The Suit popped up in front of Barney today extolling the virtues of this new joint proposal to fix the world's finances. Our Hero has been a bit over the top lately but today he was damn near messianic. Oh well...
Chairman Barney then started the show off with a paean to Barney, announcing how, against all odds and despite the attempts of the other side of the aisle Freddie and fanny were now fixed through brilliant legislative intervention and oversight. It took his allotted five minutes to get it all in. Right on cue I said to myself and set up very nicely. Now, if this monstrosity doesn't get through, Barney's home and dry. He fixed what was broke and if we have problems in the future, don't blame him. Leaving aside all of the facts surrounding Fanny and Freddie, and the fact that they have cost the taxpayers a trillion, and the fact that they are broke, and the fact that there is no reason for their continued existence at this point in time, it remains All About Barney. On top of all that what struck me as being a real hoot is the fact that what Barney and the boys didn't do in any manner of fashion was exactly those steps which are outlined as action points in the proposed legislation. He never oversaw the two mortgage lenders; he never identified the problem; he never took remedial action when they were exposed; he never took them over and he never wound them up. Well, maybe it isn't so funny but I sure think so.
I was also surprised to see the degree of concern expressed at this early date by members of the committee and some of the talking heads on tv as to the extent of the truly breathtaking power grab on behalf of the executive branch that this proposed legislation represents. Good for all of them but why the surprise as this has been the modus operandi with The Leader's mob since the git-go. I though we would all be used to it by now but apparently residual concern remains in some precincts which is a hopeful sign...I hope.
Also raised was the question of whether any of this worked if the entire world wasn't on board with all of the provisions of the plan. The Suit acknowledged that that was a serious concern but that he and his guys were working diligently with their counterparts to insure universal acceptance.
I am constantly amazed in the faith these guys put in good faith negotiations and an appreciation of the other guy's position, feelings, etc. In foreign relations, play nice-nice to Ivan and they will help with Iran. Not yet. Ditto for the Chinese: surely you jest. All of Switzerland is a bank; their views on banking matters might differ somewhat from out own as they have been once or twice in the past. The Swiss, when it comes to banking, don't like level playing fields. Anyway, I'm sure that they believe that the innate goodness of the world's bankers will out.
Anyway, that's a bit of the view from 50,000 feet in the fly-over zone. The nuts and bolts stuff in this grand scheme are the subject for another day...if I can figure them out. Still looking for comments, but I'll be working this weekend. Lousy football.
Thursday, October 29, 2009
Wednesday, October 28, 2009
HOT OFF THE PRESS
Well, it's hundreds of pages long. Baby Barney and The Suit's people have come up with a master plan to save the financial business from itself, but oddly, rather than a definitive reading of what went wrong the last time and a game plan for the reenactment of the doomsday scenario it seems to tacitly admit that at some point it's going to happen again and what has been produced is merely an outline of who might be in charge when it does. It , to this poor scribe, appears to be a predictable authoritarian overreach than when could expect from politicians operating without oversight and adult direction. In short, it is a grave disappointment at first blush but I haven't gotten through the entire thing as of yet. I shutter to think what I will find.
Underlying the entire effort appears to be be a rather transparent attempt for a lot of...there is no other was to say this...ass-covering for the actions taken--and not taken--over the past year especially for the use of taxpayer's money to dig us out of this mess. The overriding theme seems to be that when this happens again--and it will--we have to have laws an a mechanism in place so that we (politicians, Suits etc.) cannot be judged by our actions...we were just following the rules. You see, we just COULDN'T take over Lehman or Merrill because we weren't authorized to do so. We just COULDN'T tank Citibank because we weren't authorized to do so. But now we can! Oh, ok. And when you do, just what will you have done? And of course the takeover and wind-down of an institution operating under 90 different national laws with 400 clearing arrangements will go perfectly smoothly because Barney Frank says it will. Just wondering.
The proposed legislation creates a form of oversight in the creation of a council of regulators that will monitor potential threats although I'm not quite sure what happens after a threat is identified. The proposal appears to give a good deal of authority to the Federal Reserve Board in that the Fed would have the power to engage in the management of certain financial institutions that could be deemed to be a threat to the financial stability of the United States to the point of ordering divestiture of assets and cessation of businesses, in addition to the afore-mentioned take-over power in connection with the FDIC who would perform the closing-up function. Great stuff, eh? Well, not quite. It seems that the Fed could only perform these functions after consultation with the Treasury, or to put it in language normal people can understand, after all the POLITICAL hurdles have been cleared. In the real world, that means nothing happens.
It has been my experience that financial crises have a long gestation period but tend to come to fruition all at once. Once again, to use my definition, a systemic risk occurs when everyone has the crap scared out of them at exactly the same time. It happens fast, and somebody has to make hard, immediate decisions. Enter politics and you have nothing happening quickly, but what you do have is deniability on every level; what has been created is the perfect buck-passing scenario.
Only a Barney Frank could figure this one out. Remember, for four years TWO administrations and the Fed tried to rein in Fanny and Freddie but no one had the authority but Congress. Frank and Dodd stopped all efforts cold. Both have skated on taking the fall for their lack of responsible action, but Barney isn't going to put himself in that position again. Now NO ONE will have clear responsibility, every decision will be a political one and the pols will be in a far better position to cast the blame if anything goes wrong.
Another bird has been killed with this stone as well. For a century the Federal Reserve has been independent. No longer. For the first time in our history the Fed has allowed itself to come under not merely the influence but the sway of the political establishment. What Mr. Bernanke has allowed to happen is a disgrace. This political camel has gotten more than its nose under the tent; it has gotten its entire head and one hump as well. Ever get up close to a camel? They stink.
One final comment for today. The proposed legislation also creates the ability for the FDIC (That's Little Miss Dummy) to recoup, certainly from banks but perhaps from other financial institutions as well, public monies spent in any wind-down or salvage operation that the government might spend. Now if a major institution gets into trouble what genius thinks that the difficulty is going to be so contained that every other institution is not going to be under some stress as well? What Mensa member decided that the orderly wind-down cost of, say, Citibank, is not going to put every other institution in the tank if recoupment is sought in a period of less than two lifetimes? I swear to God, you can't make this stuff up.
More tomorrow. Comments?
Underlying the entire effort appears to be be a rather transparent attempt for a lot of...there is no other was to say this...ass-covering for the actions taken--and not taken--over the past year especially for the use of taxpayer's money to dig us out of this mess. The overriding theme seems to be that when this happens again--and it will--we have to have laws an a mechanism in place so that we (politicians, Suits etc.) cannot be judged by our actions...we were just following the rules. You see, we just COULDN'T take over Lehman or Merrill because we weren't authorized to do so. We just COULDN'T tank Citibank because we weren't authorized to do so. But now we can! Oh, ok. And when you do, just what will you have done? And of course the takeover and wind-down of an institution operating under 90 different national laws with 400 clearing arrangements will go perfectly smoothly because Barney Frank says it will. Just wondering.
The proposed legislation creates a form of oversight in the creation of a council of regulators that will monitor potential threats although I'm not quite sure what happens after a threat is identified. The proposal appears to give a good deal of authority to the Federal Reserve Board in that the Fed would have the power to engage in the management of certain financial institutions that could be deemed to be a threat to the financial stability of the United States to the point of ordering divestiture of assets and cessation of businesses, in addition to the afore-mentioned take-over power in connection with the FDIC who would perform the closing-up function. Great stuff, eh? Well, not quite. It seems that the Fed could only perform these functions after consultation with the Treasury, or to put it in language normal people can understand, after all the POLITICAL hurdles have been cleared. In the real world, that means nothing happens.
It has been my experience that financial crises have a long gestation period but tend to come to fruition all at once. Once again, to use my definition, a systemic risk occurs when everyone has the crap scared out of them at exactly the same time. It happens fast, and somebody has to make hard, immediate decisions. Enter politics and you have nothing happening quickly, but what you do have is deniability on every level; what has been created is the perfect buck-passing scenario.
Only a Barney Frank could figure this one out. Remember, for four years TWO administrations and the Fed tried to rein in Fanny and Freddie but no one had the authority but Congress. Frank and Dodd stopped all efforts cold. Both have skated on taking the fall for their lack of responsible action, but Barney isn't going to put himself in that position again. Now NO ONE will have clear responsibility, every decision will be a political one and the pols will be in a far better position to cast the blame if anything goes wrong.
