Tag: banks

Burning the banks

There are flames in Athens now. How long will they take to reach Wall Street and the City?

Three people died when an Athens bank went up in flames Wednesday as tens of thousands of Greeks took to the streets to protest harsh spending cuts aimed at saving the country from bankruptcy. Tear gas drifted across the city’s center as hundreds of rioters hurled paving stones and Molotov cocktails at police, who responded with heavy use of tear gas. At least two buildings were on fire. The fire brigade said the bodies were found in the wreckage of a Marfin Bank branch, on the route of the march in the city center.

Demonstrators chanting “thieves, thieves” attempted to break through a riot police cordon guarding Parliament and chased the ceremonial guards away from the Tomb of the Unknown Soldier in front of the building.

Now, what is the point of “saving the country” from bankruptcy? Will Greece simply cease to exist if it goes bankrupt? Does a junkie die when he is no longer permitted to keep purchasing narcotics from his pusher? The molotov-throwing rioters chanting “thieves” appear to have a more accurate perspective on the global financial system than the hand-wringing editorial writers at the Wall Street Journal. Not a correct one, mind you, but one that is nevertheless more accurate. Don’t get me wrong, I’m not looking forward to the chaos since it isn’t going to be fun for anyone who isn’t young, male, unprincipled, and heavily armed. But it certainly isn’t going to be averted or ameliorated by stealing more money from the public and handing it over to bankers.

I just want to know one thing. Where is the techno remix? And as for Max Keiser, well, you can’t help but think of Chuck D listening to him lay down that heavy rap.

An interesting note relating to the connection of today’s Greek riots to the historical Cinco de Mayo from Wikipedia: “In late 1861 Napoleon III, Emperor of the French, under the Treaty of London (1861) sent troops to Mexico, alongside Spanish and English forces, to collect debts owed by a previous Mexican government. President Benito Juárez had announced the annulment of these debts, and vowed to pay nothing to European powers. Napoleon’s troops occupied the port city of Veracruz on December 8, 1861…. The Battle of Puebla, May 5, 1862, was a single, important victory for the Mexican people over the occupying French Army.”

Given the general European disarmament, I can only conclude that bin Laden will soon be spotted in Athens, thereby requiring an immediate invasion and occupation.

WND column

Bigging up failure

The president of the European Central Bank, Jean-Claude Trichet, told Forbes that global governance is extremely necessary if we want to prevent another financial crisis. … It is his belief that through global governance, the resiliency of the global financial system can be assured, noting that ultimately it was governments’ use of taxpayer’s money, equivalent to around 25 percent of GDP on both sides of the Atlantic, that prevented another catastrophic great depression from occurring.
– “ECB president favors global governance,” Forbes, April 29, 2010

It should come as no surprise to the informed observer that the central bankers of the world are now beginning to openly push for global governance. The current plight of the euro has amply demonstrated the untenability of monetary union without political union. Without the power to enforce government policy on Greece, the most the Franco-Germanic mandarins of the European Union can do is threaten to withhold bailout money from the International Monetary Fund and the EU member states. This impresses the Greek political and financial elite, but no one else in Greece, and violent protests are already erupting across the country at the mere mention of IMF-imposed financial austerity measures.

For, as one young Greek man correctly asked, why should the youth of Greece be forced to pay for the financial misdeeds of their parents and grandparents?

WND column

Too Evil to Live

While much of the world news at the end of last week was focused on the sky-borne ash that has brought international air travel to a near standstill, another volcano erupted that may have more significant ramifications for the future of the American people. At last, at long last, the Securities and Exchange Commission announced it was going to take action against one of the bankster organizations responsible for the 2008 financial crisis. In fact, it was filing a lawsuit against the political capo dei tutti capi of Wall Street, Goldman Sachs.

The whores rush to defend Goldman

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.

Your money is perfectly safe

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?

Supercritical

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.

They didn’t start the fire

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.

WND column

Ignoring History’s Lessons

ALAN GREENSPAN, the former chairman of the Federal Reserve, proclaimed last month that no one could have predicted the housing bubble. “Everybody missed it,” he said, “academia, the Federal Reserve, all regulators.”… Mr. Greenspan said that he sat through innumerable meetings at the Fed with crack economists, and not one of them warned of the problems that were to come. By Mr. Greenspan’s logic, anyone who might have foreseen the housing bubble would have been invited into the ivory tower, so if all those who were there did not hear it, then no one could have said it.
– Michael J. Burry, New York Times, April 3, 2010

Michael Burry is correct. Alan Greenspan is completely wrong to say everyone missed the housing bubble. Michael Burry recognized it in 2005. I saw it coming in 2002. And Edward Gramlich, a Federal Reserve governor, accurately anticipated the problem as far back as 2000. Moreover, Gramlich personally warned Greenspan about the way in which providing home mortgages to low-income borrowers would lead to widespread loan defaults that would have tremendously negative effects on the national economy. Greenspan, of course, disregarded Gramlich’s warning and rejected Gramlich’s recommendation to audit consumer finance companies because he correctly feared that shining a light on the widespread fraud being committed by the swarming mortgage brokers would reduce the availability of subprime credit.

On “helping” indebted homeowners

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.