This guy has some great posts...cutting through the crapola...I'll pull a few gems now and then...

The Market Ticker
Commentary On The Capital Markets
Tuesday, April 28. 2009
Posted by Karl Denninger in Banking System at 08:33
(Page 1 of 308, totaling 924 entries) » next page
Now We're Cooking!

It's about damn time.

Sources say investigators are digging into whether Joseph Cassano, the former head of London-based AIG Financial Products, and two of his top deputies - Andrew Forster, an executive vice president, and Thomas Athan, a managing director - committed securities fraud and other federal crimes, reports CBS News chief investigative correspondent Armen Keteyian.

At issue: whether they intentionally provided false information about the size of AIG's losses in the mortgage-backed securities market to the public and auditors.
.
Well that's a start.

Now go find the "side letters" and start busting people up and down the line, including all their damn counterparties!

And while you're at it, make sure you include people like Bernanke, Paulson and Geithner in the list of people who get their asses hauled in front of a Grand Jury.

Oh, and if you think these clowns don't have gall, or actually are a bit sheepish these days? You'd be dead wrong.

And now CBS News has learned that Athan and Forster pocketed bonuses paid out by AIG just two months ago - in the midst of a federal investigation. Sources say they are now negotiating a way to pay them back.

Is there something wrong with a check - or wire transfer?

Nor is the storm letting up. In fact, if anything, when it comes to Lewis its headed for Cat 5 territory:

Both Bernanke and Paulson in mid-December knew Bank of America was obliged by statute to publicly disclose the huge losses Merrill Lynch & Co. had racked up that month. You don’t get to be chairman of the Federal Reserve or, in Paulson’s case, secretary of the Treasury or head of Goldman Sachs Group Inc. without learning this basic tenet of U.S. securities laws. Instead of making sure the public was fully informed of the losses before Bank of America completed its purchase of Merrill on Jan. 1, they did all they could to keep the secret safe.

Neither Bernanke nor Paulson told the Securities and Exchange Commission, according to the letter Cuomo wrote to lawmakers and regulators. They didn’t tell Lewis or anyone else at Bank of America to do the right thing and obey the law. And while they promised Bank of America lots of money to keep it from calling off the deal, they were careful not to commit any of their agreements to writing for fear this would bind the government into disclosing them itself.

It didn’t matter that investors were buying and selling billions of the banks’ shares without a clue that Merrill had lost more than $12 billion during the fourth quarter. Bernanke and Paulson had a singular objective -- to get the Merrill deal done, on time -- even if that meant duping the stock market and threatening to fire Lewis as chief executive officer, along with the company’s board.

Bingo.

Millions of Americans got bent over the table by men who, it is alleged, actively conspired to knowingly break the law.

That's exactly what Ken Lewis alleged in his conversations with Attorney General Cuomo; he said there was an explicit conversation related to avoiding a "reportable event" (a letter from the government), meaning that everyone involved knew that under the law this was supposed to be disclosed and put specific effort and intent into hiding it.

It doesn't stop here either. As I have repeatedly pointed out The Fed is not empowered to buy any sort of financial instrument unless it carries the full faith and credit of the government.

FANNIE AND FREDDIE DO NOT, EVEN TODAY, CARRY THAT GUARANTEE.

The Fed has purchased billions upon billions of dollars in securities from Fannie and Freddie and unless you can show me some section of the law I have missed I see nothing allowing them to do so, nor to take equity in the Bear Stearns and AIG bailouts.

WHY, IN ALL THE TIMES THAT BERNANKE HAS BEEN ON CAPITOL HILL SINCE THIS NONSENSE STARTED, HAS NOT ONE REPRESENTATIVE OR SENATOR ASKED HIM WHERE HE GETS THE LEGAL AUTHORITY TO PURCHASE ASSETS NOT GUARANTEED WITH FULL FAITH AND CREDIT OF THE US GOVERNMENT, WHEN THE VERY STATUTE CITED ON THE FEDERAL RESERVE'S OWN WEB SITE MAKES CLEAR THAT THEY CAN'T BUY ANYTHING THAT LACKS THAT GUARANTEE?

The Italians are getting into the act:

With municipal bond investigations spreading to Europe from the United States, Italian authorities have seized about $300 million in assets of four global banks — JPMorgan Chase, Deutsche Bank, UBS and Depfa — whose officials have been accused of fraud.

The Guardia di Finanza in Milan, the financial police of Italy, took over real estate properties, bank accounts and stock holdings on Monday to assure it could collect from the banks if their officials were found guilty and the banks were held responsible.

Dozens of state and local governments in the United States have been victimized by these "deals" in the United States as well, yet Italy is the first to bring an actual enforcement action and seize assets? Why?

Lawless behavior by both Wall Street executives and government officials appears to have been pervasive, it is outrageous, and hundreds of billions (if not trillions) of dollars has been stolen from the taxpayer as a direct result.

The people involved appear to have known full well they were doing something wrong at the time as they have made every attempt to hide their actions and refuse to ask the tough questions; if you're not slithering around with the intent of a viper there is no reason not to act in the light of day!

Those alleged to be involved must be investigated, indicted, tried, and if found guilty imprisoned with their assets subject to fine and forfeiture, no matter who they are.

WHERE ARE ALL THE DAMN COPS?

-------------------------------

I'm afraid most are assigned to Justice Karl, and they are investigating waterboarding...while we are getting bent over.

figures you wouldn't want the damn torturers to get convicted.

Torture is more important than this everyday crime.

(if one believes in our founding father's.)

Because torture involves our countries dignity. Money is just money. Very replaceable.

Unless it's your money...

--------------------------------------
Wednesday, April 29. 2009
Posted by Karl Denninger in Banking System at 13:50

Still Looking For A Cop: Lewis

Now that's an interesting twist:

April 29 (Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth Lewis said
shareholders weren’t told about losses at Merrill Lynch & Co. because aborting the deal might
have destabilized the financial system, and the decision was “not about selfish desire” to keep
management jobs.

...

The board “took very seriously” the possibility of systemic risk and the damage to Bank of America
if the Merrill deal collapsed, according to Lewis’s speech. Disclosing talks with the government on how
to resolve the matter might have created the “very crisis” they wanted to prevent, he said.

Let me see if I get this right.

First, Lewis got involved in a transaction that could create systemic risk and failed to put in place safeguards
to prevent screwing the shareholders if something went wrong with the deal.

Then, Lewis and The Board decided to follow through with a deal that he knew was bad for the shareholders
because other people (particularly NOT shareholders) might get hurt. That is, he put "systemic risk" in front
of fiduciary duty, and he was qualified to not only judge that but to interpret securities law to permit it.

Third, having done that, Lewis and The Board also decided not to tell the shareholders they were getting screwed,
even though they knew, and even though fiduciary responsibility and securities law appears to have required such
disclosure because it might have caused that same "systemic risk."

I wish Lewis and The Board the best of luck with the inevitable shareholder lawsuits on this one, and hope we
see a cop show up with some indictments just to put a cherry on the cake.

After all, this appears to be a (further) admission that Lewis did not act alone.

I agree...

where are the cops?

I think they are busy raping people in NYC as two or so have been charged

A little reading on subject for those who care to
gain some economic, educational balance.

Denninger's 08 & 09 predictions

Tuesday, May 5. 2009
Posted by Karl Denninger in Banking System at 09:53


Stress Tests: What's That Light?

It's a train.

The "rumor" floated over the weekend and this morning was that some of the banks might need $10 billion under the "stress" scenarios.

That they might be able to raise, and it has been part and parcel of fueling the rally.

Not so fast, grasshopper.

S&P yesterday afternoon stuck virtually the entire sector on Credit Watch Negative and that was just the start.

There are now some independent analysts out there with their own numbers on "required capital", and they're ugly.

Friedman Billing Ramsey came out and said they believed that Bank of America needs $60 billion all on its own, while Egan-Jones piped up and said the number was $100 billion!

SNL Financial, a research firm, thinks the number is $50 billion each for Citi and Bank of America - minimum - and might be closer to $70 billion for Bank of America.

Nor does it end there. Wells is projected to need $66 billion and JP Morgan needs $33b, according to these folks.

But if you think those numbers are a horror show, the real ugliness isn't found there. It is in fact found in all the foreclosed-but-unsold and not-yet-foreclosed "but will be" housing stock. Through the nation I am getting reports, some hard and some anecdotal, that lenders are sending out NODs (default notices) and then sitting on the process intentionally.

Why would they be doing that?

Simple: Most lenders who have these notes either in a security or as "whole loans" they were unable to pawn off on someone when the securitization market collapsed are holding them at "par" - the total amount outstanding.

If they sell they are forced to realize the loss; so long as they have a "reasonable belief" it will perform or be bought out (e.g. a government-sponsored and funded refinance) they can carry it this way if it is held to maturity. This of course makes their books look much better than they really are when you've got $500,000 in cash out against collateral that the market values at $150,000!

Then there is the Option ARM inventory and, most troublesome, the HELOC's (mostly seconds used for purchase and cash-out transactions) behind them.

There have been opinions floated that the "ARM" decimation is mostly a nothing, since short-term rates are so low and will remain that way for a reasonable amount of time.

This is true but misleading - with Option ARMs the nuclear destruction does not come from a reset of the interest rate but rather the recast when the loan ages or reaches (typically) 110% of the original principal value.

At that point what was either an interest-only (or even not a full interest) payment is forced to a fully-amortizing payment on the balance of the original time. For many of these loans this is set to happen at either three or five years post-issue, which means we're just starting to see the loans written in 2006 turn into many-headed hydra about now.

The importance of this event is that the increase in payment is absolutely insane - it is not at all unusual for payments to double, and there are few if any of these loans where the jump will not be at least 50%.

The IMF says there's roughly double the embedded loss in the system compared to what has been recognized and written down. I think they're conservative - my original estimate for housing market losses was somewhere around $2.5-3 trillion for residential alone.

So far the tally is up in the high hundreds of billions, meaning that there are a lot more cockroaches still to be found in the banking system - and they're doing their best to hide from the light.

Can that succeed? Not a prayer in Hell.

Those Option ARMs and any seconds behind them are doomed. There is no possible way to refinance them as most are over $100,000 underwater. The seconds written on top to get around conforming limits or avoid PMI are in fact worth nothing as the first has priority in a foreclosure action and there's not enough there to even satisfy the first!

To put this in perspective there are condos out in Las Vegas that sold for $500,000 that now can be had for $50k or so. You'd think that's a great deal. You'd be wrong, because half the complex is foreclosed, the association is on the verge of bankruptcy and as a consequence the special assessments will be rolling in soon - and they won't be small!

Now add to this the basic business model in the consumer credit sector - jack up everyone's credit card interest rates. This is effectively an attempt to cost-shift those who cannot pay and are defaulting onto those who (still) can. It is doomed to fail because those who can pay off the card will immediately do so and close the line, while those who can't default under the increased burden. This looks good for a little while but the math is never wrong, and this sort of path forward either collapses under its own weight or eventually will draw a strong government regulatory response.

Either way what the banks are doing can't work; 36% interest charged against someone who is paying zero because they defaulted is still zero, but all your customers who can pay it off and leave will do so to avoid being bent over the table.

The continued refusal by our government to put these financial institutions where they belong - in front of a bankruptcy judge where priority is honored, the capital structure is crammed down and the assets sold off for whatever the market will bear - is leading us inexorably toward economic Depression. Both President Bush and now Obama are proceeding under the (false) hope that if they can hold things together for a little while the economy will turn and it will all be ok.

The "green shoot" people are all predicting positive GDP in the 3rd and 4th quarter. What they're not talking about is what the real number was for the 1st Quarter - there was a trade balance shift credit in there worth nearly 3%; take that back out and we weren't -6% annualized, we were -9%!

The bad news is that the trade balance shift is actually bad for the economy and signifies extreme weakness yet it shows up as a positive contributor to GDP due to how the math works. Nice eh?

But that was likely a one-time change, which means the second quarter could get real interesting.

Here is the reality folks:

Until continuing claims start to come back into a reasonable range and the U-6 "frustrated" employees find work, the consumer credit picture cannot materially improve in terms of default rates on all sorts of credit. The consumer is 70% of the economy.
When that happens we will still be left with an economy that is missing the "pulled forward" demand represented by home equity extraction and rabid, unsustainable granting of all forms of credit. This is likely in the 3-4% of GDP range, and that adjustment will be permanent!
The excess debt in the system not only hasn't been flushed it has to a large degree been hidden and/or shifted to The Federal Government! Defaulting it there doesn't do anyone a damn bit of good - in fact, it spreads the damage to everyone instead of keeping with the people who made the bad bets on both sides (borrower and lender.) This is pure insanity, but it is what our government has done because we "the sheeple" keep believing we can have something for nothing.

There is no way to "fix" the bank balance sheets without massive dilution. Either you convert preferred to common, you issue new common, or you sell performing (cash-flowing) assets. The first two dramatically dilute everyone holding the common stock and the latter takes a pole-axe to the earnings side of the balance sheet, having the same effect on shareholders as the first two. The recent runup in bank stock prices, doubles in many cases or more, is not only unsustainable it is something right out of The Three Stooges.

To those who think that the banks will "all be ok" and "we will muddle through and have economic recovery in 2010" I politely suggest that you're smoking something legal only in California.

Bluntly, the excessive debt must be flushed from the system, and since we can't pay it down the only option is to default it through bankruptcy, as I've said since this mess began.

Until that happens any "recovery" will be fleeting at best - and a false hope.

Disclosure: No position in any stock named; considering several shorts.

Tuesday, May 5. 2009
Posted by Karl Denninger in Company Specific at 21:59


GM Shareholders: Poof!

You didn't/don't hold the stock, did you?

If so, I hope you sell tomorrow, assuming it opens over 2 cents/share.

Seriously.

No really, I'm not kidding.

In a filing with the SEC late this afternoon it was disclosed that the GM "restructuring" would:

Increase the number of authorized shares to 62 billion (!)
Reduce the par value to one cent.
Effect a 100:1 reverse split for the existing shareholders.

The effect of this as disclosed would be that the existing common shareholders would have their holdings reduced in value to one percent of their current market value.

So as of 4:00 Eastern today, your $1.85 stock price would be.... drum roll please..... $0.0185 per share.

There is a lot of other material in this filing related to the restructuring of the debt. The exchange offers appear to have gone from 2/3rds reduction in the outstanding debt to a ninety percent reduction, effectively paying debtholders no more than a dime on the dollar.

