Zero Hedge

The next time we get a serious dip in the stock market, there is one sector that I am going to jump into with both of my size 14 boots: technology stocks. 

After the dotcom bust of 2000, these bad boys spent nearly a decade in the penalty box, shunned by the investing world as the poster boys for wild excess. Think Robert Downey, Jr. on steroids. During this time, cash balances doubled, free cash flows soared, outstanding shares shrank, and multiples fell to a tenth of their bubblicious peaks.

 I started recommending this group at the absolute bottom of the market last March (click here for the call at http://www.madhedgefundtrader.com/March_2__2009.html ), and it was no surprise to me when they outperformed almost every sector on the upside. With 60%-80% of their earnings coming from abroad, primarily Asia, I saw them really as foreign stocks wearing cowboy hats, pearl snap buttoned shirts, and Ray Ban aviator sunglasses.

They were great weak dollar plays. They did not need banks, as they are almost entirely self financed. They avoided many of the management errors that torpedoed so many other US firms, like derivatives books  and leveraged real estate exposure. While their American customers were getting poorer, hundreds of millions more overseas were getting richer.

The industry represents the last, best hope that America has for competing globally, as it is our only means of staying on top of the international value added chain. It seems that in addition to bulk commodities like corn, wheat, soybeans, coal and timber, aircraft, weapons, and movies, tech companies are among the few that make things foreigners want to buy.

The lessons of the bubble made them ultra conservative in their capital spending which will lead to product shortages and much higher prices in any recovery. Memory, for example, has seen no capex at all for three years. They are surfing the wave of innovation, and will cash in big time from the mobile computing revolution, cloud computing, and the virtualization of data centers.

During the last tech bubble, the industry did not have the global market that it does today. Now, demand from the rising emerging market middle class is kicking in, as it is for commodities. The nine month tech rally we saw in 2009 could  just be the down payment of a decade long bull market in these stocks, which will end with another bubble.

When John Chambers, a first class manager, discussed Cisco’s (CSCO) outlook after announcing blowout Q4 earnings, he was so effusive he sounded like he was on ecstasy. Take a look at Juniper Networks (JNPR), JDS Uniphase, (JDSU), Sandisk (SNDK), Micron Technology (MU), and lithography toolmaker (ASML). Long dated call spreads in all of these make sense on a decent dip.

For more iconoclastic and out of consensus analysis, you can always visit me at www.madhedgefundtrader.com , where the conventional wisdom is mercilessly flailed and tortured daily, or listen to me on Hedge Fund Radio at http://www.madhedgefundtrader.biz/ .

More articles from Zero Hedge….

Zero Hedge

Going through today’s pertinent Q&A with Bernanke, initially we focus on Fed nemesis #1, Ron Paul. First question of relevance: “Do you Mr. Bernanke think that rates were hold too low for too long?” The degree of Fed delusion is easily seen by the response: “the bottom line is nobody really knows for sure, but the evidence is quite mixed.” Obviously the bald one has never attempted to sell a home in the Inland Empire. The evidence sure would be a little less mixed in that case. But at least Bubble Ben has given a speech on it (which incidentally caused John Taylor to almost have a conniption against the stupidity of the Fed’s chairman). Yet just in case you thought the man may have at least one screw unloose in his voluminous cranial hollow, Bernanke opens his mouth and says “Even if rates were too low for too long, the magnitude of the error was not big enough to account for the huge crisis we had. I think what caused the crisis was a failure in regulation.”…..And this is the man who determines monetary policy….Only now do we find out he has never actually ever opened an Econ 101 textbook, instead opting to go straight to writing them. Luckily Ron Paul proceeds to give the Princeton “expert” a much needed lesson in monetarism, and what happens when rates are zero for far too long.