Another bird has been killed with this stone as well. For a century the Federal Reserve has been independent. No longer. For the first time in our history the Fed has allowed itself to come under not merely the influence but the sway of the political establishment. What Mr. Bernanke has allowed to happen is a disgrace. This political camel has gotten more than its nose under the tent; it has gotten its entire head and one hump as well. Ever get up close to a camel? They stink.
One final comment for today. The proposed legislation also creates the ability for the FDIC (That's Little Miss Dummy) to recoup, certainly from banks but perhaps from other financial institutions as well, public monies spent in any wind-down or salvage operation that the government might spend. Now if a major institution gets into trouble what genius thinks that the difficulty is going to be so contained that every other institution is not going to be under some stress as well? What Mensa member decided that the orderly wind-down cost of, say, Citibank, is not going to put every other institution in the tank if recoupment is sought in a period of less than two lifetimes? I swear to God, you can't make this stuff up.
More tomorrow. Comments?
Tuesday, October 27, 2009
YO, GODOT
Well, Barney finally got around to it, but his plan to save the financial world as we know it didn't get released until late this afternoon. I'm going to wait until tomorrow rather than beginning a new line of thought. Patience.
Monday, October 26, 2009
WAITING GAME
I was going to follow up today with more talk about the coming argument but it seems that Mr. Fixit, Barney Frank and The Suit's staff worked over the weekend to produce draft legislation that should be revealed tomorrow. Given the proximity of hard copy I decided to wait a day and deal with fact rather than supposition. I t should be aful, of course, so we will have a lot to talk about.
In the mean time, may I suggest that you read the last three offerings of the once-great-economist-turned Democratic-apologist to see how the mighty can fall. Today's offering was on the Mass. health plan put in by former Gov. Mitt Romney as an example of why what is being bandied about Washington will work. Dr. Krugman seems to have missed the discussions relating to the cost of the various proposals as he pays no attention to the cost of the Mass. plan which, incidentally, is about 40% north of original estimates. And so it goes. See you tomorrow.
In the mean time, may I suggest that you read the last three offerings of the once-great-economist-turned Democratic-apologist to see how the mighty can fall. Today's offering was on the Mass. health plan put in by former Gov. Mitt Romney as an example of why what is being bandied about Washington will work. Dr. Krugman seems to have missed the discussions relating to the cost of the various proposals as he pays no attention to the cost of the Mass. plan which, incidentally, is about 40% north of original estimates. And so it goes. See you tomorrow.
Friday, October 23, 2009
ANSWERS
Ok anonymous, I take your point, but the real problem which overhangs this discussion is the Too Big To Fail question. If a regulator or a group of regulators--and it must be universal I think--tries to fix the system through rules and regs (admission: I for one feel this will certainly fail), when it breaks, as it almost certainly will, the regulator owns it. And if the great regulator in the sky says "I've fixed the problem," the market will figure out in a New York minute that the regulator will not be prepared to admit defeat when the excrement hits the revolving blade. Hubris will out...especially if someone like Larry Summers or Barney Frank is involved. TBTF in spades.
It is far simpler it seems to me to keep that bright line shining bright than to hope against hope that every regulated institution will not come tumbling down before some exogenous event (God, I HATE that word) resulting in a "you own it, now you fix it" call to regulators far and wide. I have no idea whether it is true or not but this time last year or friends at Goldman Sachs were reported to be sitting on a liquidity position of $90 billion. It disappeared practically overnight through no malfeasance on their part. Hate them if you will but they are a very well managed firm with great risk management in place. I doubt if any set of new regulations could improve upon their lot. I have a great deal of faith in our regulatory system, especially the Federal Reserve and especially the New York Fed but when a bank at 44 Wall can be tanked by the actions of the financial system of Bongo-Wongo who may not be blessed with the wisdom of Liberty Street Advisors, regulation does not seem to be the answer to this humble scribe unless we plan on talking over the financial world.
We have to put risk back in this game. We have to make sure that EVERY player greats the start of the day with the notion that it his money that is at risk and that there are no more bail-outs or free rides. Want to supply cheap funding to your wholly-owned sub? Go right ahead but if they tank, bye, bye to you too. Look, I'm old enough to realize that this isn't going to be an easy step to take but if it's too big to fail, it's too big. Oh, there's another advantage to this as well. Capital allocation and risk adjusted return becomes much simpler in clearly defined businesses which also make compensation schemes easier to administer and obviates the need for a plan as insane as the one put forward yesterday by Our Boy Ben to have the Fed wade into the morass of financial compensation. As my granddaughter would put it, "what are you thinking?!!" "DUH!!!!"
Back to you.
Paul. Indeed. But sanity is not a part of this mob's resume
It is far simpler it seems to me to keep that bright line shining bright than to hope against hope that every regulated institution will not come tumbling down before some exogenous event (God, I HATE that word) resulting in a "you own it, now you fix it" call to regulators far and wide. I have no idea whether it is true or not but this time last year or friends at Goldman Sachs were reported to be sitting on a liquidity position of $90 billion. It disappeared practically overnight through no malfeasance on their part. Hate them if you will but they are a very well managed firm with great risk management in place. I doubt if any set of new regulations could improve upon their lot. I have a great deal of faith in our regulatory system, especially the Federal Reserve and especially the New York Fed but when a bank at 44 Wall can be tanked by the actions of the financial system of Bongo-Wongo who may not be blessed with the wisdom of Liberty Street Advisors, regulation does not seem to be the answer to this humble scribe unless we plan on talking over the financial world.
We have to put risk back in this game. We have to make sure that EVERY player greats the start of the day with the notion that it his money that is at risk and that there are no more bail-outs or free rides. Want to supply cheap funding to your wholly-owned sub? Go right ahead but if they tank, bye, bye to you too. Look, I'm old enough to realize that this isn't going to be an easy step to take but if it's too big to fail, it's too big. Oh, there's another advantage to this as well. Capital allocation and risk adjusted return becomes much simpler in clearly defined businesses which also make compensation schemes easier to administer and obviates the need for a plan as insane as the one put forward yesterday by Our Boy Ben to have the Fed wade into the morass of financial compensation. As my granddaughter would put it, "what are you thinking?!!" "DUH!!!!"
Back to you.
Paul. Indeed. But sanity is not a part of this mob's resume
Thursday, October 22, 2009
FIRST THINGS FIRST
Before I get to the very interesting question posed in response to my last post, I'd like to touch on a couple of other matters. Mervyn King, the Governor of the Bank of England spoke out in support the other day of the idea of separating the once-traditional roles of commercial and investment banks championed over here by Paul Volker. There are two and one-half firm rules in life. Never, EVER try singing a song that Frank Sinatra has sung and never speak at the same venue with Mervyn King as our poor little Miss Dopy, Shelia Bair discovered a few weeks ago. The half rule is if Gov. King says anything at all it is best to listen. More later.
On the home front The administration announced yesterday that it is prepared to allow small community banks to borrow from the TARP program in order to spur lending to small businesses. In addition, the ceiling under the Small Business Administration loan limits would be raised to %5 million from $2 million. Now I don't know the first thing about the SBA and I refuse to ask my son who is involved in Economic Development for a fairly large city in Illinois (a man must have some pride you know), but I do know that the proposed raise is the pet project of Olympia Snowe the only Republican who voted for the Baucus debacle in the Senate. Buying votes? How can one accuse a Nobelist of that! Of course any bank that does participate would be subject to the TARP rules concerning compensation and be under scrutiny as to what kind of lending it undertook. At the very same moment, the White House announced that The Leader really wasn't involved in the decision of Mr. Feinberg to limit the pay of the highest paid employees of the present TARP recipients.
Does this bunch believe they've found a new kind of stupid or what? No community bank is going to stick a finger into that ball of tar. Can't these jerks pay attention to something that might actually help small business get up off the canvas such as temporary, and in some cases, permanent tax cuts especially in the area of the payroll tax. Further, banks are not lending because THEY DON'T WANT TO TAKE ON QUESTIONABLE CREDIT IN THIS ECONOMIC ENVIRONMENT not because of the cost of funds. Further, after the abject stupidity of the pay limitations and the other means of control, no one wants to be anywhere near this mob. My son also tells me that in these hard times municipalities are looking for ways to make ends meet and the first thing that comes to mind is to raise property taxes which is death to small businesses. And this is the administration's response?
