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.

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The Post discussed the extent to which banks have repaid their TARP money, noting that small banks have been much slower to pay back the government loans than large banks. At one point the article discusses the sale of warrants on bank stock that the government received as part of the package. It comments that: “the goal of requiring the warrants was to ensure that taxpayers would see a return once the banks recovered.”

It is worth noting that the government lent TARP funds at interest rates that were far below the interest rates prevailing in the market at the time. In many cases these below market loans were needed to allow banks to survive. In all cases, the subsidy provided by these below market loans amounted to a substantial gift to the bank.

For example, Goldman Sachs (one of the more creditworthy banks) had to pay 10 percent interest on the money it borrowed from Warren Buffet at almost the exact same time as it got TARP loans from the government. The interest rate on TARP loans was 5 percent. It also had to provide Buffet far more warrants per dollar of loans. In the case of Goldman, the subsidy from its below market TARP loans almost certainly amounted to more than $1 billion, even if the government still reports a profit on these loans.

It is deceptive to say that the government made a profit on its TARP loans since it could have made a much larger profit if it had lent this money at market rates. Making capital available to favored borrowers at low cost, in the middle of a financial crisis, allowed these favored banks to make enormous profits with the government’s money.

–Dean Baker

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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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GMAC Inc. hired Citigroup Inc., another bank controlled by the U.S. government, to explore how to repay bailout funds, according to a person briefed on the matter. Goldman Sachs Group Inc. will also help the auto lender examine repayment strategies and both banks will assist GMAC in reviewing options for its money-losing mortgage unit, …

Read more….

The Daily Reckoning

“Masked youths…attacked the head of Greece’s largest trade union, who was addressing the crowd, and hurled stones at the police. GSEE union boss Yiannis Panagopoulos traded blows with the rioters before being whisked away, bloodied and with torn clothes.”

The Daily Mail account put the blame for these disturbances on Germany’s finance minister, who warned the Greeks that “the German government does not intend to give a cent.” At least Bild, a popular German newspaper, was trying to be helpful. It suggested that Greece sell Corfu…and that Greeks get up earlier and work harder.

Meanwhile, from Iceland comes news that every voter with an IQ above air temperature has cast his ballot against a bailout plan. The Icelanders were slated to make good $5.3 billion in bank losses. But why shackle common voters to the banks’ losses? The plan was so outrageous and so unpopular that Iceland’s normally compliant Prime Minister called for a referendum. Given a chance to vote on it, 93% said no. The other 7% probably read it wrong.

Insurrection is in the air. In England, government employees are preparing the biggest strike since the ’80s. In America, dissatisfaction with Congress is at record highs; four out of five of those polled say, “Nothing can be accomplished in Washington.”

Herewith, an attempt to deconstruct the rebel yell. By way of preview, it’s not the principle of the thing, we conclude; it’s the money.

There are more clowns in economics than in the circus. They invented an economic model that has been very popular for more than 50 years – particularly in the US and Britain. It began with a bogus insight; John Maynard Keynes thought consumer spending was the key to prosperity; he saw savings as a threat. He had it backwards. Consumer spending is made possible by savings, investment and hard work – not the other way around. Then, William Phillips thought he saw a cause and effect relationship between inflation and employment; increase prices and you increase employment too, he said.

Jacques Rueff had already explained that the Phillips Curve was just a flimflam. Inflation surreptitiously reduced wages. It was lower wages that made it easier to hire people, not enlightened central bank management. But the scam proved attractive. The economy has been biased towards inflation ever since.

Economists enjoyed the illusion of competence; they could hold their heads up at cocktail parties and pretend to know what they were talking about. Now they were movers and shakers, not just observers. The new theories seemed to give everyone what they most wanted. Politicians could spend even more money that didn’t belong to them. Consumers could enjoy a standard of living they couldn’t afford. And the financial industry could earn huge fees by selling debt to people who couldn’t pay it back.