To be expected, Bernanke certainly did not appreciate being schooled in Econ 101. After Paul rips Bernanke’s face off with the Chairman’s constant excuse that regulation is the answer to everything, arguing instead that artificially low rates merely send constantly flawed price signals, Bernanke retorts “Well you need some system to set the money supply. I guess you are a gold standard supporter.” At this point Paul gives the most priceless response ever: “I am for the constitution.” (4:50 into the clip)… A flabbergasted Bernanke again proceeds to cast the blame… This time everywhere but the Fed: “Every major country in the world uses a Central bank to make some decision about the money supply.” We ask the philosophy experts among our readers to tell us just what type of fallacy this is. Ron Paul once again has a brilliant response: “Then there is no good information for the investor unfortunately.” What are you talking about Ron – there is Cramer. At least until such time as his particular regulators wake up… Which they seem to have done so today finally.

Next up, California’s Brad Sherman asks the current-former Fed Chief duo the following runner up to the most critical question of the day: “Bureaucracies hate bad headlines, they’ll often do desperate things behind the scenes to avoid that big headline from breaking. Prudential regulators are going to get bad headlines if a big institution fails, particularly under some circumstances, and if they can prevent that failure, if they can just put it off for six months, their reputations and careers can be saved. Monetary policy, just cutting the interest rate by quarter point can save a troubled institution. So how can we be sure that monetary policy is not influenced by the natural human desire of bank supervisors, to save one or two institutions, for at least long enough for them to move over to another department. How do we make sure that monetary policy does not meet the career needs of bank supervisors?” And the token bullshit response from the follicularly confused one: “I don’t think that’s a very realistic scenario.” Oh really? We think it is, and in fact we think that the probability of influence on monetary policy arising from this line of thinking is much, much greater than all that other BS we have been hearing about how an audit will make the Fed become an engine of hyperinflation, the argument that Barney Frank, Chris Dodd, Mel Watt and all the other bought and paid for Wall Street cronies are using to prevent Ron Paul’s audit the Fed initiative from ever passing. Bernanke elaborates on what one day will be an amusing case study: “I suspect the Central Bank Chairman will be around and concerned about his or her reputation when the economy has excessive inflation or whatever problem might arise from bad interest rate policy. I don’t think there is much evidence for that particular issue.” How about the issue that every reputation can be bought and paid for by someone with a big suitcase full of brand new $100 trillion bills, with a portrait of Supreme Chancellor Blankfein on the front? This is post the hyperinflation – certainly the Central Bank chairman will not be dumb enough to want to be paid in Pre-Petition money.

Yet of all questioners, Rep. Scott Garrett asks the truly most relevant questions of the day. First among them: “Are the GSE obligations sovereign debt?” Bernanke’s response: “We stand behind it, but whether it is legally sovereign debt or not, I am not equipped to tell you.” Same thing from Volcker, who adds that it is a “bad arrangement where you have this quasi private organization and the government stands behind it.” So not even the wannabe uber regulator knows how to account for an amount equal to half of the total US Federal Debt. Swell.

On Lehman Garrett asks “The Fed was there on scene, your folks were there at Lehman’s. Was the Fed aware of the Repo 105 and the accounting irregularities going on?” Bernanke answers “No – they were hidden. We are currently, for example, the principal regulator of Goldman Sachs, and we have about a dozen people on site, and another dozen who are looking at the company. We had in this case two people assigned to Lehman. And their main obligation was to make sure we get paid back our loans…. Our objective on the discount window loan was to make sure it was safe and they were safe.“

Now parse the last few sentences carefully. Not only does the Fed admit that it is and was in the Fed’s interest to delegate manpower to make sure that Goldman is fine (in an agent ratio of 6-to-1 “scouring” over Goldman’s books), but Bernanke blatantly contradicts himself when claiming the reason for the presence of the Fed’s entourage. If the Fed was indeed so focused on recouping its discount window borrowings, then how on earth did Geithner green light that Lehman would be allowed to deposit a nearly $3 billion  CDO, which contained loans by CFC, which after a cursory look Citigroup determined was “Bottom of the barrel” and “junk”? What is the basis of this dual standard – why does the Fed pretend to be concerned with safeguarding taxpayer money (with which Bernanke justifies its minimalist presence at Lehman) when it comes from the Discount Window yet is happy to collateralize “junk” paper in the Primary Dealer Credit Facility? Is whoever was in charge of the Lehman account at the FRBNY some schizophrenic (and please let it not be discovered that the person in charge was, just like in AIG’s case, again Steven Manzari)? And why does the Fed believe it has any credibility as an uber-regulator when it constantly fails a less than uber-one?