Oh, and it gets better. If the "negotiation" is as was done with Chrysler, saying "no" won't do you a damn bit of good - the government will, I would assume, threaten you and then file an involuntary Chapter 11 and attempt to cram this down your throat (or up a much less-desirable place.)

The UAW does not get hit for 90%. The VEBA will get 50% in cash and the other half in stock - newly issued stock - which, of course, is part of the 99% you won't own when this "restructuring" is completed if you are a common stock holder as of tonight. Their effective hit? Zero, assuming the share price does not collapse (again) when this is all said and done.

Oh, and if all this is not completed by agreement before June 1st? The filing makes clear: They're going to see the judge.

For those of you who were trapped in this position since GM was in the $30s and foolishly thought your stock had value, you were wrong.

You're done; God (in the form of The Administration) has spoken and for you, the game is over.

Expect the price of the stock to collapse in the morning.

You did sell today, didn't you?

PS: You think there's a thing called "senior debt" in this country any more? Uh, no. There is not. The Capital Structure no longer has ANY legal meaning. Guess what this does to the banks in particular (anyone with government "rescues") along with the potential for ANY firm in the US? Yep.

Disclosure: No GM position other than "I told you so!"
---------------------------------

..."no longer any legal meaning" in the capital structure...and folks wonder why I don't have a cent in the market any more.
What market? It's a political-Union casino, you put money on a board and they drop a ball on a moving wheel...and I don't gamble on roulette.

Friday, May 8. 2009
Posted by Karl Denninger in Federal Reserve at 12:38

More On The SHAM "Stress Test"

After I posted my Ticker on this subject the Fannie report came out and immediately proved up what I had said - the tests are a sham:
According to The Fed's "More Adverse" scenario prime delinquencies will reach 3-4%.

Well, how about this?

Note that the PRESENT serious delinquency rate on Fannie's credit book for single family homes is at 3.15%, up from 2.42% last quarter.
What's worse is that a lot of the paper Fannie holds was written before the bubble. If you look at only the "bubble-era" paper (e.g. ALT-A) or even prime paper written in 05, 06 and 07 the numbers are going to be far worse.

We have the largest lender in the United States reporting current "prime" serious delinquencies, almost all of which will end up as foreclosures, equal to the most serious stress tested level right now and twice the so-called "baseline" scenario.

Furthermore, Fannie's credit-related expenses nearly doubled quarter/over/quarter and was 2/3rds of the full year 2008 expense in one quarter alone!

Folks, there is absolutely nothing to support any claim that these "stress tests" were or are realistic when market performance in the nation's largest lender and one that allegedly has written all "prime" mortgages states (not "suggests") that their credit book delinquency rate has reached the "more adverse" stress level already.

Nowhere in the "mainstream media" (e.g. CNBC, etc) has this been mentioned but it is literally right in your face while reading the Fannie quarterly report.
Everyone is entitled to be optimistic.
But nobody, especially not anyone in the government, has the right to intentionally mislead the markets and investors as to the validity of what they're allegedly doing.

Given the Fannie report, which was known to the government (since it is under conservatorship) for a significant amount of time prior to being filed, there is absolutely no excuse whatsoever for The Fed's "Stress Test" report to be published without a footnote indicating that the "most adverse" metrics had been proved met by the largest prime mortgage lender and guarantor in the United States already.

Investors deserve a government that does not intentionally mislead them.

If you are buying into this rally and the recovery of the banks based on the so-called "Stress Tests", you have been lied to and must consider the "severe" stress scenario as the "baseline", which implies that should the economy deteriorate further the banks will not make it with their alleged "capital cushions."
Period.

This is an outrage; we are no longer just talking about my estimates, Roubini's estimates or even the IMF's estimates.
We are now talking about actual reported financial results.
In short, we have all been had.
Again.

Disclosure: Short Ben Bernanke, The Fed and Treasury

Monday, May 11. 2009
Posted by Karl Denninger in Macro Economics at 07:58

The Economic Tsunami Is Curling Over


I have only one question for those who speak of "green shoots":

What are you smoking?



State Sales Tax Revenues tell the story. California is absolutely cratering, for example:

Sales taxes were $452 million lower (-50.9%) than last April, and personal income taxes were down $5.7 billion (-43.6%).

Fifty percent?! FIFTY?

California is responsible for thirteen percent of the total US GDP and if it were an independent nation it would be the tenth largest economy in the world.

The idea that we can have some sort of economic recovery while the sales tax receipts - which are a direct measurement of consumer activity - are down by half is pure insanity. Where is the economic activity that is going to create this "recovery"?

And let me remind everyone - sales tax receipts are not a lagging indicator, they tell you what is going on right now.

Now let's look at job losses in this recession compared to others. As written up in the NY Times:




A bottom? Where?

To be fair employment is a lagging indicator; there is no pickup in hiring for some time after the economy truly bottoms, usually about 6-9 months. The reason is that people are both slow to fire (they're nice) and slow to hire (they're not convinced the recovery will "take") and as such there is a lag in both the firings when things slow down and the hirings when things begin to recover.

Nonetheless, there is nothing to suggest that we're anywhere near the bottom of this cycle. Indeed, we've been setting records for the severity and duration of losses in the postwar era, surpassing the 81-83 duration and vastly surpassing all of the previous recessions in terms of depth.

Nor are the "programs" trotted out by Obama (and his predecessor, to be fair) doing anything. We recently learned that "Hope for Homeowners" made a grand total of..... wait for it..... 51 loans.

FIFTY ONE? No, that is not a misprint:

Senior federal housing officials say that of 51 loans made under the program, 50 were made by Melville, N.Y.-based Lend America, and those 50 loans are being held up pending ongoing federal investigations. The officials, who insisted on anonymity because they are not authorized to speak on the matter, declined to offer specifics except to say anything from inadequate documentation to unethical practices could be the focus of the queries.

Remember, "Hope for Homeowners" was supposed to help four hundred thousand people stay in their homes.

The net closed loan count is fifty one over a period of six months.

Oh, and the reason for that article? The company responsible for 50 of the 51 loans is under investigation by The Department of Justice!

...
What I find disturbing is that through this entire crisis, as I have outlined repeatedly, neither The Fed or Treasury seems to understand the first damn thing about trading.

Simply put when you prop up prices beyond where they should be everyone who owns that thing will sell into you. The paradox is that this selling then causes prices to fall, not rise - that is, your intended move not only doesn't happen the reverse of the intended move does!

This happened with Fannie and Freddie (Paulson's infamous "Bazooka") and now it is happening in the credit market with Treasury Debt.

If Bernanke does not back off he will find himself in a tightening monetary flat spin. As he comes to own more and more of the public float of the long end the impact of each sale into his program by private holders is magnified in the market.

That is, if there is $1 trillion of something outstanding and you buy $100 billion of it (10% of the float) the impact is X. If there is now $900 billion outstanding (after the first operation) and you buy another $100 billion you have in fact sucked up about 11%. When you get to owning $500 billion another $100 billion sucks up 20% of the float. Each tender operation of the same size thus creates an ever-increasing impact on the underlying price, and since nobody in their right mind will continue to hold something they believe is overvalued, the spiral will tighten precipitously, forcing even more purchases until The Fed owns it all.

At or before that point the long end becomes unavailable to Treasury as a funding source. Forcing all the issue to the short end now starts to ramp short yields (supply and demand, remember - add massive supply and what happens to price?) and Bernanke will then be urged to buy down the time line.

This path leads to a singularity - and both monetary and political failure. The bad news is that the event horizon is far before Bernanke actually winds up owning the entire float, but nobody knows exactly where it is.

Yet once crossed, there is no escape from the outcome.

We best not go there, because if we go down that road too far Americans will be needing all those firearms that they've been buying since Obama was elected - not for a revolution, as some suppose, but rather for self-defense as our political, social and economic structures collapse.

--------------------------

Have I said that last line before? I think so...it will be said again and again in coming months...

Wednesday, May 13. 2009
Posted by Karl Denninger in Editorial at 13:31

FLASH: Liddy Lays An Egg On BERNANKE!

Ok, now this gets interesting.

In a hearing not covered by the so-called "mainstream media" but covered on Cspan, Liddy, AIG's CEO, in response to a question by Rep Kaptur said:

"When The Fed set up Maiden Lane they took on responsibility for settlement of all of the CDS."

WHOAH!

Ok, now we're getting into interesting territory.

Specifically, I quote: "The Federal Reserve decided we should pay 100 cents on the dollar", but Mr. Issa nailed the truth on this in a followup - they could have purchased those contracts for far less in the open market at the time.

The bottom line is that the testimony was that The Fed decided to settle the contracts in a non-economic manner that resulted in screwing the taxpayer by transferring more than $100 billion dollars of taxpayer money out to these banks when the cash value at the time was FAR LESS.

(Mr. Issa, by the way, is one of the Congressfolk who actually does understand securities - and it shows. He refused to let this go until he hammered it into the ground and got the answer in plain, irrefutable English.)

Bluntly - we got raped.

Is it any surprise that CNBC is refusing to cover this?

Is it any wonder how the banks managed to "report decent profits"?

The allegation just made by Liddy is that Bernanke and The Fed literally stole $100 billion dollars from you and I by intentionally and wantonly overpaying on the settlement of these contracts!

I want to see indictments; nothing less is sufficient any more.

Thursday, May 14. 2009
by Karl Denninger in Editorial at 13:30

Ok, I Recant: Derivatives

Grrrrr.... Yesterday it looked like we were going to get something sane for the OTC Derivatives market.

Nope:

May 14 (Bloomberg) -- U.S. regulators may impose the same price reporting and transparency requirements on
over-the- counter derivatives that reduced bank profits by almost half in the corporate bond market when the
Trace system was adopted seven years ago.

That ain't enough. It will drive spreads inward (which is bad for the scammer, I mean, banker profits) but it does
nothing to guarantee nightly margining and therefore de-fang the "systemic risk" problem.

It also allows the lies to continue about counterparty solvency well beyond where functional insolvency happens,
which is why we're in this mess in the first place.

Treasury Secretary Timothy Geithner, Schapiro and Michael Dunn, the acting chairman of the Commodity Futures
Trading Commission, called for increased oversight of over-the-counter derivatives to reduce risk to the financial system.
Lax regulation contributed to the failures last year of Lehman Brothers Holdings Inc. and American International Group Inc.,
leading to the seizure of credit markets and causing more than $1.4 trillion in writedowns amid the worst financial crisis since the Great Depression.

The only way to stop this is as I have repeatedly said:

All such "products" must be traded against a central clearing exchange, much like with listed options, so there is never
a question about solvency because that central counterparty will not permit either agent on the "wings" of the trade to operate
without posting margin on a nightly basis.

That is the only way that we will see the risk become one of losing money instead of "blowing up the world".

“Significant gaps in the basic framework of oversight over critical institutions” helped cause the financial crisis, Geithner told reporters.
“A series of comprehensive reforms to create a stronger system, less vulnerable to crisis, with stronger protections for consumers
and investors. Those "significant gaps" were intentional acts and Geithner, despite the crooning yesterday, has proposed exactly
nothing to get rid of them. Indeed, he is up to his neck in the complicity that created these problems!

“ISDA welcomes the recognition of industry measures to safeguard smooth functioning of privately negotiated derivatives,”
Robert Pickel, chief executive officer of ISDA, said in an e-mailed statement.

The fox doesn't mind a fence around the chickens so long as you both leave a fox-sized hole and don't post someone with a rifle near it.

Friday, May 15. 2009
Posted by Karl Denninger in Editorial at 08:55

A Good Start

That's what I call this:

May 15 (Bloomberg) -- U.S. prosecutors and the FBI are investigating whether two Securities and Exchange Commission lawyers illegally used nonpublic information from the agency to bet on stocks, SEC Inspector General David Kotz said in a report.

No really?

How about we investigate Government Sachs (NYSE: GS) for their apparent trades in August of 2007 the day prior to OpEx?

You know, the so-called "unannounced" discount rate cut that caused many people to take six, seven, even eight-figure losses - when the futures were being bought hard by certain insiders in the last hour of trading on Thursday, in front of a supposedly-non-public announcement?

That's just one of many. There are so many instances of obvious inside baseball over the last two years that its difficult to count them all. I've outlined more than a few, and more than one has caught me offsides.

Now being caught offsides is part of the game. But its supposed to be part of the game for everyone, not for "everyone but certain insiders who break the law any time they feel like it".

The report faults the agency for inadequately monitoring trades by employees and relying on an “honor system.” The lawyers frequently discussed stocks at work, traded in at least one company under investigation and didn’t properly disclose some transactions, it says. One lawyer made 247 trades in the two years ending January 2008, and the other made 14.

Inadequate monitoring? How about outright fraud deeply rooted within the government itself? How about a culture that has embraced and countenanced said fraud in the Halls of Congress, in so-called "regulatory agencies" like the OTS that let the same jackass who conspired to commit bank fraud during the S&L crisis do it AGAIN with IndyMac, and the fact that insider trading is actually LEGAL within the halls of Congress - that's right, Congress and their staff is not prohibited from trading in front of legislation nor are Congressfolk and their staff required to hold their investments in blind trusts!

This is absolutely outrageous, but it is also exactly what I have been screaming about now since The Market Ticker began publication.

Insider trading and fraud has been a part of the markets ever since there were markets. But this sort of conduct is truly obscene in that it is happening within the agencies charged with regulatory compliance in our capital markets, whether they be lawmakers, law enforcers or banking regulators.

Indeed, one of the most galling circumstances was the recent resignation of Friedman from the NY Fed, who blatantly bought stock in Goldman, a firm The Fed regulated at the time, while "waiting" for a waiver. What's even more obscene is that the waiver was subsequently granted!

Absolutely nobody with any connection to a regulator that could or does give them access to material non-public information, or worse, which makes them part of a regulatory decision-making process, should be permitted to trade any security within the realm of their regulatory reach. Period.

Absolutely everyone and anyone who has done so should go straight to prison. Period.

WE MUST DRAIN THE SWAMP.

Disclosure: Short The Federal Government.

If the Obama folks really want to prosecute torture in the Bush era they should start with this sort of stuff...
unless, of course, if some of these same guys were part of the "Mickey Mouse / Donald Duck / Acorn Gang"
that helped raise $600 million for the most expensive presidential campaign in history.

Monday, May 18. 2009
Posted by Karl Denninger in Regulatory at 09:34
Shades Of 1999

Again I ask, where are the cops?