Never before had so many people been so happily engaged in acts of reckless larceny and legerdemain. But as the system aged, its promises increased. Beginning in the ’30s, the government took it upon itself to guarantee the essentials in life – retirement, employment, and to some extent, health care. These were expanded over the years to include minimum salary levels, unemployment compensation, disability payments, free drugs, food stamps and so forth. Households no longer needed to save.

As time wore on, more and more people lived at someone else’s expense. Lobbying and lawyering became lucrative professions. Bucket shops and banks neared respectability. Every imperfection was a call for legislation. Every traffic accident was an opportunity for wealth redistribution. And every trend was fully leveraged.

If there was anyone still solvent in America or Britain in the 21st century, it was not the fault of the banks. They invented subprime loans and securitizations to profit from segments of the market that had theretofore been spared. By 2005 even jobless people could get themselves into debt. Then, the bankers found ways to hide debt…and ways to allow the public sector to borrow more heavily. Goldman Sachs did for Greece essentially what it had done for the subprime borrowers in the private sector – it helped them to go broke.

As long as people thought they were getting something for nothing, this economic model enjoyed wide support. But now that they are getting nothing for something, the masses are unhappy. Half the US states are insolvent. Nearly all of them are preparing to increase taxes. In Europe too, taxes are going up. Services are going down. And taxpayers are being asked to pay for the banks’ losses…and pay interest on money spent years ago. Until now, they were borrowing money that would have to be repaid sometime in the future. But today is the tomorrow they didn’t worry about yesterday. So, the patsies are in revolt.

Several countries are already past the point of no return. Even if America taxed 100% of all household wealth, it would not be enough to put its balance sheet in the black. And Professors Rogoff and Reinhart show that when external debt passes 73% of GDP or 239% of exports, the result is default, hyperinflation, or both. IMF data show the US already too far gone on both scores, with external debt at 96% of GDP and 748% of exports.

The rioters can go home, in other words. The system will collapse on its own.

Bill Bonner
for The Daily Reckoning Australia

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Paul Krugman is absolutely right in describing the economic relationship between the U.S. and China; the United States has nothing to fear from a decision by China to stop buying U.S. government debt. However, the discussion of the U.S-China relationship may not be quite right.

Krugman has the United States meekly asking China to raise the value of the yuan since 2003, with little effect. This certainly has been the public position of both the Bush and Obama administrations. However, negotiations don’t take place in public.

When the United States negotiates with China, there are many items on its list. Both the Bush and Obama administrations have pressed China about increased protection for U.S. patents and copyrights. They have pressed China for increased access for U.S. films and openings for the entertainment industry more generally. They also want to open the Chinese market to Citigroup, Goldman Sachs and other big financial firms.

No one ever expects to get everything on their list in negotiations. Suppose China promises better protection for Disney and Microsoft and more access for Citi and Goldman, but not much movement on the yuan. China feels it has been responsive to the U.S. position, after all it made major concessions in areas that are important to the United States.

We don’t know what actually happens behind closes doors, but it is safe to assume that the U.S. negotiators do not pound the table and say: “we don’t care about Mickey Mouse [Disney] and Goldman, we want to see the yuan rise against the dollar.” If this is not what happens, then the blame lies as much with the U.S. as with China.

–Dean Baker

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Zero Hedge

This week in The IRA we feature a
conversation with Bill
King, who along with his wife and business partner Mary works in the
world of
derivatives broadly defined via their Chicago-based firm, M. Ramsey King

Securities. We first started taking with Bill in the 1980s, during the
political wrangle – we won’t call it a battle – over free trade with and

democracy in Mexico. That was about the time of the first
appearance of “Too Big to Fail” for the large banks following the
Mexican peso
meltdown. Un fuerte abrazo a nuestros amigos en Mexico!

But before we go to our feature, a few
comments on current
events. First and foremost we remind one and all about the impending
start
of the FDIC’s rule make effort regarding the reform of bank
securitizations.
Last week, the FDIC approved an extension through September 30, 2010 of
the Safe Harbor Protection for Treatment by the FDIC as
Conservator or
Receiver of Financial Assets Transferred by an Insured Depository
Institution in
Connection With a Securitization or Participation.