In earlier questioning by Spencer Bacchus, Bernanke answered that the only reason why the Fed had a “couple” of people in the company, was to make sure that Lehman “repaid the money lent by the Fed’s Primary Dealer Credit Facility.” Yet the Fed had lent out money, as noted above, collateralized by, well, excrement. Once again that is a truly “brilliant” overture by a wannabe regulator of all that has a dollar sign in front of it. 

Bernanke digs himself even deeper. When explaining why the FRBNY got paid back, BB says “we took collateral and we took extra large haircuts to make sure it was safe.” Oh… so now you care about getting paid back. Was it, perhaps, under the guidance of one Goldman Sachs, who may have at this point decided it was time to rid the world of the pesky Lehman Brothers that made you start enforcing legitimate collateral controls?

Then Garrett asks the key question: “In light of these reports is this something that we should be concerned about? Is activity at these other [banks such as Goldman] is that something that (a) we should be concerned about and (b) something the Fed should be concerned about and are you looking into it.” Bernanke’s retort “[the banks] are now under our consolidated supervision, so we are now paying attention to these issues.” That’s the non-answer. As to the answer of whether the Fed is looking at whether shady accounting is going on or was going on in the past, Bernanke’s version of the Fifth is as follows: “I don’t know. This report just came out this week.” In other words if Peck had not agreed to declassify Valukas’ report, if there was no pressure to put the Examiner’s report in the public domain the Fed would never have expressed any interest into just what kind of shady accounting goes on to mask the Tier 1 and Risk Based Capital of the banks under its supervision, and that leverage ratios by most of the banks it supervises are likely complete shams?

A relentless Garrett keep probing: to the NJ representative’s question whether the Fed demanded that Lehman’s regulator (whoever it may be since it was not the Fed, even though the Fed had implemented three separate liquidity stress tests, of which Lehman failed every single one) require that Lehman raise its liquidity, Bernanke once again gets an acute case of amnesia: “I don’t have the exact information that you are asking.” So once again the Fed proves that the only thing it can regulate is the bribery sinking fund at Goldman et al with direct recipient Federal Reserve governors. Everything else will just fall into place once yet more of Goldman’s competitors are done away with, and Goldman (and JPM, of course, can’t forget Fed, Jr), are left standing as the only two financial firms in the known universe. And this is the Fed that lame duck and financially supremely challenged Chris Dodd wants to put in charge of regulating everything in this country? If that really ends up happening, we are so #&$*ed… but not before Goldman funnels all of Americas’ money into its Middle-Class Irredeemable Negative Interest Rate All-market Fund SIV.

More articles from Zero Hedge….

The Daily Reckoning

Reading the mainstream papers or watching the business news, one could be forgiven for thinking Australia has completely sidestepped the continued global depression, with our miracle economy continuing to perform divine acts. But while residential property continues its irrational bubble, for many Australians, the global financial crisis was very real – ask anyone who has owned shares in Babcock & Brown, Allco, MFS and a host of other collapsed enterprises.

Not only did investors and banks lose billions as Australia’s financial engineers crashed, but hundreds of other companies, including the once venerable Rio Tinto and Australia’s oldest property trust, GPT, desperately raised fresh capital from institutions at prices which would have been unthinkable a year earlier. The pain for retail (or ‘mum and dad’ shareholders) was compounded – not only did they suffer capital losses on their holdings and their dividends drastically reduced, but they were generally unable to participate in highly discounted capital raisings (the fruits of that were shares by a select few institutions).