This morning State Street announced a common stock offering, non-FDIC-guaranteed debt offering,
and intention to consolidate its commercial paper conduits.

The latter is good. The former two are requirements to get rid of the TARP. But here's the rub,
from their press release:

Goldman, Sachs & Co. and Morgan Stanley are acting as joint book-running managers for the offerings.

There's nothing wrong with that, of course. Someone has to run the book and Goldman got the job. Cool.

This is where the problem is:

08:56 05/18 GOLDMAN SACHS RAISES STATE STREET CORP STT PRICE TARGET TO $45

I don't have a link for this - it was a flash posted over on Tickerforum.

But if true, we're back in 1999, when it was commonplace for a given investment bank to run an IPO
for some high-flying "Internet wunderkind" and then they would of course rate it "strong buy".

Crooked? Maybe, maybe not.

But conflicted? Uh, yeah. More than a little.

And, I thought, something that was stopped after the Internet blowup in 2000-03.

Or was it?

Disclosure: No position in either STT or GS; long prosecutors and high quality solid-steel-bar manufacturers.

Tuesday, May 19. 2009
Posted by Karl Denninger in Regulatory at 18:10

WHERE ARE THE DAMN COPS ? (BAC)

This is getting very, very old folks.

Bloomberg reported CNBC said (yeah, I know):

May 19 (Bloomberg) -- Bank of America today made a secondary stock offering priced at $10 a share,
CNBC reported citing a person familiar with the situation.

CNBC could not confirm the volume of the offering, which is about 10 percent below the bank’s close
of $11.25 in New York Stock Exchange composite trading.

Shortly after the close there was chatter that a huge clean-up block order was being shopped
and nobody wanted it.

Well here's the chart of trading in BAC today:

(chart at marketticker web site)

From this chart it is clear that "someone" (or a handful of someones) knew of this offering
before the market closed.

The volume that started showing up at 2:00 PM - to the downside - was VERY significant and
the selling picked up bigtime going into the bell.

This sort of information leak and trading on it before it is disclosed is illegal.

What's even worse is that an hour after this news "broke" Bank of America still hasn't
issued a press release on the matter.

We saw this sort of "favored garbage" all the time in the 90s. As a consequence Regulation FD,
for "fair disclosure", was passed. It mandates that you cannot issue information that is material
to your stock price to only a few select people - you have to give it to everyone at the same time,
and the most common way you do this is to request a halt on your stock from the NYSE, issue the
press release, then have the NYSE lift the halt.

This way nobody can get either long or short in front of your announcement and nobody gets to
profit unfairly (or get screwed unfairly) as a consequence of whatever it is you need to announce.

Banks are not immune from this regulation.

People need to start going to prison for this BS. There are real investors who are harmed by this
intentional and outrageous gaming in the markets, sometimes very significantly. This issue is at a
20% discount to the trading price earlier today and the dilution will hit EPS forever.

Oh, and it gets better. What happened yesterday?

LONDON (MarketWatch) -- Bank of America was upgraded to buy from neutral and added to the conviction
buy list at Goldman Sachs, which says the stock overhang should start to abate and that the bank may earn
25 cents a share during the second quarter, well above consensus estimates of a penny a share. "Our optimism
is based on another solid mortgage and capital markets quarter, given observable activity levels since March," the broker said.

The stock overhang should start to abate?

I want to know who ran the book for this secondary and further, I want to know if Goldman was one
of the firms selling into this.

What I do know, because I have a real-time squawk feed with commentary, is that Goldman was very quietly
selling S&P futures in the back of the pit this afternoon.

The SEC needs to start issuing subpoenas NOW. This has gone on now for more than two years, dating back
to the 2007 "surprise" discount rate cut, the "short ban" on financials and more. It is abundantly clear from a
simple examination of the price and volume immediately in front of these announcements that someone is being
given the information before the rest of the market gets it and they are trading on it, and that is against the law.

Period.

I have said that you can't buy or own any financial-related stock at present as an investor. This sort of BS is why
- you will be traded against by people with inside information who will take every opportunity to destroy your
investment while profiting from your loss, and they will do so using information that is not available to you,
the average person, until well after their trade against your position has been put on - whether those acts are legal or not.

WHERE ARE THE DAMN COPS?

PS: BAC will probably be up tomorrow. That doesn't change a thing - Reg FD is not there so that a handful of
"special folks" can profit on opportunities you don't get to take advantage of.

Disclosure: No financial firm positions; with this sort of blatant, unpunished lawlessness your IQ would have
to be in the single digits to invest in any of these firms.

Wednesday, June 3. 2009
Posted by Karl Denninger in Housing at 12:15

Ok, I'm Done With Being Nice

The NY Times, the supposed "newspaper of record" in NYC is running the following line of crap in their Business Section:

MESA, Ariz. — She had seen the advertisements for the new government program offering relief. She had heard President Obama promise that help was on the way for homeowners like her, people who had lost jobs and could no longer make their mortgage payments.

But when Eileen Ulery called her mortgage company — Countrywide, now part of Bank of America — the bank did not offer to alter her mortgage. Rather, the bank tried to sell her a new loan with a slightly lower monthly payment while asking her to pay $13,000 toward the principal and a fresh $5,000 in fees.

Sounds like a hitpiece on the banks, right? Well, it is. Let's keep going:

Ms. Ulery, 63, is the face of the latest wave of troubled American homeowners, a surge of people in financial danger not because of reckless gambling on real estate, but because of lost income.

Far from being one of those who used easy-money loans to speculate on homes proliferating across the desert soil of greater Phoenix, she has lived in the same modest, stucco-sided condo in suburban Mesa for a dozen years. She bought the two-bedroom home in 1997 for $77,500.

That's a lie, and a lie that they "bust" themselves on almost immediately! Oh sure, the original purchase was quite prudent, but look at what happened NEXT!

Like tens of millions of other American homeowners, she added to her mortgage balance as the value of her condo swelled, at one point exceeding $200,000. She refinanced to pay off some credit cards and settle into a 30-year, fixed-rate loan. Later, she took out a home equity line of credit to buy a new Hyundai. She refinanced again in 2007, borrowing $20,000, mostly for a new roof.

Ah, so now the truth comes out! Her house is now worth $122,000, or nearly double what she paid for it in 1997, but she used it as an ATM machine to live extravagantly, running the mortgage balance up to a clean double, or $143,000.

That is, this "responsible" woman spent, over ten years, more than $70,000 in excess of what she made!

To which she poses her own question: What sort of deal is it for the American taxpayer? As she sees it, the same banks that generated the mortgage crisis are now getting public money to fix it, while doing little more than seeking new fees.

“I don’t think the government gets it,” she said. “These are the same people you couldn’t trust before.”

Oh, I get it, but neither you or The New York Times does.

See, we are here because people at all levels of society, including you, Ms. Ulery, seem to think you can spend more than you make.

You did it.

The government, both state and federal, is doing it.

The New York Times is holding you forth as a paragon of virtue, and a "victim" of the evil banking system.

It sucks that you've got an employment problem Ms. Ulery, but that's not the reason you're in trouble and about to lose your house.

No, the reason you're about to lose your house is because you treated your home as a permanent and inexhaustible ATM machine - a demonstrably unsafe, unsound and FRAPPING IDIOTIC act.

Now you want to whine about the just and expected outcome of your choices - your credit card being paid off from that ATM machine that allowed you to live beyond your means, your new car (instead of a used, far cheaper car) and your lack of saving for that new roof (you blew the money on your credit card instead!)

IMHO you, Ms. Ulery and The New York Times, are the poster children for the puerile and outrageous behavior that CREATED this mess, and your whining about it deserves to be met with derision, loud jeers and permanent unemployment - absolutely NOBODY should employ anyone who is this stupid - ever. Nor should they buy or advertise in The New York Times.

I'm tired of this and IMHO it is long past the time when the honest and responsible citizens of this nation should rise up and demand that absolutely nobody, whether it be a state, local or federal government, a business or a homeowner get one thin frapping dime of "asssitance" if they have intentionally spent beyond their means and tried to play "perpetual ATM" - whether it was with a house, a commercial piece of real estate or taxpayer-funded debt offerings.

'Nuff said.

Disclosure: Short Ms. Ulery up to my neck.

Ditto

where are the cops?

The cops the other day shot a black man in the street. He too was a cop.
But blacks are shoot to kill like roadkill.

white cops are a peril to society

that is where the cops are.

BTW-the NYTimes is not the paper of record. Livyjr knows that.

get with the program.

I hope you do understand the use of the term "cops" refers to banking regulators...

Thursday, June 4. 2009
Posted by Karl Denninger in Editorial at 09:55

Government Is NOT In Bed With Bankers!

From Businesswire:

"If the banks approach us with large credit losses after making a lot of money on lending, their shareholders
will have to pay the consequences," Anders Borg said in an interview, Reuters reports. "We will be very clear
with banks which are not solvent and cannot live up to what the law stipulates, that they can count on
(government) funding to be in the form of state ownership."

Oh wait - that wasn't here in the US.

Swedish banks fear mounting loan losses as the economy in the Baltic States, where Swedish banks are the
largest lenders, are heading for breakdown. This puts the Swedish economy at considerable risk, Sweden's
Finance Minister Anders Borg said to Swedish state television, SVT.

Ah.

Yeah, those pesky Swedes. Fancy that - a government that isn't co-opted by a handful of banking interests.

I wonder if I should consider immigrating there. Do 'yall think they'd have me?

(don't worry Denninger ain't going anywhere else)

Are those sirens I hear?

http://www.marketwatch.com/story/former-co...rged-with-fraud

market pulse
Jun 4, 2009, 3:22 p.m. EST

Former Countrywide CEO Mozilo charged with fraud

By Ronald D. Orol WASHINGTON (MarketWatch) -- The Securities and Exchange Commission
has filed fraud charges against former Countrywide Chief Executive Officer Angelo Mozilo and
two other individuals, according to a statement from the agency on Thursday afternoon.
The agency will provide more details later Thursday.

Or is it the mob with pitchforks I hear?

http://market-ticker.org/
The Market Ticker
Commentary On The Capital Markets

Friday, June 12. 2009
Posted by Karl Denninger in Politics at 09:24

Heads In The Guillotine?

The Congressional hearing yesterday with Ken Lewis was amusing.

You know my belief and viewpoint, and it has remained constant since "Bailout Nation" began:

Ben Bernanke and Hank Paulson orchestrated the worst part of the collapse last fall for two purposes:
To cover up their own malfeasance and misfeasance in how we got here in the first place, and to benefit their cronies in the banking business.

(Can you say RICO?)

I further maintain that these two individual's actions constitute official misconduct at best, with the worst possibly reaching racketeering
in the form of the conspiracy to commit securities fraud (with various other actors in the private sector.)

Now we get to see if Congress has a pair of 'nads between its legs.

We have had Dick Durbin in the Senate (who I personally despise, but heh, when you're right you're right)
state that "The Bankers own the US Congress".

We have had both Paulson and Bernanke make statements for the last two years that have sugar-coated
our economic issues, belying either intentional deception or rank incompetence.

We have had a decade-long litany of malfeasance and fraud within Fannie and Freddie - for the second time -
but just like the last time, the worst outcome has been some executive terminations. Oh, and $5 trillion of securitized
debt sitting around like a ticking nuclear weapon, looking for a good time and place to blow up. The bad news is that
the US Government foolishly took that trojan horse partially inside the walls, leading to the real possibility that the
detonation will blow us to bits, instead of the executives and buyers of their garbage. The firms that stuffed Fannie
and Freddie with shoddily-underwritten (or simply NOT underwritten) paper, and their executives, remain free to fly
around in their Gulfstreams (cough-Mozilo-cough!) with the worst "fate" for any of them being civil securities litigation.

Contrary to the claim that "nobody saw it coming", in point of fact many people did see it coming, yet we were ridiculed,
including on national television among the "pumpers" such as CNBC. Among the "truth-tellers" were myself, Nouriel Roubini
(before he jumped the shark recently - gee, you think he might be interested in a political position?), "Mish" Shedlock and
Janet Tavakoli. That people like us are not on CNBC and/or Bloomberg literally daily is proof positive that we no longer
have "reporters" or a "media" - we have infotainment slanted for the specific purpose of funneling sheep into the break
in the fence - behind which is, of course, a pack of wolves.

We have a press that screamed from the rafters (and rightly so) about Bush's deficits but who remain oddly silent about
deficits five times greater when they come from a Democrat Administration. Oh, and under neither administration, both of
which handed over $1 trillion of taxpayer money to banking interests, have received silence from the very same press. Hmmmm.

Last fall The Fed drained over $100 billion from the banking system's "slosh" while claiming to be providing "extraordinary liquidity."
The next day Washington Mutual blew up and three days later the stock market began its September crash. Coincidence? I think not.
The number of questions asked by Congress of Bernanke in this matter over the subsequent six months, despite two appearances on
Capitol Hill for hearings and my personal faxing of the "smoking gun" to all 535 members at the time it happened? ZERO.

"Quantitative Easing" was put forward as the way we would knock down mortgage rates to 4% and hold them there as a means of
"stabilizing" the housing market. Here are the two things I said in December of 08 about these "programs" - how am I doing?:

The Fed's attempt to "pump liquidity" will be shown to be an abject failure. We will see either a Treasury Market selloff or worse,
severe instability in the dollar at some point in 2009.

If you want to refinance a mortgage you may get one brief shot at it with long rates around 4%. You're nuts to buy outright unless
you intend to die in the home, but if you have a solid reason to be obtaining a mortgage or wish to refinance you will probably get
the opportunity. This assumes the "buydown game" gets going before Treasuries dislocate; if you get the opportunity take it as it is
likely to be fleeting. The few places in this country where homes wind up selling for 2.5x incomes (on average) and you have an
opportunity to finance at 4% and change will be decent buying opportunities - if you're sure you can cash flow the note (e.g. your job
and/or income stream is not in any danger of collapsing.)

Geithner now appears to be set to tell The Fed - the very institution that "got it wrong" all the way back into the 1990s by intentionally
blowing bubble after bubble, first in Tech Stocks and then in Real Estate, that they are to "gain the most" in regulatory overhaul. This,
despite the fact that The Fed could and should have put a stop to the outrageous risk-taking in the banking system years ago - but did nothing.

Let's remember this fact:

In President Barack Obama’s plan, scheduled to be released June 17, the Fed is also expected to retain supervisory authority over bank holding
companies and the state-chartered banks it currently regulates, the people familiar with the matter said.