We hear that the FDIC rule making
process could start as soon
as next month, but more likely will wait till the FDIC’s board meeting
in May.
We also hear that the President’s Working Group (PWG) on Financial
Services is
preparing a “white paper,” in cooperation with the Federal Reserve Board
and the
Office of the Comptroller, to block the FDIC reform effort. This
campaign, which
apparently was orchestrated by the largest dealer banks, is intended to
derail
the new rules proposed by the FDIC mandating greater transparency and
disclosure
for bank sponsored residential mortgage securitization deals.

The PWG, in case you don’t know, is an
informal group created
in 1988 by President Ronald Reagan that allows the executives of the
biggest
banks to influence public policy in Washington, but without going
through the
trouble of registering as lobbyists or other public disclosure.
Sometimes
referred to the “plunge protection team,” the PWG is part of the
invisible
government of Washington,” an agency which operates within the
government, but
at the behest of private interests.

Barry Ritholtz has a nice summary on
the PWG in his book,
Bailout Nation, and also in his Blog, “The Big Picture.” As Barry
notes,
the PWG is every bit as incompetent as most other people in Washington,
but they
do have one special skill: pushing the banking industry’s agenda in
Washington via informal “guidance” and white papers that are written by
and for
compliant regulators. The PWG essentially acts as a super-lobbying
channel
for the largest banks focused right at regulators. Only “team players”
need apply.

The Federal Reserve Bank of New York
and the OCC in Washington
are reportedly drafting the “guidance” on reform of bank securitizations
and at
the request of the PWG. No clue whether the White House is involved
directly yet
or if this is merely a Tim Geithner operation. These PWG white papers
are
never released to the public even though the Treasury acts as the de

facto public affairs organ for this corporate influence group.

We

called out former Wachovia Bank CEO and Goldman Sachs (GS)
banker Robert Steel on the subject of the PWG last year at the Chicago
Fed’s international banking conference. He was unapologetic and more
than
a little offended, or so he claimed. The PWG acts with impunity in
Washington, in part because the members of Congress understand their
subordinate
role. We hear that Senator John Warner (D-VA) is now competing with
Judd Gregg (R-NH) to be the next “Senator from Wall Street” and
specifically
seems to be angling to join a private equity firm. Gregg’s tastes seem
to
run more along the lines of a large OTC derivative dealer
bank.

The fact that the PWG is in league
with the Fed and Treasury
against the FDIC board is all you need to know about the politics of
reforming
private label mortgage securitization. If Barack Obama were really
interested in
reforming Washington, he would rescind President Reagan’s executive
order and
disband the PWG for good. Allowing the big banks which participate in
the PWG to
lobby financial regulators and members of Congress without any public
disclosure
is a national scandal and makes a mockery of any claim by Barrack Obama
to be
changing the business of Washington.

We noted in our comment last Tuesday
in American
Banker, “Viewpoint: Stop Blocking FDIC Securitization Effort,”

that “the practical policy issue is the losses observed in failed banks
over the
past two years, averaging over 30% of total assets, versus just 11% on
average
in the S&L crisis. The common factor in failed banks with high loss
rates is
unsafe and unsound securitizations practices, thus the FDIC initiative
on
securitization.”

It is very telling to us that the FDIC
is advocating greater
openness and transparency in bank sales of mortgage loans to
securitizations,
but the Fed and OCC are standing with the larger dealer banks that
arguably
caused the financial crisis in complex structured assets. Hopefully
these
federal agencies and the industry groups they seem to be allied with
will
realize that the FDIC’s rule making process holds the potential to
revive
private label mortgage finance and that they can influence the outcome -
but
only if they participate constructively.

One mortgage market veteran who ran
risk for one of the largest
private conduits in the business put the situation succinctly last week:
“You
can argue against the FDIC securitization proposals, looking at them in a

bundle, as perhaps being overkill, but each piece of their proposal,
taken
separately, is pretty compelling. The other bank regulators and industry
groups
could easily negotiate a better, more streamlined deal that would help
the
market if they bothered to push back and participate constructively,
instead of
simply attacking the FDIC.”