A final word on the pay czar. Does it strike anyone as being a bit absurd that the two institutions that did the most to ignite this crisis, that for years deliberately filed false accounting on their operations, who were run by what amounted to a band of crooks and that have cost the taxpayers trillions are exempt from the oversight of the pay czar although they are now under the actual control of the federal government? Yep, Fanny and Freddie are not on Mr. Feinberg's radar. I think I am correct in saying that the CEO of Fanny, appointed to this position by the congress is paid $3 million a year plus bonus. And the answer is more regulation? Pardon me while I quietly get sick from having to swallow this piece of hypocrisy.
Our old friend, Anonymous, raises a most interesting point in response to yesterday's offering. Clearly the regulators were unprepared to delink subsidiaries and especially in derivative operations at the "Parent" were undertaken in --I assume--in support of the sub if my understand of the comments is correct. My response would be well and good in the time frame of which we speak but was it not true that the market perception was that these subs would be supported and that activities were undertaken with that perception in mind? In addition, in the midst of a crisis is no time to investigate the fine points of legal standing just as in the midst of a fire one worries not if the building next door has the same owner: pour water on the damn thing and worry later about the consequences. Wouldn't the approach recommended by Messrs. Volker and King (how's that for pulling rank!) work if clearly understood from the git-go even with a form of common ownership? Again, not a rhetorical question. Another point on this matter. The subs into which a good deal of the toxic junk was dropped were hardly fully capitalized, stand alone entities. Did that enter into the decision making process r am I confusing concepts? Again, a real question. Love to have a dialog on this. Thanks for the comments.
On the home front The administration announced yesterday that it is prepared to allow small community banks to borrow from the TARP program in order to spur lending to small businesses. In addition, the ceiling under the Small Business Administration loan limits would be raised to %5 million from $2 million. Now I don't know the first thing about the SBA and I refuse to ask my son who is involved in Economic Development for a fairly large city in Illinois (a man must have some pride you know), but I do know that the proposed raise is the pet project of Olympia Snowe the only Republican who voted for the Baucus debacle in the Senate. Buying votes? How can one accuse a Nobelist of that! Of course any bank that does participate would be subject to the TARP rules concerning compensation and be under scrutiny as to what kind of lending it undertook. At the very same moment, the White House announced that The Leader really wasn't involved in the decision of Mr. Feinberg to limit the pay of the highest paid employees of the present TARP recipients.
Does this bunch believe they've found a new kind of stupid or what? No community bank is going to stick a finger into that ball of tar. Can't these jerks pay attention to something that might actually help small business get up off the canvas such as temporary, and in some cases, permanent tax cuts especially in the area of the payroll tax. Further, banks are not lending because THEY DON'T WANT TO TAKE ON QUESTIONABLE CREDIT IN THIS ECONOMIC ENVIRONMENT not because of the cost of funds. Further, after the abject stupidity of the pay limitations and the other means of control, no one wants to be anywhere near this mob. My son also tells me that in these hard times municipalities are looking for ways to make ends meet and the first thing that comes to mind is to raise property taxes which is death to small businesses. And this is the administration's response?
A final word on the pay czar. Does it strike anyone as being a bit absurd that the two institutions that did the most to ignite this crisis, that for years deliberately filed false accounting on their operations, who were run by what amounted to a band of crooks and that have cost the taxpayers trillions are exempt from the oversight of the pay czar although they are now under the actual control of the federal government? Yep, Fanny and Freddie are not on Mr. Feinberg's radar. I think I am correct in saying that the CEO of Fanny, appointed to this position by the congress is paid $3 million a year plus bonus. And the answer is more regulation? Pardon me while I quietly get sick from having to swallow this piece of hypocrisy.
Our old friend, Anonymous, raises a most interesting point in response to yesterday's offering. Clearly the regulators were unprepared to delink subsidiaries and especially in derivative operations at the "Parent" were undertaken in --I assume--in support of the sub if my understand of the comments is correct. My response would be well and good in the time frame of which we speak but was it not true that the market perception was that these subs would be supported and that activities were undertaken with that perception in mind? In addition, in the midst of a crisis is no time to investigate the fine points of legal standing just as in the midst of a fire one worries not if the building next door has the same owner: pour water on the damn thing and worry later about the consequences. Wouldn't the approach recommended by Messrs. Volker and King (how's that for pulling rank!) work if clearly understood from the git-go even with a form of common ownership? Again, not a rhetorical question. Another point on this matter. The subs into which a good deal of the toxic junk was dropped were hardly fully capitalized, stand alone entities. Did that enter into the decision making process r am I confusing concepts? Again, a real question. Love to have a dialog on this. Thanks for the comments.
Wednesday, October 21, 2009
BLOWIN' SMOKE
Big story on the front page of the NYT. Seems as though the administration really does lovePaul Volker. No honest, they really, really do. They even teed up their head economist (who is liked by everyone by the way) to assure that not only is he loved but he is respected. The fact that no one is listening to the guy has nothing whatsoever to do with the fact that they really, really like him and really, REALLY respect him. Crap.
Mr. Volker continues to be used, this time in a very perverse manner. Ol' Paul is being portrayed as the barbarian from whom The Leader and The Suit will protect the nation's financial institutions. It seems to me to be no coincidence that on the very day The Leader flies into the Apple to hit up the Wall Street mob for $3 million, he insures that Volker gets front page AND Mr. Volker's regulatory views get front page as well. You see, Tall Paul wants to turn back the clock to the good old days of separation of investment and commercial banking as opposed to the more "modern" view espoused by The Suit and his boss...oops, Freudian slip...his colleague Larry Summers. It is no secret that there are going to be very few banking guys at The Leader's speech, they having realized that this is not really a bunch who have their best interest's at heart. "We're going for the hearts and minds here guys, let's make sure these guys know what a menace Volker is but let's do it while saying nice things about him." The fact that Volker may well be correct in both theory and practice has never entered their mind because this is about control and not about best practices.
The Leader and Co., egged on by the likes of Barney Frank would much rather address the situation through a massive regulatory structure which in the end they believe will enable to control the activities of the nation's financial institutions and direct their activities in the manner best suited to the politics of the moment. Perhaps they can, but as I have said, give me a couple of smart lawyers and five bright financial types and I'll find a way around any legislation written in 72 hours if it is worth my while to so do. Further, the more government involvement and control one has, the more the risk is that of the government (read taxpayers). Do that and one institutionalizes Too Big To Fail. The most governmental control that has existed in recent time has been over Fanny and Freddy (don't forget Ginny and the FHA). They are catastrophes. Remember The Leader crowing about the Dow Industrials reaching 10,000 the other day as a sign of success? Two days ago both Fanny and Freddy were downgraded to a SELL with an anticipated price of ZERO. The taxpayers will pay for trillions of dollars of government mismanagement. So much for pointing to the stock market for signs of success. The Leader and The Suit are about to repeat history.
What Volker is saying is simply create a situation where the most volatile risks are separated from the umbrella of the government's protection. One does not have to necessarily recreate the legislation of the 1930ies to do this. If banks such as J.P Morgan Chase wish to engage in, say, trading for one's own book, why cannot it be done through and independently capitalized subsidiary away from the deposit taking and lending function of a commercial bank? Not a rhetorical question by the way. I could use some help but brave man that I am, we'll follow up on this theme tomorrow. In the mean time, it has been my experience that Mr. Volker, crusty old bugger that he is, is usually the smartest guy in the room.
Mr. Volker continues to be used, this time in a very perverse manner. Ol' Paul is being portrayed as the barbarian from whom The Leader and The Suit will protect the nation's financial institutions. It seems to me to be no coincidence that on the very day The Leader flies into the Apple to hit up the Wall Street mob for $3 million, he insures that Volker gets front page AND Mr. Volker's regulatory views get front page as well. You see, Tall Paul wants to turn back the clock to the good old days of separation of investment and commercial banking as opposed to the more "modern" view espoused by The Suit and his boss...oops, Freudian slip...his colleague Larry Summers. It is no secret that there are going to be very few banking guys at The Leader's speech, they having realized that this is not really a bunch who have their best interest's at heart. "We're going for the hearts and minds here guys, let's make sure these guys know what a menace Volker is but let's do it while saying nice things about him." The fact that Volker may well be correct in both theory and practice has never entered their mind because this is about control and not about best practices.