That's right, including the banks that got us into this mess, including most specifically Citibank and Bank of America. Only in government do
you get to really screw the pooch to the tune of trillions of dollars and get rewarded with even more power. In private business such a record
finds you lucky if you don't wind up in the greybar motel.

The people of this nation have stuck their heads in the sand for over two years on this series of scandals and fraud since they burst onto the
scene in the first part of 2007.

Washington DC seems to think that they can keep sweeping the elephant under the rug, and that Americans will continue to keep their TVs
tuned to American Idol, even while they are evicted from their homes, fired from their jobs and and their retirement funds in 401ks and
IRAs shrivel into irrelevance.

Perhaps these hearings are a consequence of personal loss among Congress, rather than true representation of the people's interest:

The forms for the 2008 calendar year were quickly removed from the House site, but are now available at Legistorm.com Nancy Pelosi
and her husband lost between $100,000 and $1 million in American International Group Inc. stock last year. The California couple also
spent more than $250,000 to increase their ownership of a luxury spa in Napa Valley.

When you're one of the most powerful people in a demonstrably corrupt organization - Congress - I guess it would only make sense
that you'd buy a million dollars worth of stock in a company that made $500 billion worth of credit bets with zero capital behind them.

What Pelosi seems to have forgotten is that eventually the truth comes out, and it usually happens when the elephant in the room that
you swept under the rug starts tripping up everyone who comes through the door.

Here's what I would define as a "good start" in cleaning this crap up:

Go after Bernanke. As noted yesterday, Bernanke must go. If he refuses, The Fed must go. Congress has the authority - now
let's see them use it.

Go after Paulson. He's going to be tougher, but I believe he can be nailed for official misconduct. If so, there's a whole plethora
of potential civil and criminal legal pitfalls that lay directly in front of them. In my opinion if there is one man who deserves to get locked up
out of this whole mess, its Hank Paulson.

Nail Lewis to the cross. Executives cannot hide behind government coercion. Fiduciary responsibility isn't a relative term and one
of the best antidotes to government malfeasance are executives that understand that they will wind up in the hoosegow if they sit silently
for such abuses rather than discharging their responsibility to bond and stockholders - the latter requiring singing like a canary when their arms are twisted.

And finally, I want to see a special prosecutor with lots of assistants to investigate Congress. I'm willing to bet out of the den of felons in Washington DC
we can - and must - find at least 100 solid indictments.

There is nothing like watching the guy in the office next to you being hauled off in irons that incents people to grow a backbone and straighten up their act.

http://market-ticker.denninger.net/

The Market Ticker
Commentary On The Capital Markets
Wednesday, June 17. 2009
Posted by Karl Denninger in Editorial at 08:36

Ssssshhh.... Its D-D-D-D-....
Deflation.

From Bloomberg:

Ten-year yields will probably drop to as low as 1.5 percent over the next two years, Mizuho Asset’s Takei said.

The only way that happens is if The United States is gripped by a bone-crushing deflationary spiral.

It can happen. It probably will happen, despite The Fed's attempts to stop it, because in fact The Fed has done
all the wrong things to stop it over the last ten years, and once you try to use bubble economics to get out of
another bubble you have sealed your fate.

See, debt deflation cannot be avoided once you blow asset bubbles supported by debt - it simply can't.
That cycle must end and when it does you wind up with the debt service sucking all the oxygen out of room
and prohibiting growth. Once that condition asserts itself asset prices collapse and defaults go parabolic.

Put simply:

Once you start borrowing to pay current costs and interest - that is, you start "rolling forward" debt
such that the amount outstanding increases as a percentage faster than GDP increases and this
"rolling forward" shows up in asset prices, you are doomed to a deflationary credit collapse.

The longer you let it go on (or try to force it to go on) the worse the collapse will be.

This is mathematically certain - it is no more subject to avoidance than is the fact that you cannot
"get" energy - you can store it, transform it or use it but each and every transformation will lose
some of what you started with.

Likewise, once debt is taken on there are only two alternatives: PAY IT DOWN OR DEFAULT IT.

We have tried to "cheat death" for too long. Greenspan tried to avoid this deflationary collapse in 2001.
He bought us how long? Seven years? Sounds good, right, except that the previous attempt was
after 1987, and lasted 13 years, and this latest try required a bubble several times larger than the previous one!

Such is the nature of exponents.

Unfortunately in order to "blow a new bubble" to take the place of housing you'd have to find
something that was $10 trillion in size or more.

There isn't any such thing, which is why all of these "alphabet soup" games aren't working and won't.

We can continue to believe in the tooth fairy, like Obama apparently does:

June 16 (Bloomberg) -- President Barack Obama said he is “confident” that he won’t have to raise
taxes on most Americans to close the budget deficit as long as the economy picks up steam.

Adults know that the dollar coin under your pillow was put there by Mom or Dad, not the Tooth Fairy,
that there is no such thing as a Unicorn that craps out pretty colored candies, and that growth cannot
return on a durable basis until excessive debt is defaulted, not hidden under the carpet.

Obama warned that if economic growth remains “anemic” and Congress fails to adopt his plans
to hold down the cost of health care, work on alternative energy sources and improve the U.S.
education system, “then we’re going to continue to have problems.”

We're going to continue to have problems because of the first condition; the other two do not matter
if you do not clear the debt so that organic, sustainable economic growth can return.

(By the way clearing the debt means it returns from a lower, sustainable level, which means that
there is plenty of pain that comes first. That too is unavoidable.)

Fiscal discipline that leads to lower budget deficits is important, Obama said, to ensure investors
around the world keep buying U.S. government debt.

Obama said a large part of the current budget deficit was inherited from the administration
of former President George W. Bush, his predecessor, and that extra spending was needed to
address the worst global financial crisis since World War II.

You cannot cure alcoholism with whiskey.

In the Unicorn department we also have this:

Under the proposal, the central bank must get written approval from the Treasury secretary
before using the power, according to a copy of the administration’s white paper obtained by
Bloomberg News. The document calls for the Fed to conduct a study of its governance structure,
including how it handles bank exams and regulates financial firms.

The Fed doesn't follow the law now; what makes anyone believe it will in the future? Equity
stakes in anything that has a duration over six months and is not backed by the full faith and
credit of the United States cannot be taken by The Fed under existing black-letter law.

Yet The Fed has set up three LLCs that own such stakes (two for AIG and one for Bear Stearns)
and has committed to purchase more than a trillion dollars of Fannie and Freddie paper which has a
duration of more than six months and lacks that formal full-faith-and-credit guarantee. All of these
actions are in direct violation of existing black-letter law.

Oh, and Obama says

WASHINGTON (MarketWatch) -- President Barack Obama will propose Wednesday to make
the Federal Reserve into a consolidated supervisor of large, systemically vital financial institutions
and require higher capital standards and more scrutiny of banks' activities because of the risk
to the system if they collapse, according to a senior administration official Tuesday.

Riiiight. I'll believe The Fed would do anything like this when (and only when) all those 23A exemptions
The Fed has issued over the last two years are revoked - and not one minute before. Otherwise this
is just more book-cooking nonsense.

The Fed is a rogue organization and until our government forces it to live within its present authorities
there is no reason to believe that any future "handcuffs" would be respected.

Government, despite their so-called "new proposal" has refused to take the steps that are necessary
to resolve this crisis and return us to a stable economic base.

The reason for this is simple: Government is both beholden to and stuffed to the gills with those who
made the bad decisions, and forcing those people to eat their bad investments is considered politically unacceptable.

We therefore will do this "the hard way", just like we did in the 1930s.

Buckle up - this road might get "a little rough."

The Market Ticker

Commentary On The Capital Markets
Monday, June 22. 2009

Posted by Karl Denninger in Company Specific at 08:52

How To Rob The Treasury For Bonuses

You have to love Goldman Sachs:


...after a spectacular first half of the year, sparking concern that the big investment banks
which survived the credit crunch will derail financial regulation reforms.

A lack of competition and a surge in revenues from trading foreign currency, bonds and
fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm.

Nothing like a little taxpayer money funneled through AIG to add to the pool, right?

In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff,
much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this
year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London.

Let's remember that Goldman got roughly $10 billion in AIG-funneled money to "settle" CDS
that their CEO said was a fully-hedged position and which would have had no material impact
if AIG had gone down, mostly because they had collected nearly all of the hedge before AIG got in serious trouble.

That is, they got paid twice - once with their hedge (good move guys) and again by government fiat,
directed by Henry Paulson who coincidentally used to run Goldman.

Also note the size of the first-quarter profit, multiply by four (assuming equally good results)
and then compare against the "extra" payout through AIG to figure out whether there would
be any bonus pool absent that payment.

Looks to me like the US Taxpayer is funding all of Goldman's bonuses, never mind this ditty:

Last week, the firm predicted that President Barack Obama's government could issue $3.25tn
of debt before September, almost four times last year's sum. Goldman, a prime broker of US
government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

Nice, eh? Do Treasury's bidding, get paid for it, get an extra $10 billion from the taxpayer as a
gift to cover a bet you had already hedged against default, and pocket it all.

Change we can believe in - yep, we'll steal even more than we did under The Bush Administration!

Disclosure: No related company-specific positions.

<h3 class="post-title entry-title"> Goldman Sachs Obtains Record Profits, to Pay Largest Bonuses Ever </h3>
As they say in the States, "in your face."

The outsized financial sector, with its exorbitant fees, represents a serious tax and a growing threat to the real economy.

We may have, at best, the illusion of a recovery based on the increasing monetary inflation and monetization of debt as shown in the money supply figures, as compared to real GDP growth. Price, Demand and Money Supply

It will be a selective recovery at best, and damaging to the political fabric of the United States. It is a drain on the world economy while the US dollar is the reserve currency.

It is seigniorage on a grand scale, unprecedented tax on productivity not seen since the decline of colonialism, perhaps even feudalism.

Until the financial system is reformed there can be no sustainable recovery.

The Guardian
Goldman to make record bonus payout
Surviving banks accused of undermining stability

Phillip Inman
The Observer
Sunday 21 June 2009

Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms.

A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm.

Staff in London were briefed last week on the banking and securities company's prospects and told they could look forward to bumper bonuses if, as predicted, it completed its most profitable year ever. Figures next month detailing the firm's second-quarter earnings are expected to show a further jump in profits. Warren Buffett, who bought $5bn of the company's shares in January, has already made a $1bn gain on his investment.

Goldman is expected to be the biggest winner in the race for revenues that, in 2006, reached £186bn across the entire industry. While this figure is expected to fall to £160bn in 2009, it will be split among a smaller number of firms.

Barclays Capital, Credit Suisse and Deutsche Bank are among the European firms expected to register bumper profits, along with US banks JP Morgan and Morgan Stanley following the near collapse and government rescue of major trading houses including Citigroup, Merrill Lynch, UBS and Royal Bank of Scotland.

In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff, much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London.

Critics of the bonus culture in the City said the dominance of a few risk-taking investment banks is undermining the efforts of regulators to stabilise the financial system.

Vince Cable, the Liberal Democrat treasury spokesman, said: "The investment banks more than any other institutions created the culture of excessive leverage, excessive risk and excessive bonuses that led to the downfall of the financial system. Now they are cashing in and the same bonus culture has returned. The result must be that we are being pushed to the edge of another crash."

Goldman Sachs said it reviewed its bonus scheme last year and switched from a system of guaranteed rewards that were paid over three years to variable payments that tied staff to the firm. It told employees last year that profit-related bonuses would be delayed by 12 months.

Until the release of its first quarter profits in April, it seemed inconceivable that a firm owing the US government $10bn would be looking to break all-time records in 2009.

David Williams, an investment banking analyst at Fox Pitt Kelton, said: "This year is shaping up to be the best year ever for investment banks, or at least those that have emerged relatively unscathed from the credit crisis.

"These banks are intermediaries in the bond markets where governments and companies are raising billions of pounds of new money. There is also a lack of competition that means they can charge huge sums for doing business."

Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

Tin Foil Hat Monday. Yessir, those darned time monks and their warning that by summer, or so, things would begin to feel, well, surreal to the point that people would be pinching themselves asking "Is this real?" turns out pretty much right. I've taken to wearing ViceGrips on both arms lately, such is my state of disbelief at some of the headlines crossing.

---

Goldman Sachs, for example, is about to make a record bonus payout to its employees because they had such a spectacular first half of the year. What's more, Warren Buffet who put five billion dollars into Goldman in January of this year is already up a billion on his investment, reports the UK's Guardian.



Not to sound grumpy here, but don't I recall that...

• You read in the prestigious Columbia Journalism Review about "Goldman's Backdoor bailout" which gets to how bailing out AIG helped Goldman.
• Am I the only one that remembers that "Goldman's share of AIG bailout draw fire" since they pulled $12.9 billion out of AIG?
• And has everyone forgotten the Digg notes last October about how "Goldman Sachs takes $12-billion bailout, hands out $14B bonuses"?

Nice that Goldman paid back $10-billion in TARP money last week before word of the bonuses leaked out. That's a good thing - nice that they made money. But the core problem - banks that are too big to fail is still present and CONgress sits on its duff. Structural reform has been a talking point, not an action plan.



Want to hear a great joke? "Transparency." (I can sure tell, 'em, can't I?)

With Goldman out from under government restrictions, they seem likely to take the position that government has no business deciding on bonus levels for private companies. True.



But when banks tell government what to do, and government tells people what to do, the America of the Founders is toast. So we're clear on this: People tell government what to do, government tells banks how to operate, and any variance from that is simply anti-American.



The lone nut-job in East Texas sees it this way: Any bank that took TARP money qualified in my book as 'too big to fail." Bust 'em up and put 'em back in their place. We did it to the phone company and I notice phone rates have become incredibly cheap. Why not with banks?



I expect busting up super-banks would lead to the same kinds of improvement in service and consumer choice we see in telecommunications.



As long as Big Banks (and the handful of credit card companies) can 'wag the Congress' the middle class will be stuck doing what it has done best. Making the rich richer.

Meantime, The Second Depression Continues

No, it's not much in the MainStreamMedia, but Depression Two continues to unfold in its own sweet time, avoiding the bale of Depression most places, since that's not what the PTB want you to realize. "States turning to last resorts in budget crisis" reported the NY Times on Sunday.



Meanwhile, the "Numbers on Welfare see Sharp Increase" says another report.



And, just in case you were still holding out hopes that things would bounce back quickly, the World Bank has cut its forecast for developed economies. That used to include the US but I haven't checked lately, LOL.



