By Charles Hugh Smith, OFTWOMINDS
by Charles Hugh Smith

Go to my main site at www.oftwominds.com/blog.html
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Zero Hedge

Is the fabled Greek bailout not happening? Will Greece be expelled from the Eurozone finally? Is China withdrawing too much liquidity? Did Bernanke say anything true or factual yesterday? Will Goldman ever upgrade a stock with less than 20% short interest? Will algos ever stop gunning the market higher: can we close green 30 days in a row? How about 300? Will we ever see a billion shares traded in one day again (in other words a down day)? For this and anything else, this is today’s open thread.

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Zero Hedge

In the aftermath of the Zachery Kouwe plagiarism fiasco, the last thing Andrew Ross Sorkin’s Dealbook needs is another scandal. Yet this is precisely what may come out of a recent column by the TBTF author, in which ARS insinuated that Lehman whistleblower Matthew Lee came forth with incriminating Repo 105 evidence only after he was made aware he was about to be “downsized.” The Columbia Journalism Review’s Ryan Chittum debunks this story, after pointing out some potentially gross misrepresentations in the Sorkin column, which go to directly to motive and to the integrity behind Lee’s actions. “The Times’s DealBook editor Andrew Ross Sorkin, who wrote the
column, quotes the sources saying the whistle blower came forward only
after “it became clear” he was to be replaced in his job. We’ll get to
that peculiar phrasing in a minute, but the main problem is the Times story gives no indication that Lee was called for comment. In fact, he wasn’t called, according to Lee’s lawyer, Erwin Shustak, whom I talked to yesterday. “I’ve never spoken to the man (Sorkin) in my life,” Shustak says. “Nobody’s spoken to Matthew.” That doesn’t meet a basic fairness test. As it happens, Shustak tells us that Lee had no idea his job was in danger.” If indeed Sorkin misstated facts, a retraction is the only recourse as the potential for legal escalation on all sides of the story is huge. We are confident that while to Lehman managing directors $50 billion may have been a drop in the ocean, legal prosecution going after either ARS (or Lee) to reclaim it in part (or in whole) will surely make the Dealbook editor’s head spin, even after accounting for Paulson and Geithner’s 10,000 purchases of TBTF each (exaggeration ours… we hope).

Chittum writes:

There are some real journalistic lapses in a New York Times column Tuesday
that quoted anonymous sources about a Lehman Brothers whistleblower who
tried to warn about the failing bank’s questionable accounting
maneuvers, including one known as Repo 105.

The problematic passage is here:

Lehman’s shell game didn’t come to light until June 2008,
when a lower-level executive named Matthew Lee sent a letter to
management raising a host of questions about the firm’s practices. (By
the way, the S.E.C. and Fed were still working inside the building at
this point.)
What the examiner didn’t report, however, was that
Mr. Lee started raising questions about Repo 105 only when it became
clear that he was being replaced in his role, according to people
briefed on the matter. Indeed, Mr. Lee’s original letter to management
did not mention the use of Repo 105.

Chittum then proceeds to note the abovementioned discussion with Lee’s lawyer Shustak in which he makes it clear that Sorkin never spoke to his client.

That doesn’t meet a basic fairness test. As it happens, Shustak tells us that Lee had no idea his job was in danger.

“That comment was made not based on any reality or fact that I’m
aware of,” Shustak says. “He couldn’t possibly be accurate because I
know that until Mr. Lee wrote these letters, he had not been notified
that he was part of any layoffs.”

This is useful information that blunts, if not debunks, the
anonymous sources’ innuendo that Lee was motivated to come forward
because he was about to lose his job. Indeed, an on-the-record denial
carries far more weight than an off-the-record or on-background attack,
which this assertion clearly was. Sorkin declined to comment.

The slip occurs near the bottom of a column on the failures of
regulators to discover the Lehman scandal that was right in front of
them, and is a jarring end to an otherwise fine piece.

