Tag: banks

When he’s more than earned it:

President Barack Obama doesn’t plan at this time to give back almost $1 million in campaign contributions from employees of Goldman Sachs Group Inc.

And to be fair, he’s still working for it!

William D. Cohan leaps to defend the Vampire Squid. And surprise, surprise, he also owns Goldman stock:

Goldman also was not above working with a client like Paulson to structure a security — for a fee — that Paulson could then short. Would those European banks not have bought Abacus if they had known that Paulson had helped select what went inside it? Possibly. But no one forced them to buy Abacus. And if the housing market had soared for a few more years, and Paulson and Goldman had lost billions instead of making billions, would the S.E.C. have filed a lawsuit against Abacus’s investors?

These might not be the most popular questions to be asking right now, but until we get the answers we can’t assume Goldman’s guilt.

There are no words sufficiently contemptuous to describe this insufferable little [expletive deleted] and his pathetic attempt to play defense attorney on the Vampire Squid’s behalf. How dare he try to exonerate Goldman by claiming the market could have gone against them! Because we all know very well what happened when the market DID go against them… they were bailed out by the federal government. Not only were they bailed out, but they were permitted to magically transform their legal corporate identity so that they could be bailed out!

It’s at times like these that one can understand the initial popularity of the French revolutionary excesses. One knows better than to think any good would come of it, and even so, one would almost find oneself ready to welcome La Terreur so long as the insufferable bankers with their interminable self-justifications are sent to the guillotines.

Cohan conveniently omits that no one forces little old ladies to invest in financial scams either, and yet the petty con men who scammed them are still prosecuted for fraud.

No doubt those who believe Obama is hiding his past because he has nothing to hide will conclude that the U.S. banks must be perfectly healthy if they are so vehemently determined to prevent the disclosure of the money they borrowed from the Federal Reserve:

The biggest U.S. commercial banks will take their fight against disclosure of Federal Reserve lending in 2008 to the Supreme Court if necessary, the top lawyer for an industry-owned group said.

Continued legal appeals will delay or block the first public look at details of the central bank’s $2 trillion in emergency lending during the 2008 financial crisis. The Clearing House Association LLC, a group that includes Bank of America Corp. and JPMorgan Chase & Co., joined the Fed in defense of a lawsuit brought by Bloomberg LP, the parent company of Bloomberg News, seeking release of records related to four Fed lending programs.

The U.S. Court of Appeals in Manhattan ruled March 19 that the central bank must release the documents. A three-judge panel of the appellate court rejected the Fed’s argument that disclosure would stigmatize borrowers and discourage banks from seeking emergency help.

“Our member banks are very concerned about real-time disclosure of information that could cause a run on the banks,” said Paul Saltzman, the group’s general counsel, in an interview yesterday. “We’re not going to let the Second Circuit opinion stand without seeking a review.”

Now that was a professional segue. Please don’t try it at home without first taking the necessary precautionary measures. So, here is my question. If the banks are so determined to fight this disclosure and if their general counsel is publicly declaring that the release of this information could be reasonably expected to cause a bank run, then what in the world are Americans doing still leaving their money in those banks? Are they waiting for the guy to spell it out for them in interpretive dance or something?

The Market Ticker notices that German banks are threatening the liquidity of the global financial markets as a result of the Greek situation:

The curve blowout this morning in Greek debt has been cataclysmic; of course CNBS is only mentioning it in passing, and so far the European market isn’t reacting “too badly.”

We’ll see about that – how much of their debt is now sitting on bank balance sheets with a mark-to-market loss of how many billions due to the coupon shift upward? Oh no, we better not talk about the black hole opening up on bank balance sheets (again)….. that might be a problem eh?

Just remember that right up until Lehman blew up the market, while it had its ups and downs, didn’t react “too badly” either.

42% worthless assets. Keep that number in mind. It’s going to blow up sooner or later; the market can’t be pumped far enough or fast enough to refloat those underwater properties.

A presumed Friedmanite named Luigi condemns indebted homeowners for doing exactly what the banks who wrote their mortgage contracts do whenever they make a bad real estate investment:

Homeowners who walk away from their mortgages undermine our financial system….Undermining the social norm to repay mortgages, as Lowenstein and White do, is thus a very bad idea. You might just as well say that when a theater is going up in flames, it’s “rational” to trample other people in rushing to the exits.

It is rational… for the person trying to escape. And the person to blame isn’t the poor guy trying to avoid being burned to death, but the people who set the fire in the first place!

The contracts are clear, even if the consequences vary from state to state. If your mortgage is worth significantly more than your house, you have the right to walk away. The bank has the right to take the house. There is no moral question involved.

Karl Denninger correctly points out the obvious about the latest Obama sleight of hand on housing:

Absolutely none of the attempts made thus far have had a damn thing to do with helping Americans, and this “new program” is no exception. They have all – each and every one – been aimed at one and only one thing – allowing banks and the GSEs to lie about the “value” of the home loans they hold.

The essence of this economic mess was a credit bubble. Nowhere was it bigger in the impact on the common American than in residential real estate.

Every action since this crisis began related to housing has acted to prevent the market from clearing. Holding loans and houses above market value – the price where they will clear in a free and open market – has been done for one and only one purpose – to allow banks and GSEs that are radically underwater – that is, INSOLVENT – to pretend they are not.

This latest plan to use TARP money to subsidize those who own homes with mortgages that exceed the value of their homes is actually nothing more than another bank subsidy. Washington is giving the banks something for nothing; the “cuts” envisioned on the second mortgages will actually have the net effect of temporarily creating some value in an otherwise worthless unsecured loan. As Denninger points out, the plan does not represent a cut in loan value from 100% to 15%, but rather an increase from 0% to 15%.

It’s just more extend-and-pretend. And like all the previous efforts to prop things up, it’s going to fail too. Remember, the primary reason banks so desperately want to prevent foreclosures is because they want to avoid being forced to revalue the loans presently inflating their assets.

On a tangential note, consider the intriguing implications of the following comparison of interest rates:

4.78% 30-year Treasury Note
4.99% 30-year mortgage

In other words, Federal Debt is priced as being nearly as risky as a home mortgage in a market where a significant number of mortgages are underwater or in default.

And time is fast running out:

The war over mark-to-market accounting is about to get hot, again. In coming weeks, the Financial Accounting Standards Board is likely to propose that banks expand their use of market values for financial assets such as loans, according to people familiar with the matter. That departs from current practices in which banks hold loans at their original cost and create a reserve based on their own view of potential losses.

This has to be done, but the banks are going to fight it with everything they’ve got. The reason is because, by my estimate, the values of those loans, as well as the securities and derivatives based on those loans, are around 41% overvalued. That means that marking to market rather than marking to fantasy will eradicate about $15.6 trillion from the credit markets.

Even in an economy with a $14 trillion GDP, this is likely to have an impact.

Congress, led by Barney Frank, forced the FASB to permit what has been little more than legalized accounting fraud in order to keep the banks out of bankruptcy. But because the so-called financial rescue plan has failed, the important question now is whether the politicians are determined to go down fighting alongside the banks or whether they will finally break ranks and try to save themselves by sacrificing the banksters to the vengeance of an angry public.