So here we are in the Second Depression and banks run politics and we're bombing the moon. Got a coupon for tin foil?

The Market TickerCommentary On The Capital MarketsTuesday, June 23. 2009
Posted by Karl Denninger in Regulatory at 09:29

Congress Has No More Excuses
If you haven't seen this, you need to.

Christopher Whalen is a principal of a firm that rates the performance of commercial banks, Institutional Risk Analytics. I have featured some of his writing before in Tickers, but this one, submitted to The Senate Committee on Banking, Housing and Urban Affairs yesterday, takes the cake. You must read this in full but for those who are incapable of understanding it, I'll spell out details for you. Some excerpts:

Simply stated, the supra-normal returns paid to the dealers in the closed OTC derivatives market are effectively a tax on other market participants, especially investors who trade on open, public exchanges and markets. The deliberate inefficiency of the OTC derivatives market results in a dedicated tax or subsidy meant to benefit one class of financial institutions, namely the largest OTC dealer banks, at the expense of other market participants.

Translated: The banks make extra-large profits by extracting money from other people in the rest of the market. That is, they have effectively been given the power to levy a tax - something supposedly reserved to Congress.

The taxpayers in the industrial nations also pay a tax through periodic losses to the system caused by the failure of the victims of OTC derivatives and complex structured assets such as AIGs and Citigroup (NYSE:C).

Worse, when they blow it, you eat it, not they. Why? Because they have effectively bribed the regulators to speak on their behalf and for their interests, much as allegedly happened with Stanford and the so-called Antiguan banking regulator.

With CDS and more obscure types of CDOs and other complex mortgage and loan securitizations, however, the basis of the derivative is non-existent or difficult/expensive to observe and calculate, thus the creators of these instruments in the dealer community employ "models" that purport to price these derivatives. The buyer of CDS or CDOs has no access to such models and thus really has no idea whatsoever how the dealer valued the OTC derivative. More, the models employed by the dealers are almost always and uniformly wrong, and are thus completely useless to value the CDS or CDO. The results of this unfair, deceptive market are visible for all to see – and yet the large dealers, including JPM, BAC and GS continue to lobby the Congress to preserve the CDS and CDO markets in their current speculative form.

The dealers, the large half-dozen banks that control this market like a cartel, basically making it all up. There is no actual underlying pricing and therefore the price is whatever their computer model says it is, and you can't see it. Only they can, and they use this against everyone else to effectively rip off everyone trading with them.

Let's be clear: Chris is using one example here where the dealer (the big bank) is the SELLER. But there are also cases (e.g. AIG and Goldman) where the big dealer is the BUYER; the seller is in fact selling SHORT, effectively, a product that the dealer has exclusive control of the pricing and model on by which their gains or losses are calculated!

In my view, CDS contracts and complex structured assets are deceptive by design and beg the question as to whether a certain level of complexity is so speculative and reckless as to violate US securities and anti-fraud laws. That is, if an OTC derivative contract lacks a clear cash basis and cannot be valued by both parties to the transaction with the same degree of facility and transparency as cash market instruments, then the OTC contact should be treated as fraudulent and banned as a matter of law and regulation. Most CDS contracts and complex structured financial instruments fall into this category of deliberately fraudulent instruments for which no cash basis exists.

The clear version of the above, in English.

To put this in "Joe Six Pack" speak this "market" is exactly like playing Blackjack against a dealer who has a supply of aces and kings under the table, and uses them to deal blackjacks to himself any time he would like.

Would you knowingly sit at such a table?

It is my view and that of many other observers that the CDS market is a type of tax or lottery that actually creates net risk and is thus a drain on the resources of the economic system. Simply stated, CDS and CDO markets currently are parasitic. These market subtract value from the global markets and society by increasing risk and then shifting that bigger risk to the least savvy market participants.

And let's not forget who gets all the money. JP Morgan, Goldman, et.al.

Seen in this context, AIG was the most visible "sucker" identified by Wall Street, an easy mark that was systematically targeted and drained of capital by JPM, GS and other CDS dealers, in a striking example of predatory behavior. Treasury Secretary Geithner, acting in his previous role of President of the FRBNY, concealed the rape of AIG by the major OTC dealers with a bailout totaling into the hundreds of billions in public funds.

Any questions?

Chris has been one of the consistent bright lights in this mess since it began.

I have called for all swaps and other OTC derivatives to be forced onto an exchange. Why? In no small part because I know that not all derivatives can be exchange traded, and should this be forced all the "sham" products would be immediately exposed for what they are and eliminated from the marketplace. Those that are legitimate products would trade with transparent pricing, open interest and volume, thereby contracting spreads to a reasonable level and eliminating the ability of the cabal of dealers to screw their customers.

Items like FX and Interest-Rate swaps can easily be exchange traded, as the closing price can be computed daily and for most of these products a minute-by-minute price can be computed using transparent and simple formulae. The underlying instruments for these products are real and trade every day - interest rates of course are a matter of public knowledge and trades in the treasury and agency debt market, while currency pairs are quoted on a near-continuous basis. Both sorts of OTC contracts have no real reason to change hands over-the-counter, except to allow some bank to insert a hinky clause here or there that disadvantages the customer, charging an outsize spread or commission for the "privilege." Indeed there have been several major disputes over this practice between these banks and municipalities that were sold complex interest-rate swaps that in some cases came with allegations of outright bribery or inside dealing.

But when it comes to these other things like CDOs and CDS, there is no observable market price on which to base the derivative as there is no actual underlying basis. What, for example, is the "risk that GE will go out of business in the next year"? Document how you arrive at your answer please, and good luck coming up with anything that is objectively defensible.

In short, the nonsense, patronage and outright fraud within both our government and the cabal of dealers must stop now.

This marks two warnings Congress has had on this matter in written testimony, the first prior to the repeal of Glass-Steagall predicting exactly what has now happened and now, this from Mr. Whalen.

I have written to Congress on many occasions, including spending thousands of dollars faxing Tickers, white papers and other documents to all 535 members over the previous two years on these points. Congress seems to think that America is a bunch of dolts and will tolerate being literally stuck up at gunpoint to the tune of hundreds of billions if not trillions of dollars in a massive collusive scam that reaches all the way to the top of the American Regulatory and Political Systems.

The American people have every right to hold The Board of Governors of The Federal Reserve, The Federal Reserve Bank of New York, Henry Paulson, Tim Geithner and all 535 Congressional members personally responsible if the abuses, frauds, and scams that have been enabled by the intentional blindness and even complicity of these individuals are not stopped immediately and all past transgressions prosecuted to the fullest extent of the law.

We the people have every right to demand and expect that a passel of special prosecutors be empaneled immediately to go over each and every one of these allegations, investigate every agency including The Federal Reserve and its member banks, and where appropriate bring indictments and prosecutions for frauds perpetrated upon the taxpayers, investing public, the states and municipalities of this nation.

STOP THE LOOTING
START PROSECUTING

These would be funnier if they weren’t so true.

Offshore Banking Scandal Continues, But What Indictments?

June 22, 2009 (FinancialWire) (By Bud Burrell) — Going back some six years, I have repeatedly commented on and described the shameful crises of offshore banking, brokerage, hedge funds, naked shorting, money laundering, and support for terrorism. I have heard promise after promise of additional pending indictments, or recovery of stolen funds, or both, and I have patiently waited for the system to work.

It has all been for naught, as not a single indictment of a material character has come down except for the notorious Amir Elgindy, other than the truncated action against the criminal Badian brothers, and their coterie of facilitators. The manipulation of Sedona Corporation by this conspiracy should be the best case in the industry, yet all the Federal authorities have done is blow the case by the numbers. Further, there is even less evidence of any material recovery of the funds spirited offshore by these highly organized criminal enterprises.

I know and have worked closely with many US Attorneys and their investigators from various Federal agencies. I have seen their frustration with the system. Probably no one organization has suffered more severely than the FBI, whose retention rate is now approaching the pregnancy term of an Elephant, 20 months. It is not their collective fault. Rather it is a signal of the wholesale corruption of our political, legal and judicial systems for the protection of hugely funded vested interests, whose integrity is non-existent.

I have repeatedly told the story of how criminals and their facilitators set up complex interlinked and layered structures mixing international business corporations with offshore irrevocable trusts, set up in non-matching venues/jurisdictions, using offshore banks protected in every case by banking secrecy laws. All of the major global brokers, banks, significant hedge funds, select money managers, and many major corporations have set up all forms of complex special purpose entities (SPE’s) most Americans first heard of in relation to the hiding of profits by Enron.

More…

Clinton did it (and others helped)

Commentary: How would effective financial services reform look? Like 1999
java script:void(0) By David Weidner, MarketWatch

NEW YORK (MarketWatch) -- On Wall and Main streets they call William Jefferson Clinton the "comeback kid," but it's not because of some election-day surprise.

It's because most everything he did regarding financial services regulation has come back to haunt us.

If it wasn't apparent before, the former president's handiwork became clear last week when President Obama announced sweeping financial services reform. The plan's efforts to bring fair dealing to the mortgage markets, rules to the derivative marketplace and restraint to big financial firms underscored the missteps of the second Clinton term.



Reuters
President Bill Clinton
That's because we had weakly regulated markets when Clinton took office. When he left, they were an invitation to lawless dealing where, for the ease of it, Willie Sutton would have traded his gun and mask for a briefcase and necktie.

During his final three years in office, Clinton created a fertile environment for home-lending charlatans, hiding places for Wall Street swindlers and a regulatory structure that had served the financial marketplace so well for more than six decades.

Clinton bashing -- like Bush bashing -- is often a cop out, but he made some critical mistakes when it came to dealing with the financial industry. Three poor decisions stand out.

The first was a change in 1997 to the amount of taxes a homeowner had to pay on the sale of his or her home on up to $500,000. This change effectively made buying and selling a home for profit the most compelling investment in America by tax standards. It changed our housing market from one of supply and demand to one of rampant speculation.

The second mistake was one of inaction. In 1998, Long-Term Capital Management's use of derivatives and leverage required a massive $3.6 billion hedge fund bailout organized by the New York Federal Reserve Bank. After the fiasco rocked the markets, the administration was on the spot. Would it require tighter regulation of this new form of investment vehicle? Would it rein in the derivatives markets?

Federal Reserve Chairman Alan Greenspan and Securities and Exchange Commission Chairman Arthur Levitt and Treasury Secretary Robert Rubin counseled against it to varying degrees and Clinton relented.


Repeal of Glass-Steagall
But perhaps the biggest mistake of the Clinton years regarding Wall Street and the one that rings loudest today was the repeal of Glass-Steagall, a 1933 law that effectively split investment banking and brokerages from commercial banks.

In the years leading up to the repeal, Wall Street had been grumbling that the law had become an anachronism. Financial technology was sophisticated. We were so much smarter than they were back in 1929 that there was no way a financial services conglomerate could pose a threat to the system, Wall Street experts said. Besides, they argued, it was a good idea for a bank to handle customers' investments and savings as a hedge in the bad times.

The Clinton administration effectively had its hand forced in 1998 by the merger of Citicorp and Travelers Group in 1998. The creation of Citigroup Inc. /quotes/comstock/13*!c/quotes/nls/c (C 2.99, -0.01, -0.33%) required a lot of chutzpah by its CEO, Sandy Weill, because it was effectively prohibited under Glass-Steagall.

Enter the Gramm-Leach-Bliley Financial Services Modernization Act of 1999, which not only allowed Citi to exist but also eliminated key barriers between bankers who are supposed to limit risks and investment bankers who were supposed to take them.

The biggest argument critics have against bringing back Glass-Steagall is that it would be too chaotic. Whole companies would have to be cleaved. Relationships would have to be unwound.

Well, back in 1933 the law effectively split J.P. Morgan /quotes/comstock/13*!jpm/quotes/nls/jpm (JPM 33.75, +0.88, +2.68%) , the bank, from what would become Morgan Stanley /quotes/comstock/13*!ms/quotes/nls/ms (MS 26.69, +0.06, +0.23%) , the brokerage. Both seem to have come through the disruption fairly well.


Aides who abetted
Clinton didn't do it all alone. He had a lot of help from Congress. He was under pressure from a legislature controlled by laissez-faire Republicans who were hell bent on taking up the Reagan ideology of deregulation and free markets. The repeal of Glass-Steagall passed 90-8 in the Senate and 362-57 in the House.

Greenspan, the universally loved chairman of the Federal Reserve, gave everyone bad advice in regard to interest rates, home ownership and derivatives. Under Levitt at the SEC, Wall Street accounting reached its nadir only to reveal itself with WorldCom and Enron after he left office.

Then, Clinton's Republican successor closed the deal. George W. Bush took the ball into the end zone, and making buying a home easier than spelling FNMA or FICO and removing the last vestiges of capital requirements at U.S. brokerage firms.

Ultimately, however, the big bang -- the wall torn down between brokers and banks -- happened on Clinton's watch. It's largely the problem that's being tackled in the current administration's 85-page white paper on reform. After all, Citigroup's banking side probably would not have loaded its balance sheet with toxic loans had it not been under pressure from the arm making all of the stuff.

Citi also wouldn't be the size it is today, a monster that the government deems "too big to fail" and required more than $300 billion in cash and guarantees to stabilize.

Citigroup's drag on the nation probably isn't what Clinton envisioned, but that's the problem with modernizing markets and making our financial system cutting edge. Too often we get cut.

David Weidner covers Wall Street for MarketWatch.

Looting also requires a lot of "clean-up"...

The Market TickerCommentary On The Capital Markets
Wednesday, June 24. 2009
Posted by Karl Denninger in Banking System at 11:35

Citi: More Mortgage Fraud?

This is what The Taxpayers get for supporting Citibank:

June 24 (Bloomberg) -- Citigroup Inc. suspended loan applications at a unit that produced half
of its $115 billion in mortgages last year after a review found that some property appraisals
and income-verification documents were missing.

The correspondent division, which buys loans from banks and independent mortgage firms,
stopped accepting new loans at 5 p.m. yesterday and will restart July 6, Citigroup said in a
June 22 letter to clients. The New York-based company said it will use the time to change
procedures and fix the omissions.

Uh huh.

Missing, eh? Gee, I wonder why appraisals and income verification documents would be missing?

According to the June 22 letter, the review identified “valuation concerns” where “appraisal documentation
is missing or incomplete,” or where property-assessment methods were “insufficient/lacking.”

Other missing information included employment confirmations, phone numbers, credit reports and rent
verification, the letter said. The review also found “income calculation errors.”