Chittum continues:

Also, as noted, the Times’s phrasing poses problems, reporting Lee blew the whistle only after “when it became clear” he was being replaced.

Clear to whom? If Lee didn’t know he was being replaced the fact that
he was on his way out is irrelevant. The phrase itself is blurry. Why?

Lee’s lawyer, Shustak, says Lee never sought the limelight:

“Matthew is a very private person,” he says. “His life has been
devastated when he was let go. He has not worked since then and is
living off his 401k. He just doesn’t want to get into the middle of
whatever lawsuits are going to be coming out of this whole report.”

It is a pity that the NYT, which recently let go hundreds of press room staffers, in the latest round of layoffs, has been resorting to such devices as attributing reality where there is none. In the old days, journalists would be forced to issue a retraction (or much worse) if indeed their reporting was not based on facts, as this particular piece so far appears to be. To be sure, this is not the first time the Columbia Journalism Review has discussed ARS – a week ago Dean Starkman wrote the most scathing review of Too Big To Fail we have yet read. Could this be just a case of some bad blood? Or, as Starkman insinuates, is this merely yet another case of Wall Street media capture? the truth will be made apparent over the next several months by the tone of Sorkin’s pieces. Nonetheless, having already attempted to exonerate Fuld once, one wonders just where Sorkin’s allegiance lies.

By the way, doesn’t it seem increasingly hard to vilify Richard S. Fuld Jr., the former chief executive of Lehman Brothers,
given what’s happened since that firm filed for bankruptcy? 

No Andrew, it doesn’t. Yet we understand. After all, a sequel to TBTF has to be in the works at some point. And should Andrew lose his contacts, he may have to rely on his extensive understanding of finance to piece things together as an impartial outsider for once. Ironically, the Lehman examiner’s report is precisely what Too Big To Fail should have been, had ARS actually dug in underneath the surface of all the primary material he had been presented with. We are surprised Doubleday or Penguin has not yet offered Valukas an advance for his next much more relevant Wall Street thriller.

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Zero Hedge

First 130 Congressmen, now Greece: the examples of people who have no idea what the definition of negotiating leverage means just don’t stop. G-Pap has decided to go all in on 2-7 off suit. The problem is everyone knows what his cards are, and his bluff is about to be promptly called by everyone; too bad the Cyclades are still not in the pot. Give them a few weeks… Bloomberg reports that: “Greek Prime Minister George Papandreou set a one-week deadline for the European Union to craft a financial aid mechanism for Greece, challenging Germany to give up its doubts about a rescue package.” And here we were thinking only Bernanke was clinically insane. G-Pap, it turns out, is shocked that someone can just say no to his generous offer of allowing someone else to bail him out. Act now, or in one month when you can buy Greece (and its islands) in a 363 sale, it will be too late (to overpay).

From Bloomberg:

“It’s an opportunity to make a decision next week at the
summit,” Papandreou told reporters in Brussels today. “This is
an opportunity we should not miss. When you have that instrument
in place, that could be enough to tell the markets hands off, no
speculation, let this country do what it’s doing.”

Greece pinned its hopes on the Brussels summit as German
officials voiced qualms about an EU-led rescue, potentially
backtracking on a commitment hammered out by finance ministers
just three days ago. Greek bonds and the euro fell.

Greece, which was brought to a standstill on March 11 by
the second general strike this year, needs to raise about 10
billion euros ($14 billion) to refinance bonds that come due on
April 20 and May 19. Papandreou said Greece cannot afford to
keep paying current market rates.

The question of the day: are the acconts who bought into Greece’s most recent 10 year bond offering already underwater:

The yield on Greece’s 10-year government bond rose 14 basis
points to 6.23 percent at 2:25 p.m. in Brussels. The euro fell
for a second day against the dollar, slipping as much as 0.7
percent to $1.3648. Credit-default swaps on Greek sovereign debt
rose 7 basis points to 295, the highest in a week, according to
CMA DataVision prices.