Last year I spent several months working on what became Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed. The book covered various examples of corporate governance failings and executive greed, providing ‘lessons’ to help shareholders avoid being caught in the next, inevitable, downturn (which, as Bill Bonner continues to suggest, could happen sooner rather than later).

The biggest story to come out of the spate of Australian collapses is that there was no real story. The bankruptcies of MFS, Allco and Babcock in particular all bore a striking resemblance. All three companies considered themselves ‘asset originators’ – that is, their business was essentially buying stuff and selling it to what was usually a captive satellite fund. Aside from the obvious issue that buying and selling assets like toll roads, coal terminals, hotel chains or Irish telecommunication companies adds no net value to society as a whole, but also, their entire business models largely consisted of charging excessive fees to captive vehicles.

The entire arrangement was made all the more sordid by the fact that the agreements between the mothership and the various satellite companies were intentionally withheld from shareholders. This was all allowed by the ASX. Perhaps coincidentally, various ASX directors also sat on boards like Babcock & Brown (Michael Sharpe) and Brisconnections (Trevor Rowe).

In terms of sheer audacity, the collapse of Babcock & Brown is difficult to top. Led by former tax lawyer Phil Green, Babcock grew from a small leasing business based in San Francisco to a diversified investment bank which at its zenith, had more than $70 billion worth of assets under management. Babcock’s share price grew like a rocket in the late 1990s – rising from $5.00 when floated in 2004 to almost $35 in mid-2007 before the credit crunch took hold.

During that time Babcock’s leading executives, like their investment banking brethren across the globe, gorged from the trough of fees. In four years as a listed entity, Babcock paid its top dozen executives almost $300 million in cash alone, along with a couple of hundred million of (ultimately worthless) shares. The cash remuneration paid was of course – not refundable. Sadly for shareholders, neither were the billions of dollars of losses racked up by the bank through foolish real estate deals and the grossly over-priced purchase of the already highly-engineered Western Australian power company, Alinta.

But it wasn’t only the financial engineers which came crashing down as the market reassessed its tolerance of risk. The high-profile fall of Eddy Groves’ ABC Learning Centers was even more remarkable given the business earned around half of its revenue directly from taxpayers. While Eddy Groves never received a large salary, his company paid more than $100 million to his brother-in-law, Frank Zullo, for untendered maintenance works at ABC’s centres. ABC also paid Austock (the broking house which was partly owned by Groves) around $50 million in investment bank fees.

ABC surprised shareholders, banks and the Singapore Government when it announced that its fabulous business model wasn’t really that fabulous. In fact, the company’s $437 million loss in 2008 dwarfed all the alleged profits that the business ever made.

Then there were the somewhat more predictable collapses – the downfalls of the agribusiness twins – Timbercorp and Great Southern Plantations. Both companies were caught holding illiquid assets as they weren’t able to refinance debt to support their Ponzi schemes.

The biggest problem from Timbercorp and Great Southern was that while their schemes timber and horticulture schemes provided a tidy tax deduction for city folk, many of the schemes didn’t actually make any money. (In 2005 Great Southern admitted in the finest of fine print deep in its Annual Report that the company was funding its schemes after the company realised the woodchips it had harvested were worth less than the costs of planting and maintaining the trees). Great Southern told shareholders the bad news a couple of months after founder and managing director, John Young, sold $30 million worth of shares.

The common link across many of collapses?

Excessive use of debt coupled with almost universally poor governance practices and a remuneration structure geared toward short-term cash bonuses. Have we learned from the mistakes? If the real estate bubble and worldwide government indebtedness is any guide, it doesn’t look like it.

Adam Schwab
for The Daily Reckoning Australia

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More articles from The Daily Reckoning….

By Chris Carey, Bailout Sleuth

The federal government fined Wachovia Bank
$160 million for failing to prevent Mexican drug cartels from using the bank to
launder money, the Office of the Comptroller of Currency
announced
today.

