Please! No More Kabuki Finance Reform!

Posted: June 15, 2009 | Author: | Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, Team Obama, U.S. Economy | Tags: , , , , , , , , | 2 Comments

Today’s Wall Street Journal highlights the Details Set for Remake Of Financial Regulations. The question on every one’s kabukimind is will it be real this time instead of some show that shuts down the minute the press leaves the room. (You know when Barny Frank and Chris Dodd trot out the single malt and the Cuban Cigars and party down to Chain, Chain, Chain … chain of Fools.

President Barack Obama is expected Wednesday to propose the most sweeping reorganization of financial-market supervision since the 1930s, a revamp that would touch almost every corner of banking from how mortgages are underwritten to the way exotic financial instruments are traded.

We shall see, we shall see. In today’s WAPO, Timothy Geithner and Lawrence Summers are inkling their strategy in A New Financial Foundation. They identify five key problems in the article they see with the current regulation regime.

First, existing regulation focuses on the safety and soundness of individual institutions but not the stability of the system as a whole. As a result, institutions were not required to maintain sufficient capital or liquidity to keep them safe in times of system-wide stress. In a world in which the troubles of a few large firms can put the entire system at risk, that approach is insufficient.

Capital requirements are always nice in a fractional reserve system. After all, banks only make money by lending out the funds they hold at a higher rate, but this needs to be closely examined; especially with capital from government sources at the risk or implied government guarantee of assets. I talked before about Stiglitz’s concept of Banks Too Big to be Restructured. Many of us feel that these banks don’t need to be better regulatedbut completely busted up. The joint statement appears to say that the Obama Adminstration is prepared to let them dither in Zombie land while making them come up with more capital. (The only thing I can say is how long and with whose money?) I call this passage a stinker, but I’ll wait to see the details in the bill itself. If they regulate it the way they regulated Fannie and Freddie, hide your savings under your nearest mattress and try to get all your income in Eurodollars.

The administration’s proposal will address that problem by raising capital and liquidity requirements for all institutions, with more stringent requirements for the largest and most interconnected firms. In addition, all large, interconnected firms whose failure could threaten the stability of the system will be subject to consolidated supervision by the Federal Reserve, and we will establish a council of regulators with broader coordinating responsibility across the financial system.

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W(h)ither Geithner and his TALF

Posted: April 23, 2009 | Author: | Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, U.S. Economy, Uncategorized | Tags: , , , , | Comments Off on W(h)ither Geithner and his TALF

timmy-beavisNeil Irwin of WAPO reported today that the TALF is not having the results trumpeted by the Obama administration. This is leading, again, to speculation about the relevancy of most of these plans and, of course, job security of Treasury Secretary Timothy Geithner.

In its first two months, the government’s signature initiative to support consumer lending has fallen well short of expectations, deploying only a fraction of the amount officials had hoped to extend to stimulate auto loans, student loans and credit card lending.

The slow rollout of the program has frustrated staff at government agencies working on the effort and diminished hopes that they could engineer a rapid return to healthy lending levels, according to interviews with government and industry sources. The initiative also serves as a window into the complexities of designing a giant rescue of the financial system.

The TALF is the private-public partnership that couples the funds of private investors, like hedge funds, and the FED.  The hedge funds invest small amounts that are matched by much larger amounts that would presumably come from the Treasury and Tax Payers if they wind up being nonprofitable.   The combined funds  will supposedly purchase non-toxic, virgin, high rated rated securities to fund everything from student loans and car loans to inventory and capital loans for business. As of yet, they really have failed to do so.

Officials envisioned TALF supporting tens of billions of dollars a month in new lending, saying it could eventually total $1 trillion. But in March, when it was launched, it backed only $4.7 billion in auto loans and credit cards. For April, it logged only $1.7 billion.

Sources involved in the program said private investors have been reluctant to work with the government, which they view as an unreliable business partner. Separately, the brokerage houses that are crucial intermediaries are being exceptionally cautious in the contracts they draw up with participants in the program, in part out of wariness that any mistakes could draw the ire of Congress or the media.

In congressional testimony on Tuesday, Treasury Secretary Timothy F. Geithner said that overall progress is “pretty good” for a program in its early days. Still, he acknowledged that participation was “lower than expected” because of “concern about the conditions that come with the assistance in the program . . . and uncertainty about whether they may change in the future.”

Meanwhile, on the bank front, stupid accounting tricks abound!    Which begs the question is any one stupid enough to believe the numbers?  Every large financial institution appears to be jumping on the band wagon of conveniently forgetting the month of December.  What does this say about the state of public accounting today and Wall Street’s gulliblity?

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Mission Creep: The Incredible Expanding Power to Bailout

Posted: April 7, 2009 | Author: | Filed under: Bailout Blues, Global Financial Crisis, U.S. Economy | Tags: , , , , , , | 2 Comments

I’ve been watching the three big regulators in the Financial Crisis (the Fed, the FDIC, and the SEC) start doing things bank-holidayunheard of only a year ago.  What has been baffling is no one has changed any laws or charters while these things keep happening.  I’m not a lawyer and I don’t have the time to go poking around a lot of the charters and laws surrounding these institutions, but you have to start wondering if some of their more unconventional moves are technically legal.