And just to show that there is absolutely no confusion which way Germany is leaning when it comes to G-Pap’s ultimatum, Germany kindly suggested that Greece should leave the European Monetary Union. Asap. From Market News.

The head of Germany’s Ifo economic research
institute on Thursday said the best way to solve the Greek financial
crisis is for the country to leave the eurozone.

“I would recommend that Greece leaves the European Monetary Union,”
Sinn said at a press conference in Berlin. The country should then
devalue its currency and a debt moratorium should be put in place, he
proposed.

“This would be cheaper [for the other Eurozone countries] then to
permanently finance Greece,” Sinn said, arguing that Greece’s biggest
problem was its elevated foreign trade deficit and not mainly its high
public debt.

In the meantime, the market once again ignores all bad news, and just focuses on whatever good news there is, even if it means the reading of a Philly Fed, whose upward buoyancy is about to come to an end as the artificial economic stimulus begins to finally wane.

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Zero Hedge

Yet more rape and pillaging of US taxpayers as Portugal now plans to join the long and exalted list of nearly bankrupt countries who wish to join the dollar devaluation bandwagon, and issue debt denominated in dollars. The P in PIIGS is in the same position as the US, needing to plug a massive budget deficit, so it has decided to do what the US does so well – issue bonds with a $ sign on them. Bloomberg reports: “Portugal is selling bonds in
dollars for the first time since November as part of a plan to
issue 25 percent more debt this year to fund its budget deficit. The nation is marketing $1 billion of five-year bonds that
may be priced to yield about 100 basis points more than the
benchmark mid-swap rate.” And this is merely the beginning: as most European countries are convinced the pain in Spain is nothing compared to what Washington is about to experience, we expect to see many more deficit whores attempting to jump on the dollar collapse bandwagon.

From Bloomberg:

“It’s not surprising that Portugal is coming to the market
now as many European sovereigns tend to borrow more in the first
half of the year,” said Ciaran O’Hagan, a fixed-income
strategist at Societe Generale SA in Paris. “Portugal will
likely achieve a better rate of funding in dollars so both the
government and taxpayers are getting a better deal.”

The proposed spread on the new bond issue gives an overall
yield of 3.59 percent, according to data compiled by Bloomberg.
That compares with the 3.32 percent yield offered by Portugal’s
benchmark five-year issue in euros.

By issuing in dollars, European governments can reduce the
cost of euro-denominated interest payments, as measured by the
five-year euro basis swap. The basis swap is at 20 basis points
less than the euro interbank offered rate, compared with 15
basis points less than Euribor in January, according to
Bloomberg data.

Relative funding costs compared with a euro-denominated
bond sale were “favorable,” said Alberto Soares, chairman of
Portugal’s government debt agency in Lisbon.

“It’s been our plan to issue foreign-currency bonds, and
it’s just a matter of identifying the window of opportunity,”
Soares said. “We may consider issuing bonds in other
currencies, but there’s no concrete plan on that for now.”

And so much for the lock out of Goldman Sachs from European bond issuance:

Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings
Plc and Morgan Stanley are managing the sale of bonds, the
banker familiar with the terms said.

More articles from Zero Hedge….

By Karl Denninger, The Market Ticker

… then how come the wire has this story?