Prosecutors say
the bank “willfully failed to establish an anti-money laundering
program” from May 2003 through June 2008 and did not effectively screen
for money laundering on more than $420 billion in financial transactions with
currency exchanges known as “casas de cambio.”

Federal authorities estimate $110 million in proceeds from
illegal narcotics sales were laundered through Wachovia.

The Justice Department and the Treasury Department’s Financial Crimes Enforcement Network jointly
assessed a $110 million fine on the bank, and OCC levied an additional $50
million fine. The fines are due in five days.

“Wachovia’s blatant disregard for our banking laws gave
international cocaine cartels a virtual carte blanche to finance their
operations by laundering at least $110 million in drug proceeds,” U.S.
Attorney Jeffrey H. Sloman said in a statement.
“Corporate citizens, no matter how big or powerful, must be held
accountable for their actions.”

Wachovia was hit hard by the meltdown in the financial industry
in the second half of 2008. It was acquired Wells Fargo & Co. in a deal encouraged by
federal regulators.

Wells Fargo received $25 billion in government aid through the
Troubled Asset Relief Program in October 2008, partly to help it absorb
Wachovia and its problems. It repaid the money last year.

The penalty against Wachovia marked the largest fine ever for a
case under the Bank Secrecy Act, the 40-year-old anti-money laundering law.

Federal authorities say Wachovia has cooperated and provided
more than 8 million pages of documents to assist in the investigation.
Additionally, it has taken steps to address its shortcomings by hiring new
executives to oversee anti-money laundering efforts and implementing new
anti-money laundering training for employees.

Under the terms of an agreement,
prosecution has been deferred for a year because of Wachovia’s cooperation. If
it continues to work with investigators, criminal charges will be dismissed.

According to the Justice Department, the scam
worked like this: a drug trafficking organization would deposit money into a
casa de cambio, and using false identities, the casa would wire money through
its Wachovia bank accounts to purchase items – such as airplanes – for drug
traffickers.

Casas are not banks but can be used to allow people in Mexico to
exchange one kind of currency for another. They can also be used to transfer
the value of that money to U.S. accounts.

Wachovia was aware from 1996 through 2004 of “the high risk
that drug money was being of laundered through the (casas de cambio),” and
that other U.S. banks had stopped doing business with the casas due to those
concerns, according to a announcement
from the U.S. Attorney’s Office for the Southern District of Florida. From May
2004 through December 2007, Wachovia also provided correspondent banking
services to various Mexican casas via wire transfers and pouch and remote
deposit capture services.

Daniel Auer, who heads the IRS’s Criminal Enforcement Division
in Miami, said Wachovia failed to maintain an anti-money laundering program,
ignored transactions that should have raised red flags and worked as a conduit
for dirty money

Among the money laundered through Wachovia were millions of
dollars subsequently used to purchase airplanes for narcotics trafficking.
Eventually, more than 20,000 kilograms of cocaine were seized from one of the
planes funded with Wachovia-laundered money, according to prosecutors.

Wachovia also is facing scrutiny for dealing with dubious
third-party payment processors for the telemarketing industry from 2003 to
2008. Those parties allegedly deposited more than $418 million in
remotely-created checks – ostensibly authorized by an account holder without
signing the check – into Wachovia accounts. In some cases, more than 40 percent
of those checks were reported as unauthorized.

More articles from the Bailout Sleuth….

By Chris Carey, Bailout Sleuth

Two
days after Sen. Chris Dodd (D-Conn.) introduced legislation that would restrict the Federal
Reserve’s regulatory authority, Fed Chairman Ben Bernanke came to
Congress to persuade lawmakers to preserve its strength.

Dodd’s
bill would severely curtail the Fed’s bank supervisory power.
Currently, the Fed regulates about 5,000 bank holding companies and 850 state member
banks. Under Dodd’s bill, the Fed would only have supervisory authority on bank
holding companies with more than $50 billion in assets. The others would be
overseen by different regulators.