The Leader and Co., egged on by the likes of Barney Frank would much rather address the situation through a massive regulatory structure which in the end they believe will enable to control the activities of the nation's financial institutions and direct their activities in the manner best suited to the politics of the moment. Perhaps they can, but as I have said, give me a couple of smart lawyers and five bright financial types and I'll find a way around any legislation written in 72 hours if it is worth my while to so do. Further, the more government involvement and control one has, the more the risk is that of the government (read taxpayers). Do that and one institutionalizes Too Big To Fail. The most governmental control that has existed in recent time has been over Fanny and Freddy (don't forget Ginny and the FHA). They are catastrophes. Remember The Leader crowing about the Dow Industrials reaching 10,000 the other day as a sign of success? Two days ago both Fanny and Freddy were downgraded to a SELL with an anticipated price of ZERO. The taxpayers will pay for trillions of dollars of government mismanagement. So much for pointing to the stock market for signs of success. The Leader and The Suit are about to repeat history.
What Volker is saying is simply create a situation where the most volatile risks are separated from the umbrella of the government's protection. One does not have to necessarily recreate the legislation of the 1930ies to do this. If banks such as J.P Morgan Chase wish to engage in, say, trading for one's own book, why cannot it be done through and independently capitalized subsidiary away from the deposit taking and lending function of a commercial bank? Not a rhetorical question by the way. I could use some help but brave man that I am, we'll follow up on this theme tomorrow. In the mean time, it has been my experience that Mr. Volker, crusty old bugger that he is, is usually the smartest guy in the room.
Tuesday, October 20, 2009
A TALE OF TWO NOBELS
House full from last Thursday. Sorry for the non-postings.
Once there were two guys from the same party that within a year of each other won a Nobel Prize. Once upon a time one of them was a really good economist who did seminal work on international trade and turned into a political hack writer for a big time newspaper. The other one was political hack who turned into the President of the United States. One deserved his Nobel, while the other...well, let's say he is a work in progress.
Our hack writer loved the hack pol but then began to hate him when he didn't take his advice. This happens among hacks. First it was the hack pol's stimulus plan which wasn't large enough but then was responsible for saving the economy although less than half of it was spent (oh, we need another one by the way), then it was not NOT getting out of the war that deserved to be fought and now it's over the non-nationalization of the banks that deserved to be nationalized (first, all of them did, now just a chosen few) because they are not doing what they used to do that got them in trouble in the first place, that the hack writer wants them to do namely lend money to lousy credit risks. A take it you followed all that? It's simple, really. Just think about the last time you expounded on something about which you knew nothing and you'll get the drift.
Our hack writer is still a good enough economist to understand that even though the Hack pol will tell us the the Dow Industrials' hitting 10,000 last week is a sign that his "plan" is working, things aint all that good in real world out there. The reason claims he is that those dirty banks took the public's money and actually tried to make a profit rather than being nationalized and being forced to lend to the corporate world in order to stimulate the economy and create jobs--two things that under to hack pol's watch don't seem to be happening yet. He does understand that those banks with large and aggressive trading operations are making hay while the sun shines (proof positive in my view that he reads this blog) but seems to ignore the fact that there are about 9,000 banks in this country, most of whom received no government bailout and who are also not lending in the C & I sector (that's commercial and industrial, writer-hack) because the economic and credit environment stinks. Nor does he seem to realize that over the years the banks are a far lesser factor in corporate lending than they used to be Hack writer doesn't seem to realize that fully half of the mortgage business is in the hands of Fanny, Freddie and Ginny/FHA with estimated losses to the American taxpayer of $1.5 TRILLION. And he wants more to lose?
Our hack writer also doesn't seem to understand that it is the policies of his former hack pol buddy that are not helping the situation as this administration is clearly being tabbed as the most anti-corporate since that of FDR and it regard to the two banks he still wishes to be nationalized, hack pol and the utter morons around him are doing everything in their power to insure that these two will NEVER be in a position to take full advantage of the opportunities that Mr. Bernanke has created, from forcing out upper management to the forced sale of the most profitable units over issues such as executive pay, which while a wonderful issue for hack politicians has absolutely nothing whatsoever to do with the health of our financial system.
Hack writer cannot admit that the fiscal and governmental policies of hack pol are kept on life support by the monetary policies of the weakest Fed Head in years because if he were to do so it would be an admission of failure from the git-go and that for all hacks would not be a good thing. All one hears from Washington is the march towards nationalization of fully 1/6 of the economy, higher taxes, stealth and otherwise, craven capitulation to every union demand, and the seeming abandonment of American uniqueness in favor of a new world order. Is it any surprise that economic recovery appears to be in abeyance.
It seems to me that this is the real problem for Messrs Krugman and Obama. They hate the Goldies and J.Ps of this world because they are really smart guys who are making tons of money off the policies that they promoted and in their adolescent rage are prepared to demonize the Citis and the B os As of this world simply because they can. Goldman and Morgan are not the Little Sisters of the Poor and do not pretend to be so. Get used to it. I see no gain in the constant campaign mode of this administration and the posturing that adds nothing to either the national debate or the national recovery. Surely they are brighter than this. As for Mr. Krugman, from genius to Nobelist to irrelevance seems to be a road best not taken.
Once there were two guys from the same party that within a year of each other won a Nobel Prize. Once upon a time one of them was a really good economist who did seminal work on international trade and turned into a political hack writer for a big time newspaper. The other one was political hack who turned into the President of the United States. One deserved his Nobel, while the other...well, let's say he is a work in progress.
Our hack writer loved the hack pol but then began to hate him when he didn't take his advice. This happens among hacks. First it was the hack pol's stimulus plan which wasn't large enough but then was responsible for saving the economy although less than half of it was spent (oh, we need another one by the way), then it was not NOT getting out of the war that deserved to be fought and now it's over the non-nationalization of the banks that deserved to be nationalized (first, all of them did, now just a chosen few) because they are not doing what they used to do that got them in trouble in the first place, that the hack writer wants them to do namely lend money to lousy credit risks. A take it you followed all that? It's simple, really. Just think about the last time you expounded on something about which you knew nothing and you'll get the drift.
Our hack writer is still a good enough economist to understand that even though the Hack pol will tell us the the Dow Industrials' hitting 10,000 last week is a sign that his "plan" is working, things aint all that good in real world out there. The reason claims he is that those dirty banks took the public's money and actually tried to make a profit rather than being nationalized and being forced to lend to the corporate world in order to stimulate the economy and create jobs--two things that under to hack pol's watch don't seem to be happening yet. He does understand that those banks with large and aggressive trading operations are making hay while the sun shines (proof positive in my view that he reads this blog) but seems to ignore the fact that there are about 9,000 banks in this country, most of whom received no government bailout and who are also not lending in the C & I sector (that's commercial and industrial, writer-hack) because the economic and credit environment stinks. Nor does he seem to realize that over the years the banks are a far lesser factor in corporate lending than they used to be Hack writer doesn't seem to realize that fully half of the mortgage business is in the hands of Fanny, Freddie and Ginny/FHA with estimated losses to the American taxpayer of $1.5 TRILLION. And he wants more to lose?
Our hack writer also doesn't seem to understand that it is the policies of his former hack pol buddy that are not helping the situation as this administration is clearly being tabbed as the most anti-corporate since that of FDR and it regard to the two banks he still wishes to be nationalized, hack pol and the utter morons around him are doing everything in their power to insure that these two will NEVER be in a position to take full advantage of the opportunities that Mr. Bernanke has created, from forcing out upper management to the forced sale of the most profitable units over issues such as executive pay, which while a wonderful issue for hack politicians has absolutely nothing whatsoever to do with the health of our financial system.
Hack writer cannot admit that the fiscal and governmental policies of hack pol are kept on life support by the monetary policies of the weakest Fed Head in years because if he were to do so it would be an admission of failure from the git-go and that for all hacks would not be a good thing. All one hears from Washington is the march towards nationalization of fully 1/6 of the economy, higher taxes, stealth and otherwise, craven capitulation to every union demand, and the seeming abandonment of American uniqueness in favor of a new world order. Is it any surprise that economic recovery appears to be in abeyance.