Co reports retail sales of machines declined 20% y/y in Feb and sales of reciprocating & turbine engines to retail users & OEMs declined 33% y/y in Feb

Another source off the wire has even uglier numbers:

Caterpillar Inc Reports 3 month dealer statistics;
Dec-Feb sales - filing
- Retail Sales of Machines:
              Feb.10    Jan.10    Dec.09
Asia/Pacific  DOWN 2%   UP 1%     DOWN 12%
EAME*         DOWN 22%  DOWN 35%  DOWN 41%
Latin America DOWN 20%  DOWN 15%  DOWN 24%
ROW*          DOWN 15%  DOWN 19%  DOWN 28%
North America DOWN 30%  DOWN 40%  DOWN 46%
World         DOWN 20%  DOWN 27%  DOWN 35%
Sales of Reciporcating & Turbine Engines
to Retail Users & OEMS by Business Sector
                Feb.10   Jan.10   Dec.09
Electric Power  DOWN 26% DOWN 27% DOWN 27%
Industrial      DOWN 15% DOWN 22% DOWN 44%
Marine          DOWN 23% DOWN 18% DOWN 29%
Petroleum       DOWN 47% DOWN 46% DOWN 46%
Total           DOWN 33% DOWN 33% DOWN 36%

(Hattips to rebeltraders and aztrader)

I thought last February was pretty much “the depths of Hell” when it comes to the economy and heavy industrial orders?

That’s what we’ve all been told, right?  That the economy bottomed last winter and spring and it’s all sunshine and great days ahead, yes?

Well, then how come we’re seeing huge decreases from last February’s run rate in one of the leading heavy-equipment manufacturers’ sales everywhere except Asia, and there we’re not seeing gains – just flat sales.

Various forms of fixed investment are coming back, yes?  We don’t need anything like big diesel engines or earth-moving machines to actually construct any of that sort of fixed investment, right?

The ToutTV pumpers wouldn’t be lying, would they?

(Let’s see when this is picked up on CNBS – of course you know the answer, right?  NEVER!)

Disclosure: No position in CAT.

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By Karl Denninger, The Market Ticker

I suppose they expect me to believe this:

During congressional testimony, House Financial Services Committee Ranking Member Spencer Bachus asked if the Fed was aware of Lehman’s “accounting gimmicks.”

“We did not have that information,” Bernanke replied. The Fed “had only a couple people in the company to make sure” Lehman repaid money it borrowed from the central bank’s primary lender credit facility, he said.

That’s funny – the report says that FRBNY had all the information.  Now they may not have acted on it, but that’s not the same thing as not knowing about it.

Oh wait – he did say that:

“We were not charged with supervising the company, clearly it was a very troubled company,” Bernanke said on Wednesday. “We had no authority to require them to do anything.”

So if you know someone’s going to rob a bank, and you sit back and let them do so because you have “no authority to regulate them”, and in fact you trade with them, are you complicit in whatever they pull?

Now there’s a good question.

An even better one is whether we should hand regulatory authority to someone who refused to blow the whistle on whatever irregularities it may have observed (like, for instance, gaming the PDCF, being told by Citi they had no good collateral – which I presume means they turned immediately to The Fed with the same garbage, and in fact announcing false “test transactions” that were in fact real transactions)?

After all, if you’re the “uber-regulator” and the primary institution charged with overall banking system stability and clearing, you don’t have any sort of responsibility to blow the whistle when those who are dealing with you are lying, do you?

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By Karl Denninger, The Market Ticker

I’m not particularly happy about this report, although the “street reaction” was that it was “pretty much as expected.”

I note with some curiosity that the apparent math error from last month has not been revised out – it’s still there (housing.)  This month’s computation, at first blush, looks ok.

The nastiness inside the report comes from the fact that medical care inflation is alive and well, running 1/2% month-on-month.  This is the second month straight of that, which is well beyond the annualized 3.6% being claimed.  If it continues, things get very interesting, especially given Obama’s Health Care “reform” push.

Offsetting this is a material drop in rent, which is definitely not a bad thing from the consumer’s perspective.  Of course government-provided “gotta buy ‘em” services (water and sewer) are up materially.  Fortunately they’re not a huge part of the equation.

All-in-all the report is pretty benign, but one has to wonder on the health care issues – is that people jacking prices ahead of Obama’s “proposals”?  Naw, nobody would ever do something like that…. would they?

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By Karl Denninger, The Market Ticker

See, I told you so…..