Bernanke,
testifying before the House Financial Services Committee, argued that the Fed
is “uniquely suited” to regulate large, complex institutions. “No other
agency can, or is likely to be able to, replicate the breadth and depth of
relevant expertise that the Federal Reserve brings to the supervision of large,
complex banking organizations and the identification and analysis of systemic
risks,” Bernanke said.

He
also defended the Fed amid new reports indicating that the agency was unaware
of dubious accounting methods occurring at the now-defunct Lehman Brothers
Holdings Inc., even when its own staff had almost unfettered access to the
company’s books following the collapse of Bear Stearns & Co. “We only had a
couple of people in the company, who’s primary objective was to make sure we
got paid back the money we were lending,” Bernanke said. “We were not charged
with supervising the company.”

Bernanke
dismissed suggestions from some lawmakers that the Fed has an inherent conflict
of interest due to its dual roles setting monetary policy and regulating banks.
Rep. Brad Sherman (D-Calif.) said the Fed may be tempted to make monetary
policies favorable to failing banks if it feared a bank under its regulatory
authority was in jeopardy.

“I don’t
think that’s a very realistic scenario,” Bernanke said.

More articles from the Bailout Sleuth….

By Karl Denninger, The Market Ticker

And surprise-surprise, it has nothing to do with the Euro – it is, once again, to bail out bad speculative bets made by banks:

“If the country is not stabilised, the next problem will be the banks,” Ackermann in a speech to an academic audience on Wednesday, adding that German banks had “billions in the fire.”

So once again we have banksters literally putting a gun to government heads and threatening them.

When does this stop?

It’s not like Deutsche Bank (and the rest) didn’t know Greece was cooking their books and holding debt off balance sheet!  They sold them the swaps to enable the deception!

These banksters knew damn well that the nation was in trouble long before there was any public notice of it. 

So why were they buying Greece’s debt?  Why didn’t they sell it?  Why are they stuck with it?

Is it because their intention was to shove a gun up the nose of the governments in the Euro Zone – just as our banks did here – and threaten to shoot unless they get bailed out?

Let’s cut the crap.  These “institutions” are, in my opinion, a criminal enterprise.  It is my contention that they have engaged in knowing and willful frauds up and down the line, whether it be selling “swaps” that were intended to hide debt (that is, to fraudulently misrepresent an entity’s finances), buying debt of nations they knew were in trouble and thus was risky (and now they want to be backstopped) or other forms of scamming as is alleged by the FHLB Seattle in their lawsuit against Deutsche Bank itself, among others.

These acts are common garden-variety swindles wrapped in fancy clothing.  People think there’s something magical or complex about all this “financial engineering” that led to these losses.

There is not.

The simple fact of the matter is that getting someone to overpay for a thing by lying to them is no different than the shifty used-car salesman who turns back an odometer so you think a car has fewer miles on it than it really has.

We all recognize that as an act of fraud and we arrest those engaged in it.

These actions are no different in type but have stolen from we, the people of this planet literal trillions of dollars, yet it seems to be impossible to find one law-enforcement agency that will press criminal charges against any of these clowns!  At the same time if you steal $50 from a convenience store or turn back that odometer you are sentenced to hard time in prison.

This has gone far beyond the point where we, the citizens of this world – not just in The United States – must demand and put a stop to these heists by whatever means are necessary.

If our governments will not bring charges and lock up the executives in these firms then we must shut these institutions down by refusing not only to do business with them directly but by going one step further – we must refuse to do business with any firm or person that is employed by them or uses them for their financial services.

I thus call for this boycott of all banking firms that issue threats of this sort here and now, both directly of the firms and of their customers, to continue until and unless criminal indictments issue for this outrageous and repetitive conduct.

What these people have done is in fact no different than this:

The easiest way to rob a bank is to own one…..

IT IS TIME FOR WE THE PEOPLE TO PUT A STOP TO THIS CRAP!

More articles from the Market Ticker….

By Karl Denninger, The Market Ticker

I’m sure you all remember how clearly I have stated that I believe that mortgage origination, securities packaging and dealing was fraudulent during the housing bubble, right?