To read the rest of our rant on the possibility of zombie bank love between Barclays and Citigroup, and the interview with Bill King, click the link below:

http://us1.institutionalriskanalytics.com/pub/IRAMain.asp

– Chris

More articles from Zero Hedge….

Much press has been dedicated these past few days to Gary Gensler, Chairman of the Commodity Futures Trading Commission (CFTC) and ex-Goldman Sachs partner. A New York Times article regales us over his apparent transformation from a hard-line acolyte of then Treasury Secretary and former Goldman Chairman Robert Rubin, long an advocate for a ‘hands off government’ over derivatives trading that was to grow to a $300 trillion (I repeat, trillion) runaway market and become an unsupervised, unregulated financial WMD.

That, supposedly, was then and this is Gensler now: “Wall Streets interest is not always the same as the public’s interest.” Or, “Wall Street thrives and makes money in inefficient markets, and I am creating efficiencies in the market.” Really?

Back in May 2009 Gensler took over the CFTC, an agency that in July 2008 organized an “Interagency Task Force on Commodity Markets” report and, with oil prices scaling $147/bbl, concluded that it “does not support the proposition that speculative activity has systematically driven changes in oil prices.” A conclusion I leave to the reader to determine whose interests were being taken into account.

Apost concurrent to Gensler’s confirmation raised the issue that oil prices had increased dramatically from February 2009 lows of $32.70/bbl to $60/bbl in May 2009, causing the likes of the Financial Times to comment that the fundamentals are “weaker, much weaker than current prices imply.” The implications of speculation and/or manipulation were clear, and Gensler at the CFTC would now be in the hot seat.

What has happened since? The price of oil has extended its rise from $60/bbl to over $80/bbl, and that with imports of oil down significantly, given that oil storage terminals are full, and having a surprisingly positive impact on our foreign trade balance. Yet irrespective of more than ample supply in the upside down world of oil prices: the more oil there is on the market, the more we pay per barrel.

But then Gensler’s CFTC gave us a bright shining moment of an oil industry influenced government’s reversal in form and candor on issues oil. On July 27, 2009 the Wall Street Journal blazoned their headline, “Traders Blamed For Oil Spike,” advising that the CFTC was to issue a report ‘next’ month “suggesting that speculators played a significant role in driving wild price swings in oil prices — a reversal of an earlier CFTC position.” As well that month, the CFTC had announced that it was considering volume limits on energy futures by financial/proprietary traders and tougher information requirements. Almost immediately the good folks on Wall Street energized their K Street lobbying clan to stop the CFTC and their old work mate Gensler in their tracks. We are still waiting for that report!

The outrageous dysfunction of the commodity markets and the tepid CFTC oversight continued blithely along. Late in the week of November 9th, 2009 the Energy Information Service announced that oil stocks had surged by 1.762 million barrels, much more than expected, and that the U.S. refineries processing rate sank to 79.7%, the lowest in more than two decades. Against all reason, instead of collapsing prices, the price of oil jumped by $2.50 on the very day of the announcement, eliciting a post, “The CFTC and Department of Energy Snore Away While the Oil Patch Makes Hay” 11.18.09.

And so it continues. While Mr. Gensler and his CFTC Vaudeville act continue to fiddle away, the distortion in oil prices is burning a billion dollar hole a day in American consumers pockets (please see “The Billion Dollar Day Extortion: A Somnolent Administration and Dysfunctional Congress’ Gift to the American People” 02.22.10).

As for Mr. Gensler, he is now, after all these months calling for some form of federally mandated limits on speculative trading on oil, gas and other energy futures. But don’t hold your breath. It will all be subject to a 90 day comment period. When all is said and done it will be a year or more since Mr. Gensler’s ascension that anything will have been accomplished, if at all, to rein in the distortions being promulgated on the commodity exchanges. In the meantime, billions are being transferred to oil interests from the pockets of American consumers and putting at risk the feeble economic recovery now underway!