March 18 (Bloomberg) — Greek Prime Minister George Papandreou set a one-week deadline for the European Union to craft a financial aid mechanism for Greece, challenging Germany to give up its doubts about a rescue package.

Papandreou said he may turn to the International Monetary Fund to overcome its debt crisis unless leaders agree to set up a lending facility at a summit March 25-26.

How about this?

Your nation made the mess, now clean it up!

“It’s an opportunity to make a decision next week at the summit,” Papandreou told reporters in Brussels today. “This is an opportunity we should not miss. When you have that instrument in place, that could be enough to tell the markets hands off, no speculation, let this country do what it’s doing.”

What’s wrong with speculation when you give people reason to speculate?  More to the point, is it speculation if you get caught lying on your financials and taking intentional actions designed to cover up your true debt position?

I’d call that an educated guess, and it’s very different than “speculation.”

Greece pinned its hopes on the Brussels summit as German officials voiced qualms about an EU-led rescue, potentially backtracking on a commitment hammered out by finance ministers just three days ago. Greek bonds and the euro fell.

There was no commitment.  There was an attempt to jawbone – that is, lie – by politicians who find it easy to lie.

The market, however, calls all bets. It always has and always will.  If Greece learned anything from our little market collapse in 2008 it should have been this – remember, Hank (I’m gonna roll the tanks!) Paulson tried this very same game – repeatedly.  It didn’t work – not with Bear Stearns, not with Fannie, not with Freddie, and not with Lehman. 

It didn’t take long for the market to decide that he was full of the dark side and press the bet, and as soon as that happened we found out that the “Bazooka” was really nothing more than a fancy form of bankruptcy. 

Oops.

If Greece doesn’t like the consequences of getting caught cooking the books, one solution would be to stop doing that and come clean with the people – even if it results in your government being sacked.

The “reaction” in Greece to reality poking its head in the tent is instructive, and something that all developed nations that have decided to go down this sort of road with lying about fiscal and banking matters (cough-United States-cough-Britain-cough-Spain-cough-Germany-cough-Portugal-cough-take-your-pick) should pay attention to. 

I wonder if it has sunk into the consciousness of Obama and Geithner, along with Congress, that having “replaced” 10% of consumer final demand in the economy in a ridiculous (and doomed) attempt to prevent bad debt from being defaulted, not to mention the lies told about our actual fiscal situation (holding retirement “promises” off book anyone?), we (along with a bunch of other nations that have done the same) are headed down the same road that Greece is.

More articles from the Market Ticker….

By Karl Denninger, The Market Ticker

Does anyone remember me ranting at the time of the TARP’s passage about an obscure little sentence that allowed Bernanke to set the reserve ratio on the banks to zero?

Well, Bernanke’s Congressional testimony yesterday garnered a footnote on the issue, specifically:

Given the very high level of reserve balances currently in the banking system, the Federal Reserve has ample time to consider the best long-run framework for policy implementation. The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.

Right.  The cost is that you have to actually have something called “capital” behind your loan book, and you had a velocity limiter as well.

This is simply unbelievable.  To call such a thing a “distortion” is the worst sort of outrage to come from a central banker.

Reserve requirements have largely become a quaint subject since Greenspan effectively eliminated them by allowing almost-unlimited marketing and use of “sweep accounts.”  But nonetheless they remain one of the checks and balances on potential bank runs destroying a firm’s cash position without warning.

The sheer lack of recognition and understanding that we’re in this mess almost exclusively due to excessive leverage in all parts of our financial system is beyond ridiculous – especially for an agency that now wants to be granted even more power of oversight and “regulation.” 

“I’m sorry” isn’t good enough when you operate from a perspective that someone else (in this case the taxpayer) gets to clean up your messes, and this sort of philosophical idiocy will do nothing but guarantee that we’ll have much bigger banking messes in our future.

More articles from the Market Ticker….