It seems to me that this is the real problem for Messrs Krugman and Obama. They hate the Goldies and J.Ps of this world because they are really smart guys who are making tons of money off the policies that they promoted and in their adolescent rage are prepared to demonize the Citis and the B os As of this world simply because they can. Goldman and Morgan are not the Little Sisters of the Poor and do not pretend to be so. Get used to it. I see no gain in the constant campaign mode of this administration and the posturing that adds nothing to either the national debate or the national recovery. Surely they are brighter than this. As for Mr. Krugman, from genius to Nobelist to irrelevance seems to be a road best not taken.
Thursday, October 15, 2009
PICKING UP WHERE WE LEFT OFF...
...the committee of banks was called "advisory" because God forbid anyone might think it was a steering committee (which of course it was) and accuse it of actually making decisions for which it could be held accountable. It existed merely to pass on the decisions of the Mexicans all of which were drafted for them. But it was a friendly bunch, 13 institutions, each with a different agenda and only occasionally at one another's throats. There actually emerged one or two rather torrid L'affairs de coeur and one of the Mexican negotiators actually wound up marrying one of the bankers...a traditional marriage by the way. There was of course one overriding goal and that was to save the system for even in 1982 there was no question that this was a systemic risk.
I shall spare you the details but suffice to know that Mexico had over 500 bank creditors of various size and denomination, who were, for the most part, prepared to accept the fact that their loan were to be restructured and all of whom were relying on the advisory committee for practically all information regarding the process. No one liked it but as long as everyone was in the same boat the banks were prepared to go along.
The process was well under way when a rather extraordinary event occurred. Into a meeting of the committee one day walked the managing partner of the committee's counsel. The committee was represented by a large New York law firm...a VERY LARGE New York law firm. For the managing partner to make an appearance was a shocker but what was even more shocking was the tale he told. Remember the oil syndicate? It seemed that one of the participating banks, in order to comply with a simple internal audit had asked the agent if it had fulfilled it's agencies duties and insured that the oil assumed to be the source of repayment remained free and unencumbered. Sadly, it had not but in the scramble to fulfill the request it had learned of the Mexican double dipping. Now, the committee knew of it. We were not amused.
The managing partner, let's call him Bob, began to explain the situation. Clearly, he said an event of default under the oil facility had occurred and through the magic medium of the concept of cross default, every other loan in which the Mexicans were involved was in default. Now another default at this stage hardly mattered but in addition to another cause of action against the Mexicans all the banks in the oil facility undoubtably had a cause of action against the agent bank which if they ever learned about the fact that their chances of getting repaid under that facility were now in question as a whole bunch of OTHER banks had claims on the same source of repayment, chances were they might take umbrage. There was also the delicate little matter of whether or not, the advisory committee, now on notice of this small indiscretion by the Mexicans had any duty to inform the original syndicate or any of the banks in the competing syndicates. And oh, said Bob, three of the banks on the committee were involved in the subsequent facilities when they had full knowledge that the Mexicans were in breach of every covenant in the agreements and then some. Sheepish looks, consternation and real anger.
What to do. Well, says Bob, it seems that five of the seven "arrangements" as he called them had been terminated and the remaining two (as far as he could tell) were about to run out shortly after which the issue would, in his opinion, become moot. In a court's opinion, someone had the temerity to ask? Well, said Bob, one could never be sure how a court might rule. Confusion. Was there a duty to reveal this revolting state of affairs? Technically, yes, said Bob. Should we, asked a banker present? Well, that was really our decision, said Bob. I think someone asked him what the hell were we paying him for but I'm not sure.
It was pretty clear to all present that if this sordid little mess got out
1. the reputation of the committee would be trashed
2. the restructuring process would be dead
3. there would be a massive default on the part of Mexico and perhaps others
4. there would probably be law suits all over the place, resulting in
5. bank failures, beginning with the agent bank who was toast, putting bankers out of work (not good)
Yet, on the other side of the ledger, was there a duty to the participants of the original syndicate to inform them of the malfeasance of their agent which would have given them a cause of action against it and recovery on the part of their shareholders and did this duty outweigh the avoidance of the systemic collapse that was staring everyone in the face?
There was one other issue that not everyone realized. One of those present wandered up to Bob as discussions continued.
"You didn't address the question of individual liability on the part of those present."
"No I didn't"
"And?"
"If you're asking the question, you know the answer."
"Not if I inform my management"
"Yes,but..."
"But if we alI do that there is no way we keep a lid on this thing."
"That's probably the case."
"Will you represent me?"
"We represent the committee not individual banks or individuals."
"It was a joke, Bob."
"I know, Charlie, but that's the way I had to answer that."
The committee took Bob's advice and I, for one, never told my management. I can't speak for anyone else. The rest, as they say, is history. But from this little event I hope one can realize how difficult were the decisions that the management of the Bank of America and Ken Lewis in particular faced. I have joked about Ken but I sympathize with him as well. I wish him well.
Oh, one other little fact. In that conference room 25 years ago, as today, was a representative of the Federal Reserve. And the agent bank for the original syndicate? Why, Bank of America. Funny, eh.
I shall spare you the details but suffice to know that Mexico had over 500 bank creditors of various size and denomination, who were, for the most part, prepared to accept the fact that their loan were to be restructured and all of whom were relying on the advisory committee for practically all information regarding the process. No one liked it but as long as everyone was in the same boat the banks were prepared to go along.
The process was well under way when a rather extraordinary event occurred. Into a meeting of the committee one day walked the managing partner of the committee's counsel. The committee was represented by a large New York law firm...a VERY LARGE New York law firm. For the managing partner to make an appearance was a shocker but what was even more shocking was the tale he told. Remember the oil syndicate? It seemed that one of the participating banks, in order to comply with a simple internal audit had asked the agent if it had fulfilled it's agencies duties and insured that the oil assumed to be the source of repayment remained free and unencumbered. Sadly, it had not but in the scramble to fulfill the request it had learned of the Mexican double dipping. Now, the committee knew of it. We were not amused.
The managing partner, let's call him Bob, began to explain the situation. Clearly, he said an event of default under the oil facility had occurred and through the magic medium of the concept of cross default, every other loan in which the Mexicans were involved was in default. Now another default at this stage hardly mattered but in addition to another cause of action against the Mexicans all the banks in the oil facility undoubtably had a cause of action against the agent bank which if they ever learned about the fact that their chances of getting repaid under that facility were now in question as a whole bunch of OTHER banks had claims on the same source of repayment, chances were they might take umbrage. There was also the delicate little matter of whether or not, the advisory committee, now on notice of this small indiscretion by the Mexicans had any duty to inform the original syndicate or any of the banks in the competing syndicates. And oh, said Bob, three of the banks on the committee were involved in the subsequent facilities when they had full knowledge that the Mexicans were in breach of every covenant in the agreements and then some. Sheepish looks, consternation and real anger.
What to do. Well, says Bob, it seems that five of the seven "arrangements" as he called them had been terminated and the remaining two (as far as he could tell) were about to run out shortly after which the issue would, in his opinion, become moot. In a court's opinion, someone had the temerity to ask? Well, said Bob, one could never be sure how a court might rule. Confusion. Was there a duty to reveal this revolting state of affairs? Technically, yes, said Bob. Should we, asked a banker present? Well, that was really our decision, said Bob. I think someone asked him what the hell were we paying him for but I'm not sure.
It was pretty clear to all present that if this sordid little mess got out
1. the reputation of the committee would be trashed
2. the restructuring process would be dead
3. there would be a massive default on the part of Mexico and perhaps others
4. there would probably be law suits all over the place, resulting in
5. bank failures, beginning with the agent bank who was toast, putting bankers out of work (not good)
Yet, on the other side of the ledger, was there a duty to the participants of the original syndicate to inform them of the malfeasance of their agent which would have given them a cause of action against it and recovery on the part of their shareholders and did this duty outweigh the avoidance of the systemic collapse that was staring everyone in the face?
There was one other issue that not everyone realized. One of those present wandered up to Bob as discussions continued.
"You didn't address the question of individual liability on the part of those present."
"No I didn't"
"And?"
"If you're asking the question, you know the answer."
"Not if I inform my management"
"Yes,but..."
"But if we alI do that there is no way we keep a lid on this thing."
"That's probably the case."
"Will you represent me?"
"We represent the committee not individual banks or individuals."
"It was a joke, Bob."
"I know, Charlie, but that's the way I had to answer that."