I’ve been saying it now for three years – that credit quality was flatly ignored, appraisals were intentionally rigged and borrower lies were intentionally ignored.

Well now FHLB Seattle has gone and done what no criminal prosecutor has had the balls to do – it has sued nine securities dealers.  Among them are Credit Suisse, Deutsche Bank, JP Morgan and Bank of America.  What is FHLB Seattle alleging in its suit?

“The bank’s complaints allege that the dealers made untrue or misleading statements about the characteristics of the mortgage loans underlying the securities,” according to the statement.

The dealers made false statements or omitted important information about the loans that backed the securities they sold, the bank alleged in its complaints. The bank claims the dealers failed to disclose that appraisals were biased upward on properties that secured mortgage loans, that underwriting guidelines were ignored by originators and that loan to property value ratios were exaggerated.

Yep.  Exactly what I have said for the last three years, and what should, in my opinion, had long since led to criminal charges for alleged fraudulent conduct.

This is the second such suit – as I reported earlier the same bank and the FHLB Pittsburgh bank sued Goldman, JP Morgan and Morgan Stanley last year.

The economic mess we are in will not be resolved until these securities are recognized on bank balance sheets at their true underlying value and, where appropriate, those who falsified credit quality and other information about these securities during their packaging and sale are held to account for what they have done.

Now exactly where are all these securities and at what marks are they being held in the banks across our land?

That’s a question we all deserve an answer to.

More articles from the Market Ticker….

By Karl Denninger, The Market Ticker

Now we’re cooking:

March 17 (Bloomberg) — Deutsche Bank AG, JPMorgan Chase & Co., UBS AG and Hypo Real Estate Holding AG’s Depfa Bank Plc unit were charged with fraud linked to the sale of derivatives to the city of Milan. Bloomberg’s Elisa Martinuzzi reports. (Source: Bloomberg)

Oh wait – that’s over in Italy, where the government isn’t sufficiently bribed, er, bought off.

Now, let’s see, where have we seen swaps written here in the US?  Oh yeah, I remember – places like Jefferson County Alabama, where there have already been some guilty pleas on bribery related to those swaps!

I wonder if some State AGs could be persuaded to grow some brass between their legs and start bringing these institutions up on criminal charges?

(Yes, they should, and yes, I’d cheer.)

More articles from the Market Ticker….

By Karl Denninger, The Market Ticker

Weren’t we told Greece was “bailed out”, “backstopped”, or whatever you care to use?  That’s all I’ve heard all week on ToutTV.

So what’s this about?

Greece could seek IMF funding to help overcome its debt crisis if its EU partners do not provide “clear support” next week, a government spokesman said Wednesday.

George Petalotis said the March 25-26 European Union summit on how to deal with a potential bailout for Greece will be crucial, as the country struggles to reduce a bloated budget deficit and public debt.

“I believe the summit is when it will become evident whether the European partners want to support a country … or whether we have to resort to some other solution,” Petalotis said.

Doesn’t sound “done” to me!

Oh wait – what’s this?

“The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy,” Feldstein, an adviser to U.S. presidents since Ronald Reagan, said in a March 13 interview in Geneva. “The alternatives are to default in some way or to leave, or both.”

Of course it’s a fantasy.  So tell me this – why are the markets going up in the belief that the Greece problem is in fact fixed, when:

• Mathematically it is basically impossible to do so given the constraints that exist AND

• Germany’s Constitution prohibits a bailout using German public funds in any way, shape or form (including a backstop of their banks if they “help privately.”)

So now we’re back to the old “Bazooka” argument, eh? 

“We would like to have a loaded gun on the table and hope never to have to use it,” Papaconstantinou told reporters today in Brussels. “It’s clear that the terms of refinancing the Greek debt improve as the markets and European partners see the determination of the Greek government.”

Ah, the old Paulson argument. 