I’ve been watching the Fed Open borrowing at the Discount Window and accepting some really strange collateral.  The Discount Window used to be exclusive to member banks.  I’ve been looking over what they now accept as collateral and am surprised. Take a look at the list and see if you’d like to be left holding the bag on some of these things.  I’m not sure I want these off budget quasi agencies turning their balance sheets into dumping grounds for some of the most heinous looking gambles available on the market.

The NY Times Reporter Andrew Ross Sorkin has been poking around the charter and law concerning the FDIC.  The FDIC was chartered to provide deposit insurance to bank deposits.  You would think that is a fairly straight-forward task.  However, when the charter was written, the size of the task at hand today was  unfathomable and it seems the FDIC is tiptoeing around some of its charter provisions.   The FDIC is barred from incurring any obligation greater than $30 billion and its about to take part in guarantees that would commit $1 trillion in the PPIP bank bailout program. Sorkin reports on what he calls “mission creep” here.

Now, because of what could politely be called mission creep, it’s elbowing its way into the middle of the financial mess as an enabler of enormous leverage.

In the fine print of Treasury Secretary Timothy F. Geithner’s plan to lend as much as $1 trillion to private investors to help them buy toxic assets from our nation’s banks, you’ll find some details of how the F.D.I.C is trying to stabilize the system by adding more risk, not less, to the system.

It’s going to be insuring 85 percent of the debt, provided by the Treasury, that private investors will use to subsidize their acquisitions of toxic assets. The program, extraordinary in its size and scope, is the equivalent of TARP 2.0. Only this time, Congress didn’t get a chance to vote.

These loans, while controversial, were given a warm welcome by the market when they were first announced. And why not? The terms are hard to beat. They are, for example, “nonrecourse,” which means that if an investor loses money, he owes taxpayers nothing. It’s the closest thing to risk-free investing — with leverage! — around.

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Punch Drunk on Tax Funded Bailouts

Posted: March 23, 2009 | Author: | Filed under: Equity Markets, Global Financial Crisis, Main Stream Media, president teleprompter jesus, Team Obama, U.S. Economy, Uncategorized | Tags: , , , , , | 4 Comments

While the Right Wing is off having tea parties and screaming class war, there appears to be some legitimate soul searching going on  in left Blogistan about our “punch drunk” POTUS and his continual campaign like appearances.  A lot of the discussion is focused on his dogged support of Turbo Tax Timmy and his bailout of the Suckers who created this bad economy for the rest of us.  We’ve been overwhelmed with “heckuva-job-Timmy moments and distasteful ‘gallows humor’.  When is enough enough?

Meanwhile, those of us that can’t avoid our jobs by taking a permanent vacation in TVLand are watching the economy unwind in spasms of agony and ecstasy. The market, starved for specific plans and information, provided a big thumbs southparkup on a bail out program that at best reheats Dubya’s.  If any one was punch drunk, it was the equity markets today.  The leaders were the  financials, of course, who will continue to provide profits to the market while writing their costs off to the taxpayer.  If you were looking for the fresh cold breath of reality, it wasn’t on Wall Street or on Pennsylvania Avenue.

Lucidity, however,  is on the rise in other places.   I’m finding it in interesting places like the second episode of South Park where the lampoon on the Dark Knight included this little back ground gem;  a satire of the famous Obama picutre with a deer-in-the-headlights appearing  Obama and the change mantra tagged by a bright red WHEN?

My answer to the when question is probably never.

Most left wing angst appears to be directed at Tim Geithner since the Light Bringer is still too new to the job to blame.  We continue to learn how involved both he and his staff at the NY Fed were in the AIG Bonuses.  In fact, the Obama administration is trying to scuttle the Excise tax on the bonuses while verbally denouncing executive greed on TV. We’ve also found out that Citibank has managed to insert similar language to protect its executive bonuses. Let’s see how much change we get on that one too.

Not only are right wing shrills like Fox’s Sean Hannity calling for the head of Timmy Geithner but Progressive Diva Arianna Huffington front paged the call on HuffPo today. When Hannity and Huffington carry the same headline, it’s time for more than a few campaign appearances on Leno and 60 minutes.  I’m not sure where all this shock and angst is coming from because it’s been rather obvious to some of us for some time that Obama represented rather narrow interests (not ours).  How can every Obama supporter be calling the AIG Bailout a travesty while knowing that the architects and enablers of AIG are continuing the task with the Light Bringer’s blessings and attaboys?  Well, Obama just mustn’t realize that it’s all Timmy’s fault and we need his head on a limited edition Obama inaugural platter.  But, wait, isn’t Obama the one with that great judgement ?  C’mon folks reconcile all this in your mental ledger. It really isn’t that hard.

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