I have just one question:

Is anyone tracking shredder sales?

Second: Where is the OIG and OCC? If they are doing their jobs they would be in Citi's offices
like white on rice and force a re-underwriting of every affected file. Of particular importance
are those mortgages that were later sold off to Fannie and Freddie, or insured under the FHA.

Betcha that doesn't happen.

of course, this all happened under Bush's watch

so you can't blame Obama

thank God McCain is not president. He couldn't hold a ledger in his hands, let alone balance one

I keep seeing more and more articles entitled:

"It's Obama's Economy Now"

But, I guess for the "true believers" it never will be...
unless of course, something good happens.

no, it is not

but of course, when you go searching for articles, you will always find ones that suit your cause, 100% of the time.
btw-is it my imagination or has rawstory been bought by the right? Enquiring minds want to know.

because the rightwingers like to say this
but they lie and lie and lie and lie and lie

Bush knew what he was doing by leaving it this way
he ensured there woud be no time to prosecute them for torture and war crimes.

No time?

To busy shoveling out the treasury? Or is it "date night"?

"The lie can be maintained only for such time as the State can shield the people from the political, economic and or military consequences of the lie.

It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State."

–Joseph Goebbels, of the perception modification school of economic thought

Sucks to Your Asmar!

The Market Ticker
Commentary On The Capital Markets
Thursday, June 25. 2009
Posted by Karl Denninger in Regulatory at 12:15

More Front-Running: Where Are The Cops?

This is getting very, very old.

For release at noon EDT:

The Federal Reserve on Thursday announced extensions of and modifications to a number of its
liquidity programs. Conditions in financial markets have improved in recent months, but market
functioning in many areas remains impaired and seems likely to be strained for some time. As a
consequence, to promote financial stability and support the flow of credit to households and businesses,
the Federal Reserve is extending a number of facilities through early 2010. At the same time, in light
of the improvement in financial conditions and reduced usage of some facilities, the Federal Reserve
is trimming the size and changing the terms of some facilities.

For release at noon eh?

You sure Ben? You absolutely, positively sure?

I want to draw your attention to this:





That's last night.

Over 12,000 contracts traded in two five-minute periods, over 10,000 right up on the time of that spike.

There was no news of any sort related to the US markets on the wire last night. Zero. None.
I and many others were wondering what the heck caused that.

This morning, the buying began in earnest at 8:30 Central, and then again at 10:00 Eastern -
one hour in front of the "announcement", again on heavy volume.

Where is the SEC?

Where is the SEC's demand for trading records on these contracts, particularly
the ones last night on Globex?

That was a highly unusual trading pattern that strongly suggested that someone
knew something and acted on it front of a news release.

Well, now we have the news release. It sure wasn't the (bad) unemployment or (neutral) GDP numbers.

So what's left?

Yeah.

I'll bet my last dollar those contracts can be traced to someone who got advance notice of this action,
and that, by the way, is unlawful.

Or at least its supposed to be.

This is not the first time something like this has happened and I continue to highlight them in The Ticker
as a log of apparent criminal market manipulation and insider trading, the rampant practice of which has
turned our capital market system into a joke with the public and "Not Privileged" being the recipient of
repeated screw jobs at the expense of those who are unlawfully tipped off in front of these sorts of "news releases."

The modern practice of this began with the August 2007 "discount window" cut in front of Options Expiration
which was (by the trading patterns) clearly leaked to certain market participants in advance, and resulted
in billions of dollars of losses for other traders and investors. Bear Stearns' infamous $5 and $10 strike
PUTs being opened and bought hard days before the firm blew up (while the stock was trading at $60!),
similar games with Lehman and other events continue to show that certain privileged parties repeatedly
get "leaks" allowing them to trade in front of major news releases, and they do at the expense of everyone
else in the market.

This blatant lawless behavior must be stopped.

--------------------------

But Karl...ya gotta BELIEVE! Green Shoots! Green Shoots!

The Market TickerCommentary On The Capital MarketsWednesday, July 1. 2009

Posted by Karl Denninger in Regulatory at 09:15

Conspiracy To Hide Bubble-Formation
(What? Bailouts used to cause another bubble? Who would have guessed. )

In yet another move to make a mockery of so-called market transparency, and again with mad props to Zerohedge,
we have this:

"The Exchange has filed with the SEC to implement the decommissioning of the DPTRrequirement following
the July 10, 2009 trade date. Accordingly, the last required submission of the DPTR will be on July 14, 2009,
which is the second business day after the last trade date for which the DPTR is required."

Go read the entire Zerohedge article; what this means, in short, is that the ability of people (like you and I) to see
the fact that a handful of banks, most specifically Goldman Sachs, constitute the majority of NYSE trading volume -
and they're trading for their own book, not for customers, will no longer be disclosed.

This "back and forth trade" between a handful of institutions is nothing more than the old "pump and dump" game
that has been played in the OTC market forever - and almost always screws the individual investor.

This is no different than you and I selling a house back and forth between us repeatedly, each time at a higher price.
We both appear to be geniuses as we're both making a "profit", right?

Well, no. One of us is destined to take a horrifying loss if we do not find a sucker to make the final transaction with.

The embedded scam is that real gains require real parties at interest and not a closed system of a couple of guys
passing an asset back and forth in a transparent attempt to "bait" someone else into becoming the sucker to offload
that asset to.

The parallels to the housing bubble are not coincidence. There is no "value" being created nor is there any actual value
appreciation taking place when people pass an asset back and forth at ever-higher prices. Only when there are lots
of parties participating on their own, organically, does a market truly exist and does value align with price. Otherwise the
so-called "price" is nothing other than a cheap parlor trick.

Zerohedge has been documenting this game now for months as Goldman in particular has come to represent
an outrageously large percentage of the entire NYSE volume.

The problem of course is that, at least on paper, market manipulation, irrespective of what form of parlor trick
you choose to use, is a serious violation of the law. Of course these violations of the law have been ignored for
so long that nobody seems to care any more, but the fact remains that should the public come to believe that
the NYSE has turned into nothing more than a gigantic pump-and-dump scheme operated by a handful of banks
trading between themselves with publicly-guaranteed funds the consequences could be catastrophic.

So rather than stop it, the NYSE is doing what all good robber barons do - they're obscuring the data
so nobody can see it any more.

More "change we can believe in"; the blackjack dealer is once again stashing a whole bunch of aces and kings
under the table for his use whenever he deems that he "should" have a blackjack, and you, once again, are the
sucker just as you were in the housing bubble.

Wanna play some 21?

Update: The NYSE apparently didn't like Zerohedge's characterization and issued a response; my comment is
the same as theirs - why not ADD to the disclosure instead of redacting the "older" format? I'm with them on this
- more disclosure always beats less.

------------------------------------------

...and the market jumps 100 this a.m. Why? I haven't a clue unless its the leveraged ETFs and the institutional play above.

today's Denninger:

Now let's talk about what's going on.

First, I want to focus on housing, because, well, everyone else is, even though the housing mess is a symptom, not the cause of the problem.
But the WSJ's "opinion" page has an interesting article up this morning:

The analysis indicates that, by far, the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home. The accompanying figure shows how important negative equity or a low Loan-To-Value ratio is in explaining foreclosures (homes in foreclosure during December of 2008 generally entered foreclosure in the second half of 2008). A simple statistic can help make the point: although only 12% of homes had negative equity, they comprised 47% of all foreclosures.

Stan then waxes on about the necessity of "real" down payment amounts, something I've harped on for more than two years. In fact, on April 6th 2007 I said this:
You should have put down 20% of the purchase price as a down payment. The down payment serves two purposes - it insures you have "skin" in the game, and more importantly, it demonstrates conclusively that you have the discipline to amass a decent chunk of cash and sequester - rather than spend - that money. Historically, this money had to be "seasoned" - that is, it could not have come from some other form of loan (e.g. a personal loan) or gift (e.g. your parents give you $20,000); the source of the down payment has historically had to be disclosed and proven.

The reason for this, by the way, is not "simply" (as is often claimed) to provide positive equity. In fact, that's a side effect that happens to be very beneficial.

What Stan misses (as do the others) is that down payments are an inverse to leverage, and it is leverage throughout the system that got us in trouble in the first place.
Unfortunately neither the government nor columnists such as Stan "get it" in this regard. Stan claims this is "New Evidence" in the title of his piece; it is, in fact, not new at all. I've been yelling about this since literally the founding of The Market Ticker, and with good cause - it is the reason we are in this mess.

The market is a cruel enforcer of reality in this regard - when Fannie, Freddie, AIG, Lehman and Bear blew up all had leverage ratios in excess of 30:1 - that is, less than a 3% decline in asset value caused them to detonate.

This is the bottom line in the housing and indeed all other markets. Values fluctuate in the marketplace and the only way you can avoid those fluctuations becoming a bankruptcy trigger is by leaving yourself sufficient cushion by keeping leverage to reasonable levels.

This same principle applies to banks, it applies to homeowners and it applies to businesses. The concept of "too little skin in the game" is really a matter of leverage ratios, and how far an asset can depreciate in value before the holder owes more than the asset is worth. Once that occurs the so-called "asset" becomes a liability, and in short order it will sink you economically.

The underlying foolishness among our so-called "experts" in industry and government is that nobody is talking about or addressing this.

Why?

Because doing so means that we must:

• WITHDRAW the "excess stimulus" that made this idiocy possible in the first place, and is attempting to continue it.
• ACCEPT that asset prices will FALL until they reach equilibrium with income, and will appreciate only in concert with real income from production, not from leverage and debt.
• DEFAULT the existing bad debt that cannot be serviced under the above two points, forcing those institutions and individuals who are over-leveraged to go bankrupt.
• DEAL WITH[/] the inevitable contraction in GDP that will come from this, even though it will be painful and unpleasant.

The last three points sound awful, and they are.

The problem is that they're more awful today than they were two years ago when I started yelling about this in the current economic malaise, and are [b]much more awful than they were in 2000, when we should have done it, but refused due to the idiocy of Alan Greenspan and our elected government officials at the time.

The longer we wait the worse the damage will get, and you need no more evidence than what has recently come out of the auto industry.

The last couple of years of the bubble featured 14 million unit sales rates. This has now collapsed, of course, along with GM and Chrysler.

Their own people, along with the government, now predict that "stability" will come when we return to a roughly 10 million sales rate for new vehicles.

THAT IS A TWENTY-NINE PERCENT DECLINE!

Folks, do you realize what we're talking about here? If you look at the 2009 "Year In Review" Ticker (linked above) you will find that I discuss (again) the fact that in 2000 the Internet fraud had created an "excess" 10% GDP that had to be taken down to restore balance. It wasn't - and instead of 10%, now we are faced with 25%.

But the automakers are telling us that the real number in terms of capital goods might be closer to thirty percent.

It is happening here and now whether the pundits like it or not. We have gone from a -3% savings rate (roughly) to a +6.9% one. This is a 10% swing and with the consumer being 70% of the economy that's an immediate hit of somewhere between 4.83% and 7% of GDP (depending on whether you "count" the negative as an additive force, and you probably should.)

The problem is that it doesn't stop there: The government calls this a "savings rate" but it isn't. It counts debt repayments as "savings" among other distortions, meaning that trying to use the "savings rate" as an indicator of future capital formation is a lost cause. In point of fact there is no capital formation going on - people are cutting back on their voluntary 401k and IRA contributions because they don't have any money to put in - they are furiously paying down debt as fast as they're able in an attempt to avoid foreclosure and bankruptcy.

That of course means that spending drops which in turn means that employers need fewer people to work. Capacity utilization is in the toilet and average hours worked has fallen to never-before-recorded numbers in the history of the data being collected. This in turn feeds more layoffs which begets more people without income to spend on discretionary purchases (and in some cases non-discretionary ones!)

There is no avoiding the necessary contraction in GDP to bring the system back into balance, and the longer we continue to allow our government and media to LIE about what has happened, who is responsible, and what has to happen before the economy can clear and recover the worse off we will be.

Two years ago I began beating the drum on the prescription for a solution. It involved pulling the rug - intentionally - on housing price supports, and allowing them to collapse to sustainable numbers, all at once.

This would have resulted in a lot of people losing their homes. But by now, they'd be starting to buy them back at half or less of their former prices - and at sustainable payments under a 30 year fixed mortgage. They would have been able to save the 20% down payment too.

We would have seen myriad banks, including most of the big ones, go under. So what? The FDIC would have consumed the "bailout funds" in paying off depositors, which is bad, but the debt would be out of the system. Instead we have gotten exactly nothing out of more than $2 trillion now borrowed and spent by government - the debt is still there, it is still toxic, and it is still preventing recovery.

This story is by no means finished. The government has spent $2 trillion it does not have and has committed to nearly $6 trillion more in either guarantees or outright payments, and yet capacity utilization continues to drop, employees continue to be laid off, consumption continues to fall and frantic attempts to pay down debt and avoid default continue to rise.

In response the economy has continued to shrink and tax revenues have sunk through the floor, skyrocketing the deficit. Treasury apparently detected a reluctance among foreigners to continue buying our used toilet paper and changed the rules on reporting of "indirect" sales - which then, even after the change to intentionally overstate foreign interest, have precipitously declined anyway. It is fair to say that foreign interest in Treasuries is all-but-exhausted and barring a collapse in equity prices to recreate a "fear" environment for holding government bonds, there is going to be an increasing problem with funding the insane "prop up the game" money flood policy of The Fed and Treasury.

California is just the beginning of this unraveling; they are now issuing IOUs. Most other states will find themselves in similar circumstances and be forced to dramatically curtail spending along with raising taxes. The public labor unions (state and federal) are currently able to prevent their overly-fat pension and benefit programs from being brought in line with private industry, but this will not last forever, and when that wall cracks it will come with ferocious intensity. The "death spiral" of higher taxes leading people to erect their middle finger and either cocoon, go underground with their earnings, or depart has begun in California and will spread - count on it.

At some point reality must be faced, and we may as well do it now while we still have civil order. Those politicians, numbering nearly all of them from both parties, who argue that this can be "avoided" or that we can "support housing (and/or asset) prices" need to be run out of town on a rail.

There is no way to prevent the unwinding of leverage when the carrying costs exceed income and the more debt we as a society take on in trying to do so the worse things will get in the future.

The problem is that they're more awful today than they were two years ago when I started yelling about this in the current economic malaise, and are much more awful than they were in 2000, when we should have done it, but refused due to the idiocy of Alan Greenspan and our elected government officials at the time.