Remember the tape folks and Paulson’s “Bazooka”:

Remember folks, the “Paulson Bazooka” was good for one hundred S&P 500 handles in less than a month (hmmmm…… isn’t that what we’ve seen here?) but in the end it failed, because as is always the case the market called the bluff.

But this time it’s different, so I think you should believe our fine friends over in Greece, even though Germany says they won’t violate their Constitution (Merkel has repeated this enough times now that she’s got to be blue in the face) and the news reports that trickle out say that indeed, Greece has no deal – not in the bag, not on the table, just plain not.

More articles from the Market Ticker….

In testimony today before Congress, Fed Chair Ben Bernanke outlined his reasons why the Federal Reserve is uniquely suited to be the regulatory supervisor for U.S. banks.

Bernanke offered two reasons why the Fed is the natural agency for financial supervision. First,
he suggested that some supervisory responsibilities are essential in order for the Fed to carry out its primary monetary policy functions:

[The Fed's] involvement in supervising banks of all sizes across the country significantly improves the Federal Reserve’s ability to effectively carry out its central-bank responsibilities. Perhaps most important, as this crisis has once again demonstrated, the Federal Reserve’s ability to identify and address diverse and hard-to-predict threats to financial stability depends critically on the information, expertise, and powers that it has as both a bank supervisor and a central bank. Not only in this crisis, but also in episodes such as the 1987 stock market crash and the terrorist attacks of September 11, 2001, the Federal Reserve’s supervisory role was essential for it to contain threats to financial stability.

Insofar as the Fed is expected to fulfill its function as a lender of last resort through the discount window, surely it needs detailed knowledge of the borrower’s financial situation. And actionable information on the financial system’s health and stability is just as surely essential for knowing when and how fast to change interest rates.

Second, Bernanke observed that no other agency has the Fed’s breadth and depth of relevant expertise:

Federal Reserve staff members have expertise in macroeconomic forecasting for the making of monetary policy, which is important for helping to identify economic risks to institutions and markets. In addition, they acquire in-depth market knowledge through daily participation in financial markets to implement monetary policy and to execute financial transactions on behalf of the U.S. Treasury. Similarly, the Federal Reserve’s extensive knowledge of payment and settlement systems has been developed through its operation of some of the world’s largest such systems, its supervision of key providers of payment and settlement services, and its long-standing leadership in the international Committee on Payment and Settlement Systems.

The Fed employs hundreds of extremely bright and very well-informed economists. On my visits to the Federal Reserve, I’ve been amazed at how well the staff work together to assimilate information and perspectives. In my experience, you can ask any one of them a question about pretty much anything, and although the person you’re talking with may not know the answer, he or she will know the name of the person within the Fed who does know. I’ve interacted with lots of different institutions over the years, and have never seen another one that functions so effectively as a single, cohesive neural processor. Certainly the objective record of Federal Reserve forecasts is pretty impressive; see for example the assessments by Christina and David Romer and Faust and Wright.

Doubtless others will be skeptical, trotting out the Fed’s spectacular underestimation of financial problems during 2005-2007. That criticism is of course well taken, and both the Fed and the economics profession as a whole have much more work to do in terms of recognizing exactly what should have been done differently. But let’s be practical. What other institution did a better job? Where in Washington today do you see an agency with the intellectual resources to get this right? Simply squawking that we need a change is not constructive leadership; it’s political finger-pointing and CYA.

Indeed, it’s striking that many of those who were instrumental in relaxing the oversight on Fannie Mae and Freddie Mac now believe that a regulatory body more directly under their political control could do a better job than the Fed. In the mean time, the FHA continues even today to dig us into a deeper hole.

Notwithstanding, the debacles of Fannie and Freddie and the perhaps soon-to-come trainwreck from the FHA also illustrate the primary concern I have about giving the Fed more supervisory authority. The more power the Fed is given in such matters, the greater the political pressures will be from the outside to satisfy certain constituencies, and the less the Federal Reserve will resemble the remarkable institution that Bernanke and I described above.

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