninger walks skeptics through the application of TARP and explains in detail why TARP did not represent Washington imposing its will on Wall Street, but rather elite Wall Street bankers rescuing the big banks by utilizing the federal government as a tool:

You realize that what you feared – a call to announce that the regulators were seizing all of your firms as they all had no mathematical way to survive isn’t what was going to happen at all! Instead, you were going to be given some $250 billion between you and the FDIC was going to take all credit risk on your new bond issues for the next year. In addition you were briefed on the TLGP which will guarantee your customers won’t run your bank as it provides their demand accounts with unlimited FDIC insurance protection. This is to be “free” for the first 30 days, and after that there’d be a fee, but compared to trying to keep your deposits and issue cheap debt it was for all intents and purposes zero cost. Finally, Ben was going to let you have basically unlimited Fed credit at near-zero interest rates for the next year, meaning there would be no issue as to whether you could fund routine operations or not.

Your firm was being saved and the taxpayer was going to cover the risk – whether he liked it or not.

You were going to be asked to do a few things, however. The public would never sit for being looted like this unless it looked like it was going to hurt a lot and there was simply “no alternative.” As it was Treasury and Bernanke were not sure that the public would buy it. Congress already had bought off on it, effectively; after all, Ben and Hank had corralled them into a room and threatened them with martial law if they didn’t pass TARP to begin with. But it was important to make it look stringent, so there’d be no big bonuses until you paid the TARP money back and dividends would have to be cut to effectively zero.

All in you were getting a screaming deal. Not only are you getting cheap capital, all things considered (the 5% preferred coupon with that FDIC backstop when your CDS spreads are being quoted in points up front literally saves your firm!) but the FDIC insurance on both senior debt issues and deposits – that is a pure windfall of unbelievable size.

You roll the numbers around in your head. There is roughly $850 billion in deposits throughout the system that would be covered by the FDIC “unlimited” deposit insurance, and the majority of it was in your bank and that of your TBTF friends. You figure that you and your buddies in the room could issue some $300 billion in “super insured” debt through the FDIC program and the surcharge from the FDIC is only 50 to 100 basis points; with the credit condition oncoming long rates will be headed southbound fast, so the odds are you’d see a 10 year in the 2.5% or so area soon. That makes the deal damned attractive; you figure between you in the room this will easily save you $15 billion a year in the first-year financing costs (about 500 basis points on that $300 billion) or more than the coupon on the preferred stock!

It doesn’t take long before the light comes on – this is a zero-cost option for you. The capital costs a coupon on the preferred but the savings on the bond issues more than make up for it and the FDIC deposit insurance makes sure nobody runs your bank.

For all intents and purposes you’re being paid to take the taxpayer’s money!

When you walked in the room you were sure you were going to be nationalized – or at least expropriated in some fashion, as you were dead flat broke. Now, well, let’s just say that it’s good to have friends in high places.

You wonder how the press is going to spin this one. This finance stuff is pretty tough for mainstream reporters; so long as nobody noodles on the numbers they probably won’t figure it out. Never mind that the bonds won’t all issue at once and most people will simply applaud the unlimited deposit insurance without thinking about the fact that it’s essentially a gift – the 10 basis point fee (0.1%) is a bad joke. $8 billion across the entirety of the system to provide unlimited coverage on $800 billion in deposits? This much is certain: Nobody’s going to be allowed to fail as that’s wildly lower than the actual risk premium on that transaction.

What’s not to like?

TARP was one of the most egregious breaches of capitalism in the history of the United States and no one who defends it, for any reason, can be considered even remotely pro-capitalist. Corporatism is not capitalism and Wall Street banksterism of the sort we have endured for the last three years has far more in common with royal mercantilism than it does with capitalism.

Do read the whole thing. The chances are very high that you will not only learn something, but you will be able to understand what actually happened in the fall of 2008.