The committee took Bob's advice and I, for one, never told my management. I can't speak for anyone else. The rest, as they say, is history. But from this little event I hope one can realize how difficult were the decisions that the management of the Bank of America and Ken Lewis in particular faced. I have joked about Ken but I sympathize with him as well. I wish him well.
Oh, one other little fact. In that conference room 25 years ago, as today, was a representative of the Federal Reserve. And the agent bank for the original syndicate? Why, Bank of America. Funny, eh.
Wednesday, October 14, 2009
ONCE UPON A TIME
...THERE WAS A COUNTRY CALLED Mexico which existed right next to a much bigger country called The States. Now Mexico was a beautiful country with wonderful people but compared to its much bigger neighbor it was very underdeveloped. It was also much poorer which was always a source of frustration to its President, Ho Low Po. One day one of the President's men came to him and said;
"Mr President we have oil."
"Oil?"
"Yes sir, a LOT of oil!"
"A LOT?"
"A whole lot!!!"
Well, Ho Low Po, being not a dummy quickly realized that here was a way to bring his country out of what was then called,"The Third World" and right into El Primero Mundo as he had always promised he would do because his neighbor, The States, had an insatiable demand for oil and God had put them right next door.
Ho Low Po was an impatient man, however, and he knew that selling the amount of oil needed to fulfill the dream of Primero Mundo would take a long time but he was a pretty smart guy and he knew about finance having once been the Secretary of the Treasury. He was also a gambler and he knew about come-line bets.
"I know what I will do," said Ho Low Po to himself. "I'll get the money right away by borrowing from those dopy bankers around the world who, now that we have oil will be falling all over themselves to do business with us" I'll make it a gift of ...oh...$800,000,000 to my people and they will worship me forever." And that's exactly what he did.
Well, the bankers around the world were just awash in money from the oil boom in the middle east and their national governments, terrified of inflation at home, were screaming at them to "recycle" these funds and what better place was there to do that than sovereign loans because as the Head Banker of the day had proclaimed, "Countries don't go broke." And lend they did, not only Ho Low Po's $800,000,000 but millions and billions more creating boom time in Mexico and joy on Wall Street and Park Avenue and in The City and on the Bahnhofstrasses of the world and on The Ginza as well. Even the boys around The Madelaine were thrilled; they were selling subways to every city in Mexico and EVERYONE was financing them.
There was one minor problem at the time that few people noticed. Bank loans in those days (and hey were all bank loans) were made generally with a maturity of not much longer than seven years and at a rate of interest that was set in accordance with something called the London Interbank Offered Rate (which still exists today) and which floated or reset, every three or six months. That meant in January you could be paying 5% but in March 6%....or 3% for that matter. Historically, rates hadn't fluctuated all that much so no one paid the method of finance too much concern and essentially ignored the fact that if interest rates moved substantially in the wrong direction over seven years, there might be hell to pay from a debt servicing standpoint. Enter Paul Volker.
Paul Volker was appointed Secretary of the Treasury by the benighted Jimmy Carter in 1978 and acting like the exterminator that all central bankers are by nature went out to exterminate the cockroach of inflation which by the time ol' Jimmy had finished with the country (and the country with him) had ticked up to 12%. Volker crushed it but not before in 1982 interest rates had reached 19%. If you were a borrower on a floating rate basis, you had a serious case of tsuris.
Ho Low Po's successor was in serious trouble. Mexico was in a position of having to borrow more money at incredibly high rates just to pay the interest on previous loans. Further, no one would extend unsecured finance any longer. But these were smart guys and they came up with a scheme whereby they would obtaining financing by pledging the earnings on oil exports (not the oil itself as that was unconstitutional) over a period of years. This facility anticipated the payment for the oil to by routed to a special account a the bank who originated the transaction who would then service the loan through the proceeds to a large number of banks who had participate in the facility through a syndication process. This bank was to be known as the "Agent," and in addition to its mechanical duties of receipt and payment it was the job of that bank to look after the interests of the banks in the syndicate. A certain amount of Mexico's oil exports were to be set aside to insure there was enough product to make the scheme work.
It was a fine idea...not particularly novel...but a good idea nevertheless. What wasn't such a good idea was when the Mexicans, without the knowledge of the agent bank, repeated the scheme on seven separate occasions with five different banks identifying the same oil as that which would supply the cash flow. They were running a Ponzi scheme or as we in the banking business liked to say, a "kite." Mrs. Banker's little boy Charlie doesn't like that one bit.
In October of 1982 the music stopped with the total reserves of a country of 80,000,000 people standing at about $20,000,000. Shock and Horror--and the formation of the Bank Advisory Committee for Mexico. Keep in mind this little oil facility because what happened could be cut out of today's headlines. We shall continue our tale tomorrow.
"Mr President we have oil."
"Oil?"
"Yes sir, a LOT of oil!"
"A LOT?"
"A whole lot!!!"
Well, Ho Low Po, being not a dummy quickly realized that here was a way to bring his country out of what was then called,"The Third World" and right into El Primero Mundo as he had always promised he would do because his neighbor, The States, had an insatiable demand for oil and God had put them right next door.
Ho Low Po was an impatient man, however, and he knew that selling the amount of oil needed to fulfill the dream of Primero Mundo would take a long time but he was a pretty smart guy and he knew about finance having once been the Secretary of the Treasury. He was also a gambler and he knew about come-line bets.
"I know what I will do," said Ho Low Po to himself. "I'll get the money right away by borrowing from those dopy bankers around the world who, now that we have oil will be falling all over themselves to do business with us" I'll make it a gift of ...oh...$800,000,000 to my people and they will worship me forever." And that's exactly what he did.
Well, the bankers around the world were just awash in money from the oil boom in the middle east and their national governments, terrified of inflation at home, were screaming at them to "recycle" these funds and what better place was there to do that than sovereign loans because as the Head Banker of the day had proclaimed, "Countries don't go broke." And lend they did, not only Ho Low Po's $800,000,000 but millions and billions more creating boom time in Mexico and joy on Wall Street and Park Avenue and in The City and on the Bahnhofstrasses of the world and on The Ginza as well. Even the boys around The Madelaine were thrilled; they were selling subways to every city in Mexico and EVERYONE was financing them.
There was one minor problem at the time that few people noticed. Bank loans in those days (and hey were all bank loans) were made generally with a maturity of not much longer than seven years and at a rate of interest that was set in accordance with something called the London Interbank Offered Rate (which still exists today) and which floated or reset, every three or six months. That meant in January you could be paying 5% but in March 6%....or 3% for that matter. Historically, rates hadn't fluctuated all that much so no one paid the method of finance too much concern and essentially ignored the fact that if interest rates moved substantially in the wrong direction over seven years, there might be hell to pay from a debt servicing standpoint. Enter Paul Volker.
Paul Volker was appointed Secretary of the Treasury by the benighted Jimmy Carter in 1978 and acting like the exterminator that all central bankers are by nature went out to exterminate the cockroach of inflation which by the time ol' Jimmy had finished with the country (and the country with him) had ticked up to 12%. Volker crushed it but not before in 1982 interest rates had reached 19%. If you were a borrower on a floating rate basis, you had a serious case of tsuris.
Ho Low Po's successor was in serious trouble. Mexico was in a position of having to borrow more money at incredibly high rates just to pay the interest on previous loans. Further, no one would extend unsecured finance any longer. But these were smart guys and they came up with a scheme whereby they would obtaining financing by pledging the earnings on oil exports (not the oil itself as that was unconstitutional) over a period of years. This facility anticipated the payment for the oil to by routed to a special account a the bank who originated the transaction who would then service the loan through the proceeds to a large number of banks who had participate in the facility through a syndication process. This bank was to be known as the "Agent," and in addition to its mechanical duties of receipt and payment it was the job of that bank to look after the interests of the banks in the syndicate. A certain amount of Mexico's oil exports were to be set aside to insure there was enough product to make the scheme work.
It was a fine idea...not particularly novel...but a good idea nevertheless. What wasn't such a good idea was when the Mexicans, without the knowledge of the agent bank, repeated the scheme on seven separate occasions with five different banks identifying the same oil as that which would supply the cash flow. They were running a Ponzi scheme or as we in the banking business liked to say, a "kite." Mrs. Banker's little boy Charlie doesn't like that one bit.
In October of 1982 the music stopped with the total reserves of a country of 80,000,000 people standing at about $20,000,000. Shock and Horror--and the formation of the Bank Advisory Committee for Mexico. Keep in mind this little oil facility because what happened could be cut out of today's headlines. We shall continue our tale tomorrow.