An apocryphal comment in the NYTimes article refers to Gensler’s time at the Treasury when asked to investigate derivatives held by South Korean Banks and being “amazed at how little information the banks could provide”

“Knowing what we know now, we should have banged the table more forcefully” he now says.

Well Mr. Gensler, as oil trading has become the litmus test of all commodity exchange based pricing, we are waiting to hear the loud bangs, especially when it comes to oil!

Read more….

Zero Hedge

82% of the American public wants tougher regulation of Wall Street.

Most top independent financial experts say that we need to break up the big banks and otherwise rein in the financial giants in order to save the economy.

But Summers, Geithner, Bernanke and Congress like things just the way they are.

Of course they do … they’re bought and paid for:

• Lobbyists
  from the financial industry have paid hundreds of millions to Congress
  and the Obama administration. They have bought virtually all of the key
  congress members and senators on committees overseeing finances and
  banking. The Congress people who receive the most money from lobbyists
  are the most opposed to regulation. See this, this, this, this, this, this, and this.

• Obama received more donations from Goldman Sachs and the rest of the financial industry than almost anyone else

• Summers and the rest of Obama’s economic team have made many millions – even in the first few months of being appointed, or right beforehand – from the financial industry

• Two powerful congressmen said that banks run Congress

• Two leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the the head of the Federal Reserve Bank of Kansas City have all said that the United States is controlled by an oligarchy

The chairman of the Department of Economics at George Mason University
(Donald J. Boudreaux) says that it is inaccurate to call politicians
prostitutes. Specifically, he says that they are more correct to call
them “pimps”, since they are pimping out the American people to the
financial giants:

Real whores, after
all, personally supply the services their customers seek. Prostitutes
do not steal; their customers pay them voluntarily. And their customers
pay only with money belonging to these customers.

In contrast, members of Congress routinely truck and barter with other people’s property…

Members
of Congress are less like whores than they are like pimps for persons
unwillingly conscripted to perform unpleasant services.

 

***

 

Politicians
force taxpayers to pony it up — just as the services rendered for a
pimp’s customers are rendered not by that pimp personally, but by the
ladies under his charge. The pimp pockets the bulk of each payment;
he’s pleased with the transaction. His customer gets serviced well in
return; he’s pleased with the transaction. The only loser is
the prostitute forced to share her precious assets with strangers whom
she doesn’t particularly care for and who care nothing for her.

 

Also
like the ladies under pimps’ power, taxpayers who resist being
exploited risk serious consequences to their persons and pocketbooks.
Uncle Sam doesn’t treat kindly taxpayers who try to avoid the
obligations that he assigns to them. Government is a great deal more
powerful, and often nastier, than is the typical taxpayer. Practically
speaking, the taxpayer has little choice but to perform as government
demands.

So to call politicians “whores” is to unduly insult
women who either choose or who are forced into the profession of
prostitution. These women aggress against no one; like all other
respectable human beings, they do their best to get by as well as they
can without violating other people’s rights.

 

The real villains
in the prostitution arena are those pimps who coerce women into
satisfying the lusts of strangers. Such pimps pocket most of the gains
earned by the toil and risks involuntarily imposed upon the prostitutes
they control. No one thinks this arrangement is fair or justified. No
one gives pimps the title of “Honorable.” Decent people don’t care what
pimps think or suppose that pimps have any special insights into what
is good or bad for the women under their command. Decent people don’t
pretend that pimps act chiefly for the benefit of their prostitutes.
Decent people believe that pimps should be in prison.

 

Yet
Americans continue to imagine that the typical representative or
senator is an upstanding citizen, a human being worthy of being feted
and listened to as if he or she possesses some unusually high moral or
intellectual stature.

 

It’s closer to the truth to see
politicians as pimps who force ordinary men and women to pony up
freedoms and assets for the benefit of clients we call
“special-interest groups.”

 

More articles from Zero Hedge….