The longer we wait the worse the damage will get, and you need no more evidence than what has recently come out of the auto industry.

The last couple of years of the bubble featured 14 million unit sales rates. This has now collapsed, of course, along with GM and Chrysler.

Their own people, along with the government, now predict that "stability" will come when we return to a roughly 10 million sales rate for new vehicles.

THAT IS A TWENTY-NINE PERCENT DECLINE!

Folks, do you realize what we're talking about here? If you look at the 2009 "Year In Review" Ticker (linked above) you will find that I discuss (again) the fact that in 2000 the Internet fraud had created an "excess" 10% GDP that had to be taken down to restore balance. It wasn't - and instead of 10%, now we are faced with 25%.

But the automakers are telling us that the real number in terms of capital goods might be closer to thirty percent.

It is happening here and now whether the pundits like it or not. We have gone from a -3% savings rate (roughly) to a +6.9% one. This is a 10% swing and with the consumer being 70% of the economy that's an immediate hit of somewhere between 4.83% and 7% of GDP (depending on whether you "count" the negative as an additive force, and you probably should.)

The problem is that it doesn't stop there: The government calls this a "savings rate" but it isn't. It counts debt repayments as "savings" among other distortions, meaning that trying to use the "savings rate" as an indicator of future capital formation is a lost cause. In point of fact there is no capital formation going on - people are cutting back on their voluntary 401k and IRA contributions because they don't have any money to put in - they are furiously paying down debt as fast as they're able in an attempt to avoid foreclosure and bankruptcy.

That of course means that spending drops which in turn means that employers need fewer people to work. Capacity utilization is in the toilet and average hours worked has fallen to never-before-recorded numbers in the history of the data being collected. This in turn feeds more layoffs which begets more people without income to spend on discretionary purchases (and in some cases non-discretionary ones!)

There is no avoiding the necessary contraction in GDP to bring the system back into balance, and the longer we continue to allow our government and media to LIE about what has happened, who is responsible, and what has to happen before the economy can clear and recover the worse off we will be.

Two years ago I began beating the drum on the prescription for a solution. It involved pulling the rug - intentionally - on housing price supports, and allowing them to collapse to sustainable numbers, all at once.

This would have resulted in a lot of people losing their homes. But by now, they'd be starting to buy them back at half or less of their former prices - and at sustainable payments under a 30 year fixed mortgage. They would have been able to save the 20% down payment too.

We would have seen myriad banks, including most of the big ones, go under. So what? The FDIC would have consumed the "bailout funds" in paying off depositors, which is bad, but the debt would be out of the system. Instead we have gotten exactly nothing out of more than $2 trillion now borrowed and spent by government - the debt is still there, it is still toxic, and it is still preventing recovery.

This story is by no means finished. The government has spent $2 trillion it does not have and has committed to nearly $6 trillion more in either guarantees or outright payments, and yet capacity utilization continues to drop, employees continue to be laid off, consumption continues to fall and frantic attempts to pay down debt and avoid default continue to rise.

In response the economy has continued to shrink and tax revenues have sunk through the floor, skyrocketing the deficit. Treasury apparently detected a reluctance among foreigners to continue buying our used toilet paper and changed the rules on reporting of "indirect" sales - which then, even after the change to intentionally overstate foreign interest, have precipitously declined anyway. It is fair to say that foreign interest in Treasuries is all-but-exhausted and barring a collapse in equity prices to recreate a "fear" environment for holding government bonds, there is going to be an increasing problem with funding the insane "prop up the game" money flood policy of The Fed and Treasury.

I am quickly running out of possible scenarios to prevent a severe deflationary depression from taking place. By "severe" I mean 20%+ U3 unemployment, GDP contraction of at least 25%, and a possible loss of federal funding capacity leading to the immediate destruction of Medicare, Medicaid and Social Security, a 50% reduction of defense spending and near-complete-elimination of all other Federal Programs due to a "sudden stop" in the ability to fund Treasury issuance. Yes, it could get that bad, and it could happen a lot faster than you think.

I wish there was good news - "green shoots" - that I could honestly find and report. There are not. There is only more obfuscation and fraud, which I have and will continue to chronicle here in The Ticker, not so much in the belief that government gives a damn, but rather so that historians have it available later and, if the collapse I believe is possible does materialize, the angry proletariat with pitchfork and torch will know where to properly direct their wrath.

Government needs to lock up the psychopaths that have run the asylum for the last 20 years and let adults into the room to rationally discuss the inevitable and how to best deal with it. They're refusing now, just as they did when Bush was President. This is not a partisan debate - even having lost badly in November the Republicans are wasting time with the same old canards about "Tax and Spend" instead of attacking the problem at the root: fraudulent credit issuance, much of which they championed and enabled themselves.

Happy Independence Day

The Market Ticker
Commentary On The Capital Markets
Tuesday, July 21. 2009
Posted by Karl Denninger in Politics at 11:32

President HooBama

I'm sorry, I can't resist conflating Obama and Hoover.

Why?

This idiotic statement:

US President Barack Obama defended his administration's response to the economic
crisis over the last six months, declaring: "The fire is now out."

"I think that we have stepped back from the abyss. I think we've put out the fire,"
he said in an interview with PBS, according to a transcript released by the TV station.

Uh huh.

Mr. President, may I direct you to the following statements?

“I am convinced that through these measures we have reestablished confidence.”-
Herbert Hoover, December 1929

And, of course, most closely-related to your comment:

“While the crash only took place six months ago, I am convinced we have now passed through the worst
— and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure.
That danger, too, is safely behind us.”-
Herbert Hoover, President of the United States, May 1, 1930

Just as with the administration in 1929 and 1930, which refused to deal with the issues that had led to the crash
in '29 and thus provoked The Depression of the 1930s, government has this time refused to deal with the
underlying cause of the collapse in 2007 through the fall of 2008 - the irresponsible granting of credit
to persons who were unable to pay.

Just as in the 1920s asset bubbles were mistaken for "economic growth" and claims that the government
and Federal Reserve had headed off the oncoming train were made.

Just as in the 1920s and immediately after 1929 those who have identified the underlying cause of the problem,
both before it occurred and afterward, have been repeatedly ignored and denied a seat at the table of policy debate,
while those who actually caused the collapse are those who are looked to for "answers."

We know how this approach turned out in 1930.

Einstein tells us that one definition of insanity is "doing the same thing over and over but expecting a different result."

Mr. President, with all due respect: Are you insane?

-----------------------

Come on Karl, what do you really think?


It is like watching a car wreck isn't it?

The Market TickerCommentary On The Capital MarketsThursday, July 23. 2009
Posted by Karl Denninger in Federal Reserve at 14:48

I'll Believe It When I See It

The Fed's Fisher said:

WASHINGTON (MarketWatch) -- Richard Fisher, the president of the Dallas Federal Reserve Bank,
said Thursday that he opposes expansion of the central bank's purchases of Treasurys beyond the planned $300 billion.

In a speech in Carlsbad, Calif., Fisher said he was against additional purchases because of the risk
that the Fed would be seen as an agent of the Treasury Department and making it easy for them to sell their debt.

"We dare not come to be viewed as a handmaiden to the Treasury," Fisher said.

You've already accomplished being viewed as a handmaiden to Treasury. And Fannie. And Freddie.

So Mr. Fisher, when are you going to stop it?

Put your foot down?

Say "no mas"?

Fisher said the market should not doubt the Fed's resolve.

The Fed has lied up until now about everything related to this crisis, going back to when Greenspan
was in charge and allegedly said there was "no bubble."

Uh huh.

The Fed has refused to force banks to eat their losses.

The Fed has refused to exercise its authority to reign in predatory and dangerous lending practices.

The Fed has granted 23A Exemptions like candy, including giving them to many banks that
subsequently failed, thereby enhancing the damage taken by the FDIC and economy in general,
instead of taking the action necessary to stop that BS and referring these institutions to the FDIC to be shut down.

The Fed has bought assets (specifically, Bear and Lehman "stuff" along with Fannie and Freddie debt)
that is explicitly in violation of Section 14 of The Federal Reserve Act, demonstrating that it does not care
what the rules are supposed to be - the rules are in fact whatever The Fed feels like them being on any given day.

The Fed has in fact done exactly the opposite of exercising its LAWFUL and PROPER authority to stomp
on the bad actors, claiming that it "must" due to "systemic risk", but doing so simply means that everyone
in the market believes you will do it again and again, because there is in fact never a time that you say "no'.

I believe you're lying again Mr. Fisher, and I will only believe otherwise when you prove it.
-------------------------------------



How much of the one-quarter Trillion-dollars of Treasuries auctioned this coming week will The Fed buy???

The Market Ticker
Commentary On The Capital Markets
Monday, August 10. 2009
Posted by Karl Denninger in Regulatory at 09:09

Bribed Regulators: Another Example

A nasty statistic:

Banks make $38 billion a year from overdraft fees.

Now let's look at the internals on that statistic:

3/4 of all accounts have not had an overdraft in the last 12 months. This means that one quarter of all accounts are responsible for basically all of this.

Of the remaining quarter, half of those account for nearly all (90th percentile plus) of the overdrafts. This means that roughly 12.5% of consumers are bearing the entire brunt of these fees.

70% of the overdrafts happen at a POS terminal or ATM, not by writing a check.

The last statistic is the clear one: There is no reason whatsoever for anyone to take such a hit. The bank knows before they approve the transaction that the money isn't there in the account.

This is not the same thing as a check, which the bank has no way to warn you about before you write it, as there is no "connection" between your checkbook and their computer.

IF we had honest regulators it would be strictly unlawful for a bank to intentionally approve a debit transaction which it knew you did not have the funds to settle unless you had an established overdraft line of credit (at a reasonable APR.)

In fact, it was not all that long ago, in the 1980s and early 1990s, when this was the case: If you went to the ATM and tried to withdraw $100, but didn't HAVE $100, the transaction would be declined.

Every time.

But then the banks came to realize that if they let the transaction go through they could make an unregulated loan for that $100 to you, charging you $30 or more for the privilege - an annualized interest rate of thousands of percent!

This is clearly-predatory behavior. Nobody with half a brain would knowingly sign up for a "service" that would cover a POS or ATM withdrawal at 5,000% interest, yet that is exactly what nearly every bank in the land will currently do by default when you open a new account. They bury the "disclosure" in their terms and conditions, but nowhere do they state these "fees" in equivalent annual percentage rate terms.

It gets better: Banks will intentionally "sort" transactions from a given day to produce the maximum overdraft fee. They sort withdrawals to debit them largest-amount-first, because the fee is assessed per item. An example:

$1,000 in your account.

You write checks for $20, $50, $100, $1,000 and all are presented on the same business day.

How many checks will hit you with an overdraft fee?

THREE - every time. The bank will re-order the transactions so that the $1,000 check is processed first, guaranteeing that the $20, $50 and $100 checks overdraw, thereby generating three overdraft charges. If they processed the transactions "largest item LAST" you'd generate one overdraft fee - on the $1,000 check.

It gets better.

You have $1,000 in your account.

It is after 2:00 PM, the cut-off for a business day.

You go to the mall and use your debit card four times to buy a $5 Latte, $15 lunch, a $40 pair of pants and $25 for a couple of movie tickets.

The next morning a $1,000 check hits your account.

The bank processes the $1,000 check first, even though in terms of actual presentation time the debit card withdrawals were approved first, and whacks you for four overdraft fees instead of the one legitimate fee on the $1,000 check. That Latte just cost you as much as $45!

This sort of predation is responsible for nearly $40 billion dollars a year in pure "profit" for the banks, it is directed specifically at those who have the least in resource to cover it, and it relies on lack of clear disclosure and intentionally-predatory "sorting rules" to get past what would otherwise result in a howl of protest by consumers and lawmakers alike.

This sort of practice should be absolutely outlawed, and if we had anything approaching an honest Congress and Federal Reserve it would have been years ago.

Say thanks to Barney Frank, Chris Dodd and of course BenDover Bernanke when you're bent over the table and repeatedly violated by the banksters as a consequence of this "little" scam.

After all, its only $40 billion dollars.

The Market Ticker
Commentary On The Capital Markets
Monday, August 10. 2009
Posted by Karl Denninger in Editorial at 22:28

DAMNIT, STOP THE LOOTING NOW!

Put the kids away before reading.

If this does not make your blood boil.....

Herein lies the problem. The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial.
The article goes on to note that as of the end of this year FHA and Ginnie will have issued and hold one trillion dollars of mortgages, that the current default rate is now 7%, and the delinquent rate is running some 13%.

Why?

Because the same crooks, swindlers and thieves that infested the housing market in 2003, 2004, 2005, 2006 and 2007 in "subprime" and "ALT-A" have now moved into the FHA product.

There is only ONE way to guarantee safety and soundness in mortgage lending. ONE!

That is to require twenty percent down payments, limit the back end ratio, or debt-to-income, to no more than 36%, and fully-underwrite EVERY SINGLE FILE, with CRIMINAL penalties ruthlessly enforced for ANY fraudulent misrepresentation BY ANYONE.

PERIOD!

The FHA is now running with leverage equal to that of Bear Stearns and Lehman Brothers. You know, those two "banks" that were underwriting loans without sufficient down payments and on dodgy debt-to-income ratios AND BLEW UP?

We're even doing 125% loan-to-value on FHA NOW!

In some cases, these owners are so overdue in their payments, and housing prices have fallen so dramatically, that the borrowers have a negative 25% equity in the home and they are still eligible for an FHA refi.

WHAT?!

Mr. President, Ben Bernanke, Tim Geithner, and Members of Congress:

This afternoon on Blogtalk I strongly recommended that Americans literally "get in the face" of their elected representatives (peacefully) and tell them that they had better lock up ALL the fraudsters, scammers, and thieves, OR THEY WOULD EVENTUALLY BE THE ONES LOCKED UP.

Let me make this crystal-clear: what I said and why I said it so ABSOLUTELY NOBODY can misunderstand.

That was NOT a call for any sort of civil insurrection or any other sort of lawless activity.

IT WAS A DIRECT STATEMENT OF WHERE THIS NATION AND ITS POLITICAL SYSTEM IS GOING TO WIND UP, AND THE CONSEQUENCES THAT WILL INEVITABLY ARRIVE, AND SOON, IF YOU DON'T STOP THE LOOTING OF THE TAXPAYER AND GENERAL POPULATION RIGHT DAMN NOW!

This has gone on FAR too long.