Monday, October 12, 2009
BEWILDERED
I have no idea what happened. Thursday's edition was written, posted--I thought--and disappeared. I don't even have a copy of it. It's just...GONE. Unfortunately, I didn't notice it's absence until yesterday which is really inexcusable. It was all about the IMF meeting and what didn't happen as well as the total capitulation of The Suit in line with The Leader's view that the whole world is one. We are now to allow the IMF the privilege of explaining to us when we have a bubble at what we are to do about it, so silly us do not repeat the mistakes of the past. I wont try to repeat the post but simply raise the question that if the good folks on Cn Avenue miss the timing a tad bit, who's there to clean up the mess? The Suit hadn't figured that one out yet at the time of (mis) posting, but I guess one is to assume that with the IMF standing guard, that issue will never arise. Oh, our girl Shelia Bair was blabbering all over Europe which we pointed out. More on her today.
I also mentioned that Mr. Bernanke a week or so ago had rolled over and exposed his throat to Barnie Frank and Frank's committee. Seemingly, Mr. Bernanke has agreed to a mismash of central regulation containing all of the present regulatory bodies that would clearly fall under the control of Congress and by definition, become a politically responsive body. Now it is in the area of monetary policy in which the Fed is supposedly independent but from this point on can anyone say with any conviction that that independence has a prayer for survival? I think not. In attempt to save his organization (and himself?) from Congressional wrath, Mr. Bernanke has delivered himself and his organizations into the hands of the Philistines. Ok, say you, what's the big deal? Let's take a look at Citigroup for a clearer understanding of the tragedy of this move.
Now those of you who have been with me for a while no I do not have a lot of time for the afor-mentioned Ms. Bair. Ms Bair sits astride the FDIC which really has one role in life and that is to guard depositors in commercial banks and close down institutions which are deemed to have failed. The FDIC does this quite well and has for years, but quite frankly it has no ability to monitor the well-being of the banking system as a whole due to a lack of funds and personnel. Indeed, the FDIC uses contract help in performing the two primary tasks to which it has been assigned. Nevertheless, deep into the negotiations between Citi and Wachovia in which it was agreed that Wachovia would merge with Citi it was our girl, under the guise of protecting the depositors, who APPROACHED WELLS FARGO AND ADVISED WELLS HOW TO SCUTTLE THE CITI DEAL IN A MANNER THAT PROVED TO BE SUCCESSFUL. Why? Quite frankly no one really knows except that it IS known that Ms. Bair has a...ah, the term cannot be used in a family blog...for Citi's management. Except for the critical circumstances of the time, she should have been fired for her actions. She was not. Now of course the lawyering for Citi in this deal was appalling but when one has the Fed and the Treasury brokering the transaction a small excuse can be made for not believing that the very junior partner in the triumvirate would go off the reservation. Consider this: at the time Citi's major weakness was funding. Despite it's size Citi buys its deposits, it does not have a large domestic deposit base. Wachaovia does (or did) and therefore it was an excellent fit. Ms. Bair's claim that she was protecting the depositors is utter nonsense as if there was ever a situation "too big to fail," this was it. Remember my friend Jimmy? Where it comes to the evaluation of the health of our financial system and the maintenance of the same, you want ONE S.O.B running the show not a grab-bag of individual operatives with individual agendas. It is a catastrophe in the making particularly when they do not all have the capacity to accomplish the mission. Ms. Bair played her political cards well and laid the groundwork for all sorts of meddling in the future. Unfortunately, Mr. Bernanke has thrown in the towel. It's open season for every windbag with a microphone.
By the way, dear reader, keep in mind you have a pretty big stake in Citi as a taxpayer. Guess what also happened last week? Remember Citi's commodity trader who was owed $100 million? Well, that problem got solved. The administration's pay czar obviously couldn't allow that payment to be made from a political standpoint but it became more and more apparent that legally, the government hadn't a leg to stand on. The money was contractually due. So what did The Leader & Co. do? They pressured Citi into selling the entire unit to Phibro, a private trading house. Well, that's not quite correct; they pressured Citi into giving it away. The most profitable unit was reportedly sold for the value of it's assets--a ridiculous price--to solve a political problem. And screw the shareholder and taxpayers in the process. Be happy with your government as your regulator. From the gang that brought you Fanny and Freddy (and are about to bring you the FHA) they now have it all. What a country.
I also mentioned that Mr. Bernanke a week or so ago had rolled over and exposed his throat to Barnie Frank and Frank's committee. Seemingly, Mr. Bernanke has agreed to a mismash of central regulation containing all of the present regulatory bodies that would clearly fall under the control of Congress and by definition, become a politically responsive body. Now it is in the area of monetary policy in which the Fed is supposedly independent but from this point on can anyone say with any conviction that that independence has a prayer for survival? I think not. In attempt to save his organization (and himself?) from Congressional wrath, Mr. Bernanke has delivered himself and his organizations into the hands of the Philistines. Ok, say you, what's the big deal? Let's take a look at Citigroup for a clearer understanding of the tragedy of this move.
Now those of you who have been with me for a while no I do not have a lot of time for the afor-mentioned Ms. Bair. Ms Bair sits astride the FDIC which really has one role in life and that is to guard depositors in commercial banks and close down institutions which are deemed to have failed. The FDIC does this quite well and has for years, but quite frankly it has no ability to monitor the well-being of the banking system as a whole due to a lack of funds and personnel. Indeed, the FDIC uses contract help in performing the two primary tasks to which it has been assigned. Nevertheless, deep into the negotiations between Citi and Wachovia in which it was agreed that Wachovia would merge with Citi it was our girl, under the guise of protecting the depositors, who APPROACHED WELLS FARGO AND ADVISED WELLS HOW TO SCUTTLE THE CITI DEAL IN A MANNER THAT PROVED TO BE SUCCESSFUL. Why? Quite frankly no one really knows except that it IS known that Ms. Bair has a...ah, the term cannot be used in a family blog...for Citi's management. Except for the critical circumstances of the time, she should have been fired for her actions. She was not. Now of course the lawyering for Citi in this deal was appalling but when one has the Fed and the Treasury brokering the transaction a small excuse can be made for not believing that the very junior partner in the triumvirate would go off the reservation. Consider this: at the time Citi's major weakness was funding. Despite it's size Citi buys its deposits, it does not have a large domestic deposit base. Wachaovia does (or did) and therefore it was an excellent fit. Ms. Bair's claim that she was protecting the depositors is utter nonsense as if there was ever a situation "too big to fail," this was it. Remember my friend Jimmy? Where it comes to the evaluation of the health of our financial system and the maintenance of the same, you want ONE S.O.B running the show not a grab-bag of individual operatives with individual agendas. It is a catastrophe in the making particularly when they do not all have the capacity to accomplish the mission. Ms. Bair played her political cards well and laid the groundwork for all sorts of meddling in the future. Unfortunately, Mr. Bernanke has thrown in the towel. It's open season for every windbag with a microphone.
By the way, dear reader, keep in mind you have a pretty big stake in Citi as a taxpayer. Guess what also happened last week? Remember Citi's commodity trader who was owed $100 million? Well, that problem got solved. The administration's pay czar obviously couldn't allow that payment to be made from a political standpoint but it became more and more apparent that legally, the government hadn't a leg to stand on. The money was contractually due. So what did The Leader & Co. do? They pressured Citi into selling the entire unit to Phibro, a private trading house. Well, that's not quite correct; they pressured Citi into giving it away. The most profitable unit was reportedly sold for the value of it's assets--a ridiculous price--to solve a political problem. And screw the shareholder and taxpayers in the process. Be happy with your government as your regulator. From the gang that brought you Fanny and Freddy (and are about to bring you the FHA) they now have it all. What a country.
Wednesday, October 7, 2009
STILL LEARNING
I'm sorry about yesterday. I was hoping to have some serious comments on the traveling circus that started at the Dardanelles and wound it's way back to the respective home ports by way of all of the capitals of Europe. Sorry, but you're going to have to wait until tomorrow as the usual sources failed me. Therefore, a continuation of Monday's theme is in order.