First you (the government, who is supposed to PROTECT people against predatory scams and frauds) let the banksters literally STEAL people's hopes, dreams, and money by preying on them with knowingly-toxic exploding loans that they knew in advance would NEVER lead to those Americans owning their own home free and clear. These loans came in the form of 2/28s and 3/27s for "less fortunate" borrowers, crafted for the singular purpose of turning a free US Citizen into a perpetually enslaved debtor who would never own a damn thing except a payment book.

NEXT, you allowed those very same banksters to create exploding "OptionARM" and other similar exotic loans including "NINJA" liar loans - "No Income, No Job, No Assets Required." Loans with ZERO underwriting, ZERO collateral requirement, ZERO supervision and ZERO truth. A HUD study years ago uncovered the truth and yet it was intentionally ignored within our government.

Finally you let these very same banksters misstate the credit quality of batches of these loans, in active cooperation with the "ratings agencies", thereby deceiving investors worldwide into believing that utter and complete garbage, much of it utterly WORTHLESS, was "AAA" credit paper.

Between #1, 2 and 3 the banksters stole hundreds of billions of dollars from Americans and investors worldwide, ejected millions of Americans from their homes, and bought lots of yachts and mansions in The Hamptons.

You also allowed the banksters to intentionally shuffle transactions for the express purpose of generating the maximum number of overdraft fees, and you not only allowed them to "opt in" all account holders to this program you let the banks refuse to allow people to opt out!

This last singular outrage has ROBBED more than $30 billion dollars from (mostly lower-income, less-advantaged) Americans in the last year alone - the difference between making a profit and not this last quarter.

IT IS THE DIRECT RESPONSIBILITY OF CONGRESS, TREASURY AND ITS DEPARTMENTS INCLUDING THE OTS AND OTC, THE FDIC, AND THE FEDERAL RESERVE TO PREVENT THESE FRAUDS FROM TAKING PLACE AND TO REFER TO THE FBI AND PROSECUTORS THE FRAUDS IT DETECTS DESPITE ITS WARNINGS AND SURVEILLANCE.

ALL OF THESE AGENCIES HAVE INSTEAD TURNED A BLIND EYE AND IN FACT IN SOME CASES (OTS IN PARTICULAR) THEY HAVE ACTIVELY CONSPIRED WITH THE BANKSTERS THEMSELVES!

I have repeatedly, in Tickers, faxes, petitions and letters to all 535 members of Congress, Administration Officials, members of The Press and the general public put forward the mathematical facts that these loans were knowingly unsound, were made with actual and/or constructive knowledge of their lack of soundness, were sold up and down the line to both homeowners and investors under false and misleading pretense and in my opinion constitute securities, banking and just plain-old-fashioned garden-variety FRAUD for which the proper response is an INDICTMENT, not a bailout.

Not one - I repeat - not one executive or other person related to this has gone to prison. Not one person has been indicted. Not one banking charter has been revoked.

NOT ONE!

Fannie and Freddie have imploded as a direct and proximate consequence of this fraud. Dozens of independent lenders have gone under, throwing thousands of Americans out of work, because of this fraud. Dozens of banks have gone under in the last year with hideous losses to the FDIC's insurance funds as a direct consequence of this fraud, and there are hundreds more to go. Virtually every bank in the nation is currently holding these securities at knowingly-false values in the belief that they will be somehow "bailed out", resulting in the price and values rising, but in the meantime if they sold that paper and those foreclosed homes at the current market price they would be rendered instantly bankrupt - right here, right now.

This fraud continues every single day, yet Sheila Bair bleats about how banks "should" value assets every quarter - instead of saying they MUST and if they do not or if they lie The FDIC will come in and shut them down IMMEDIATELY, which is, under the Prompt Corrective Action LAW (PCA), an enumerated DUTY of her position (along with the OTS and OCC)!

Over $700 billion dollars was allocated by Congress for the express purpose of bailing out those who made and packaged fraudulent loans and another $150 billion was passed through AIG to cover transactions in OTHER securities - credit default swaps - for which it had NO MONEY to back up what it was doing.

These funds ALL went to the people who structured these rip-offs that victimized Americans from coast to coast and investors worldwide.

The very same American people who were robbed blind - literally - are now saddled with TRILLIONS of dollars of new debt taken on for the express purpose of bailing out the scammers, the fraudsters and the thieves who destroyed the hopes and dreams of millions of our citizens, all in the name of "profit."

YOU VOTED FOR AND APPROVED ALL OF THIS AND YOU STILL ARE TO THIS VERY DAY!

We were told that this was "necessary" to save the financial system.

BUT NOTHING HAS CHANGED; WE HAVE IN FACT SAVED NOTHING.

The very same scammers are now hard at work bamboozling MORE Americans and ladling MORE bad paper onto the Federal Government via the FHA and Ginnie, the very same banks are directing their bailout money into speculating in the stock and commodity markets, AND SOME OF THEM ARE EVEN MAKING PAYDAY LOANS AND FINDING EVEN MORE LUCRATIVE WAYS TO FLIM-FLAM AMERICANS:

But it's another scenario that worries regulators, lawmakers, and consumer advocates: that banks once again are making dangerous loans to borrowers who can't repay them and selling toxic investments to investors who don't understand the risks—all of which could cause blowups in the banking sector and weigh on the economy.

THIS HAS GONE TOO DAMN FAR.

We as Americans accept that lobbying for special tax breaks and other "perks" is part of the American political system. It sucks, is filthy, disgusting and outrageous.

But it is uniquely American and has been for our entire national history.

This is something else entirely. This is the wholesale LOOTING of America and EVERY AMERICAN CITIZEN by the BANKSTERS who just months ago cried poverty and demanded public largesse - RIGHT DAMN NOW - lest the entire banking and financial system collapse in a smoking heap.

The American People told you by a 300:1 margin - not just NO but HELL NO!

The American People were WISE.

The American People were willing to accept THE IMMINENT IMPLOSION of the American Banking System and the financial destruction of ALL the robber barons who had ripped them off blind then violated them from the rear once they could no longer see, SO LONG AS THOSE SCAMMERS WERE ALL RUN OUT OF TOWN ON A RAIL, BANKRUPT, WITH NOTHING MORE THAN THEIR UNDERWEAR ON THEIR UGLY, DISGUSTINGLY-FAT BODIES - AFTER THEY GOT OUT OF PRISON.

But NO! You couldn't do that! You couldn't let the PATRONAGE stop! You couldn't be without the billion in campaign contributions over the last decade, the K-street wonders who lobby you on a daily basis, nor could you deal with losing your own special deals like your cut-rate loans for your own properties through "Friends of Angelo."

So you not only bailed them out, forcing the American people to pay for their own financial rape, you knowingly turned a blind eye while the ripoffs and scams continue, guaranteeing that the violations would continue on a daily basis.

Now we hear The Obama Administration, Reps and Senators complain that when the same sort of ramrod politics is attempted with Health Care suddenly "Town Hall" meetings get LOUD? Senators and Representatives don't like loud voices and waved signs after intentionally ignoring the people and treating their constituents like rubes?

Exactly who in the hell do you think you work for? More to the point, what part of the following don't you get?

That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

You learned this stuff right? You all swore an oath - to uphold The Constitution against all enemies foreign and domestic. You're aware that The Constitution came about as a direct and proximate cause of the document cited above, yes?

Your duty is not to uphold The Robbing, Thieving Bankers - it is to uphold THE CONSTITUTION.

It is pretty damn clear to this commentator that what our "banking industry" has turned into has, by its own words and actions over the last five years, DEMONSTRATED THAT IT IS A DOMESTIC ENEMY OF THE NATION AND CONSTITUTION OF THE UNITED STATES!

Do those of you in Washington understand that robbery at this grand scale cannot work and must not be allowed to continue? Do you understand that "Pax Romana" was brought down by this very same sort of corruption? Do you understand that we are absolutely dependent on CHINA and JAPAN to fund our operating credit requirements in The Federal Government, and that should they give us the finger The Federal Budget would implode by 50% overnight?

IF THAT HAPPENS HOW WILL YOU FEED THE PEOPLE?

Do you understand that these frauds and thieves are not the Chinese and Japanese, nor the Saudis? That they have the money, and we need to borrow it? That they have oil, and we need to buy it? That they are not stupid and that eventually they will tire of the lying, thieving and political misdirection, and if they do before you clean up this crap our nation is absolutely, irretrievably and without question SCREWED?

I love my country, but today, I fear for her future.

WAKE UP AMERICA.

STOP THE LOOTING AND START PROSECUTING.

--------------

I fear for her too Karl, but our government is too busy trying to sell another $1.5 trillion in schemes, called cap-and-trade and national healthcare. They just don't get it.

http://market-ticker.org/

http://media.washingtontimes.com/media/doc...erTestimony.pdf



Postal Pension broke

Anyone remember my commentary about a year ago regarding pension plans - including public pensions -
being in serious trouble and ultimately being at risk of insolvency?

Weeeeeelllllll?

What happens when you have no money coming in but still have obligations going out? Specifically in this case,
pension obligations regarding health care benefits for retired Postal Workers?

Gee, I wonder if the Obama Administration's push to put everyone into a situation where they can obtain Medicare
might be related to this? Perhaps - just perhaps - this is one way they can stave off the implosion of one of the
more-important public-sector benefit groups?

Perhaps.

By the way, USPS is reporting a 13% reduction in mailed volume, and I'm willing to bet that a huge part
of that is from bulk (junk) mailers who have had their business implode or simply have had to slash marketing
budgets. Less junk mail, less revenue, and with a bloated bureaucracy you can guess what comes next.

I have to wonder what the APWU (the largest postal-workers union involved, an affiliate of the AFL-CIO)
along with the NALC, NRLCA and NPMHU (the other major unions involved) will think of this, and whether their
memberships, along with the folks in civil service side, will consider that a year ago or thereabouts I issued a
rather plain-spoken warning to union members everywhere outlining that exactly this sort of problem was soon to show up.

Oh, for some scale, these unions represent some 700,000 workers; this is not exactly "small potatoes."

I hate it when I'm right.


...
on the FDIC...
Friday
...
One Of Three Down; Is The FDIC Still Solvent?

Here we go!

Colonial, Alabama’s second-largest bank, is being closed by regulators today, the person said,
becoming the largest U.S. bank failure of 2009 after an expansion into Florida saddled the lender
with more than $1.7 billion in soured real-estate loans.

The FDIC usually waits until the close of business Friday; they must have had a slight problem with withdrawals......

Left unsaid is what's going to happen to the FDIC's deposit insurance fund on this one -
my guess is that it will be ugly, as these guys were up to their necks in Florida on development
projects that went bad. The "value" of that paper may be very close to zero; if the FDIC avoids doing
one of their 40% loss deals I will be quite surprised.

A 40% loss on this one would, if my math is right, kill the rest of their insurance fund plus quite a bit and put the FDIC
in the position of immediately needing to go hit up Treasury for more money.

That ought to be good for confidence, right?

Oh, there are two more on the "you're dead" list that I've been talking about for a while: CORUS and Guaranty,
both of which have said they (as of last filing) have a negative Tier Capital Ratio, meaning that they are formally
underwater and IMHO should have been seized months ago.

But don't worry, Treasury has an infinite credit card to keep funding the FDIC with, right?
"Heh Mr. Chinaman, can you spare an extra trillion - or three?"
...
Saturday
...
The FDIC can (and will) borrow from Treasury to fund its obligations, so long as Treasury can issue the funds.
Today, Treasury appears able to borrow as much money from China, Japan and Saudi Arabia as it wishes to (it appears
Treasury will in fact borrow $2 trillion in new funds this fiscal year alone.) How long this will remain true is anyone's guess.

Assessing additional fees on deposits from banks that did not make bad loans, that is, not charging the more risky
institutions much larger fees, where risk is defined by both behavior and size, is idiotic. Yet this is what the FDIC has
done and appears to intend to continue to do - punish the prudent.

It is clear that FDIC assessments will have to rise significantly to cover obligations and you will get the bill. The FDIC is LYING
about who pays these fees just as Treasury LIES about who pays the "employer half" of FICA - you cannot assess a fee or tax
on a company as it will immediately pass that fee on to its customers and/or employees.

YOU PAY - ALWAYS.

The FDIC, OTS and OCC could have seized Washington Mutual, Colonial, Corus and hundreds of others two years ago.
I and others pointed out that under any rational accounting for the so-called "assets" on these bank's books, particularly
including OptionARM, Second Lines behind an underwater first loan and construction loans on condos and other properties
unlikely to be able to be paid in full these firms were all insolvent - back in 2007! The proof is right here on The Market Ticker
in the archives - those calls were made and were ignored.

Instead, the FDIC, OTS and OCC sat on their hands and in fact they, along with Congress, pressured FASB to allow intentional
and systematic "model-based" valuations to be re-instated earlier this year instead of insisting on the use of market prices
and recognition that bad loans are in fact bad!

What's worse is that the lying continues today. Not content to rip you off by assessing your local community bank
(who did nothing wrong) and forcing them to raise fees on you as a consumer to cover the sins of banks like Colonial
and even IndyMac (which was tapped by the OIG for conspiring with the OTS to improperly backdate deposits!) the FDIC,
OTS and OCC are STILL refusing to force these institutions to take REALISTIC marks on their assets and closing those that are headed
underwater BEFORE their Tier Capital ratios go below zero and cause insurance fund losses.

As a consequence the FDIC continues to suffer huge losses compared to the asset base of these seized institutions.

The entire strategy of Treasury (including OTS and OCC) along with the FDIC has been one of "extend and pretend" -
that is, look the other way for now and pretend that loans on severely-impaired assets will "come back" and either begin
performing again or the asset valuation will improve so they can be sold without booking a crippling loss. That is, the strategy
is to intentionally lie about the current valuation and status of these loans so as to avoid the necessity under the law of closing
institutions that, on any rational basis, failed as long as two years ago!

Do not make the mistake of believing that these losses are "inevitable" or "an accident": They are the direct result of the
FDIC, OTS and OCC allowing financial institutions to systematically lie about the value of assets they hold - lies that continue
to this very day, are pernicious, and ultimately will cost you, the consumer, hundreds of billions of dollars - one way or another.

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Green Shoots! Green Shoots!

I accept your explanation of the cause of the current financial crises, "the irresponsible granting of credit to persons
who were unable to pay," if you exclude all the individual credit obligations under $200,000.

Those who would intervene to improve the system must be carefull not to blame the victim...

ANd, the victim is whom?

The recipients of predatory lending...

Forgive me...but did they ask for it?