Yesterday, the Australian Central bank boosted interest rates a smidge and the immediate reaction was, "Wow, the global economy is cured!!" The fact that Australia is the world's home base for commodities these days and that's about the hottest thing around was apparently overlooked. Not so the dollar which continued it's downward spiral in the face of this new interest rate competition. In case you missed it, it's down over 15% since March. On top of the move down under, rumors circulated in London that there was a cabal forming that would soon announce that oil trading would be occurring in a basket of currencies which didn't help one bit in the level of the greenback. The usual suspects were named: the Gulf states, China, Russia, Japan and lo and behold, La Belle France. "Absolutely incorrect, " "Nyet," "Mais non,"Ie," were the immediate reactions except for the Chinese--probably because nobody speaks the damn language and can't quote them. The other silent voice, however, was The Suit and his minions--does he have enough for a minion--at the Treasury, leaving no doubt the the attitude of the U.S. Government is that they could care less how far falls the mighty dollar. So the die is cast; we're going to inflate our way out of this and pay back these chuckle-heads with 50 cents. I did talk to my smart friend Larry, however, and while he feels that the Chinese are still in a "dollar trap," the tone of his comments was not as convincing. Of course Larry has convinced himself that when it comes to markets, if you put all The Suit, his gang and all the handlers of The Leader in a room you might be able to summon up a triple-digit I.Q. and that might be the source of his lesser confidence in the direction of Chinese Policy. Or maybe I'm reading him wrong...or maybe...whatever. Despite the denials, where there is smoke there's fire and there is no doubt in my mind that these conversations took place. How far they proceeded is an entirely different matter.
Also last week was the specter of Gentle Ben rolling over and exposing his throat to Barney Frank and the House finance committee. And that dear reader, is my segue into tomorrow's bit on the goings on in Europe. Stay tuned.
Yesterday, the Australian Central bank boosted interest rates a smidge and the immediate reaction was, "Wow, the global economy is cured!!" The fact that Australia is the world's home base for commodities these days and that's about the hottest thing around was apparently overlooked. Not so the dollar which continued it's downward spiral in the face of this new interest rate competition. In case you missed it, it's down over 15% since March. On top of the move down under, rumors circulated in London that there was a cabal forming that would soon announce that oil trading would be occurring in a basket of currencies which didn't help one bit in the level of the greenback. The usual suspects were named: the Gulf states, China, Russia, Japan and lo and behold, La Belle France. "Absolutely incorrect, " "Nyet," "Mais non,"Ie," were the immediate reactions except for the Chinese--probably because nobody speaks the damn language and can't quote them. The other silent voice, however, was The Suit and his minions--does he have enough for a minion--at the Treasury, leaving no doubt the the attitude of the U.S. Government is that they could care less how far falls the mighty dollar. So the die is cast; we're going to inflate our way out of this and pay back these chuckle-heads with 50 cents. I did talk to my smart friend Larry, however, and while he feels that the Chinese are still in a "dollar trap," the tone of his comments was not as convincing. Of course Larry has convinced himself that when it comes to markets, if you put all The Suit, his gang and all the handlers of The Leader in a room you might be able to summon up a triple-digit I.Q. and that might be the source of his lesser confidence in the direction of Chinese Policy. Or maybe I'm reading him wrong...or maybe...whatever. Despite the denials, where there is smoke there's fire and there is no doubt in my mind that these conversations took place. How far they proceeded is an entirely different matter.
Also last week was the specter of Gentle Ben rolling over and exposing his throat to Barney Frank and the House finance committee. And that dear reader, is my segue into tomorrow's bit on the goings on in Europe. Stay tuned.
Monday, October 5, 2009
ASPIRIN ANYONE?
Bad hangover from this week and college football. Big mob in town and too much tailgating. But my hangover can't be any thing like the one that I am sure is affecting The Leader this monday. It seems as though everyone in the world is prepared to kick him in the head, the latest being his Generals, one of whom is his hand-picked replacement for a four-star he forced into retirement 'cause he wasn't getiin' it done in Afghanistan. So, in the past couple of weeks the poor guy flopped in the UN, got out-speeched by an Israeli, got He With The Hottest First Lady pissed off at him in public (A Frenchman for God Sakes!), messed up at the G-20, got suckered by the Russians, dumped on by the Iranians, stiffed by the Chinese, and of all things, discovered that Lula is a better Ward Healer than he is...not to mention than along with the Olympics the Cubbies aint gonna win nutttin' this year either. Not a good couple of weeks. I'm still waiting for a report from Istanbul but initial impressions seem to be ugly now that we have just gaven up effective control of the IMF who once again is in fairy coo-coo land as to their importance in Great Scheme of Things instead of wondering if their is a real job for any or all of their bureaucrats out there. I wont even mention health care, economic numbers or jobless claims.
I'm not reveling in this because this is not the time to have an embattled CEO. Now I know he's of the opinion that it would be better if We All Just Got Along, but my old friend Jimmy (you remember him?) used to say, "In times like this, a SOB is needed and since I am most qualified, let me assume the role." There is, as the pols like to say, "slippage" and we are not out of the woods by a long shot. My Brit friend who just left explained it rather well. "Charlie," he said. "You understand why we like this guy don't you? It's because all of us out there didn't like being occasionally reminded that you wouldn't mind making things a bit awkward if it suited your purpose and we damn well knew you had the ability to do so." This guy appears neither to have the inclination nor the ability. We like that."
I responded that may be all well and good but that "leader of the Free World" stuff was occasionally useful and told him about my friend, Jimmy.
"Ah yes, old boy, but you see we don't mind waiting for things to work themselves out by themselves."
"Suppose they don't work themselves out very well?"
"Well then, we guess you'll just have to sort it out."
"What!"
'Oh do get along, Charlie, you know that's the way we think and feel. Much more comfortable not focusing on our small inadequacies. And think of it, if it stays mucked up we can blame you as well!"
Thinking of it is making my teeth hurt. I'm going to take another two aspirins. Damn Brits.
I'm not reveling in this because this is not the time to have an embattled CEO. Now I know he's of the opinion that it would be better if We All Just Got Along, but my old friend Jimmy (you remember him?) used to say, "In times like this, a SOB is needed and since I am most qualified, let me assume the role." There is, as the pols like to say, "slippage" and we are not out of the woods by a long shot. My Brit friend who just left explained it rather well. "Charlie," he said. "You understand why we like this guy don't you? It's because all of us out there didn't like being occasionally reminded that you wouldn't mind making things a bit awkward if it suited your purpose and we damn well knew you had the ability to do so." This guy appears neither to have the inclination nor the ability. We like that."
I responded that may be all well and good but that "leader of the Free World" stuff was occasionally useful and told him about my friend, Jimmy.
"Ah yes, old boy, but you see we don't mind waiting for things to work themselves out by themselves."
"Suppose they don't work themselves out very well?"
"Well then, we guess you'll just have to sort it out."
"What!"
'Oh do get along, Charlie, you know that's the way we think and feel. Much more comfortable not focusing on our small inadequacies. And think of it, if it stays mucked up we can blame you as well!"
Thinking of it is making my teeth hurt. I'm going to take another two aspirins. Damn Brits.
Thursday, October 1, 2009
HOT DAMN!
Well, I'll tell ya what's the truth. I was fixin' on taking a few days off to sit and have a good ol' tongue wag with my Brit buddy but thisa here is too good to waste. Our boy, good ol' Kenny Lewis done stuck it to them Yankees up in New Yawk and the damn Revenuers in Washington yeserday but goooood! He done went out an quit on 'em! Yessiree, he done told 'em y'all can take this job and stick it where the sun don't shine. You aint gonna have ol' Ken to kick around no more. And guess what? Y'all got no bod ee to replace me. So i'ma gonna take my $100,000,000 and git outa town!! Now aint that the damndest! Never knew ol' Ken had it in him. Course the damn stock tanked a bit but that's ok. Our girl friend Shelia is gonna suck the banks dry anyway come year end so we aint carin' too much about that. My Brit buddy says that's put a cat amungst the pigeons whatever the hell that means but I suspect he's a'saying we got us a hell of a mess on our hands at the biggest bank in the country. Aint nobody runnin' the damn thing! And all of them fancy brokers ol Ken bought at Merrill Lynch. Firstist they be told that gonna work for this Sally Kraw--whatever--gal who didn't do jack at Citicorp and now the guy that brung 'em just went home alone. Man oh man, I do wish I had me a Bank of America phone book. We could trade that for cash money!
Whoo-eee!
Whoo-eee!
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