WHAT A DIFFERENCE A DAY MAKES

Boy, was I wrong when I said not much was going on. Today exploded with action on the regulatory front all of which stank.
First, The Leader and his boys let it drop that they were trying to figure out ways to insure that the American Taxpayer gets all of his money from TARP back. Of course they couldn't give a damn about the taxpayer but here presented itself another way to lay a tax on the banks which they believe no one in the country cares about anyway. These guys are like Willie Sutton , who wen asked why he robbed banks replied,"Because that's where the money is." Actually, they are worse than Willie; he didn't lie about his reasons.

Anyway, what we have seen is that almost all the "banks" have repaid their TARP funds, with interest and with an additional healthy return generated for the USG by way of the sale of the warrants that were part of the deal. But it would appear that there might be a few problems along the way because if one remembers, a whole bunch of taxpayer money went to GM (now owned by the Gov.), GMAC, Chrysler, Chrysler Financial and AIG. That aint comin' back soon. Then of course there is the little matter of Fanny and Freddie, the makers of the feast about whom we have spoken ad nauseam over the months. So why tax the banks for the decision to bail out this bunch? Think Willie Sutton. Actually, if the actions of the Government were to be viewed from the prospectus of Cui Bono, why not tax the United Auto Workers? How far do you think that idea would get? Or better yet, is there a way to garnish the salaries of Congress? Just a little midwest populist jibe there, don't take me seriously. I'm a little past my "use by" date, but in my lifetime I have never seen a more venial, useless bunch than has been put together by The Leader and his handlers. These guys are the worst.

Well, let me rethink that. Came today Shelia ("Poo") Bair, head of the FDIC with another idea. With a split vote, the FDIC is now proposing a tiered level of deposit insurance to be paid by banks based upon the perception of risk that SOMEBODY will determine exists on the banks' balance sheets. To put it another way, she is proposing to tax liabilities (she claims it's not a tax) according to some credit determination made by SOMEBODY (you see, she doesn't have nearly the talent in house) at some point for some non-defined period of time. This is a Bair of very little brain. When questioned about this on TV this morning she was unable to come close to explaining her theory behind this. Nor has she apparently considered the fact that the cost of this hair brained scheme will be passed right through to the consumer depositors in the form of either lower interest payments, additional fees, reductions of service or all of the above including a few other delicious charges all of which will be blamed on the FDIC. Nor has she considered the fact that the two biggest risk takers, Goldie and Morgan Stanley have little if any consumer deposits but as bank holding companies they now come under the FDIC umbrella and the implied protection that that brings. If there is a X rated version of "Dumb and Dumber," she should be the star.

Finally, it now appears that Helicopter Ben may well be back in trouble as to his re-confirmation. He deserves it, the jerk, and on top of it all he is now in a nasty little open-air brawl with John Taylor, now of Stanford over the "Taylor Rule" which the good prof feels Mr. Bernanke has deliberately mis-catorgorized. Academics at each other's throats!! Hide the Children! I could care less if the Chairman gets himself into this little brawls except that it does no good for his institution in these times. Somebody had better start standing up for the only group of people who actually know what the hell is going on out there otherwise we are heading for a real mess if not catastrophy .

SEMANA SANTA

When I was working the Latin beat, Holy Week was a time of no action whatsoever. Indeed, in proper Latin thinking there was a period needed to prepare for Semana Santa and then a period needed to properly reflect upon the holy events which had occurred so many years ago. To put it another way, three weeks were shot.

With The Leader wandering around Europe accomplishing Sweet Fanny Adam it appears but looking terribly good doing it, the Congress gone and Our Hero trying to figure out why he said he was in the business of canning bank CEOs and entire boards of directors while trying to convince the same to agree to his plan, nothing much has been happening. Perfect timing for an Emerging Market kind of country. To fill the vacuum, the IMF jumped in today with their analysis of the size of the toxic asset pool held by banks. Now keep in mind this is the mob that were proclaimed to be part of the solution at last week's gathering in London. A true John McEnroe moment: "YOU CANNOT BE SERIOUS!!!" Yep, they are.

I'm getting one of my very uncomfortable feelings again that all isn't going quite right and this is sort of the calm before another storm. Bank earnings are going to be released quite soon as is--reportedly at least--some information regarding the "Stress Test" (there's the Ghost of Al Gore again). One would hope that there is some correlation between the two events because if, as I suspect, the earnings on an operating basis are going to be quite good and the stress test reports don't jive I think somebody might stand up with a, " Hello, hold on" type of moment which will set off a real scramble as to the efficacy of Our Hero's plan. Who's cooking the books in this deal might become a real issue.

In the midst of all of this, The New York Times ran an interesting piece on the FDIC who, from almost total (and somewhat deserved obscurity), has emerged as a central player despite there being nothing really know about their existence. As reported, Ms. Bair & Co. has placed herself in the Queen Seat of guarantor of all that is supposed occur if Our Hero has his way. As we discussed a free days ago, the FDIC has a budget but no real capital. The wonderful thing about it acting in this manner, however, is that no appropriations are needed in a guarantor role as the FDIC and the FDIC alone determines what it's liability might be. 6-5 and even that the determination will be "none." Forgive me, but do I hear the sound of a CDS creator in the background? The great facilitator, the FDIC...and all on unappropriated taxpayer's money. The Art of the Deal as The Donald would say. By all means do the deal. By the by, the word on the street is that The Donald may be in real trouble again. Now isn't that funny? One more tomorrow.

TALES FROM DOWN EAST

There is the old story about the flash banker from New York who drove
his flash girl friend up to Maine in his flash motor car to the newest
hot getaway retreat he had just read about in the New York Times.
Screeching to a stop in front of two old gents sitting on a porch in
the center of a small town, our hero tipped back his Gucci shades,
leaned over his female position and inquired:

"Tell me old timer, do you know the way to Amity Falls?"

The two old gents look at one another and around the town square.
One, slowly, turned to our hero and said, "If I were you, I wouldn't
move a Goddamn inch."

Now that there is hopefully the understanding of what ails us in this
mess, it might be a good idea to try to figure out where we are and
who is along with us in this ride.

A major problem confronting us at this moment and what will be a
continued inhibitor in finding a solution is trying to figure out just
who is in charge, and perhaps the best way to do this is to agree on
who is NOT in charge. Shelia Bair is NOT in charge, has never been in
charge and SHOULD NEVER be in charge. She and her agency have no role
to play...nil, none, niente rien, nyet etc., etc. If the Fifth Ninth
bank of Podunk goes under, by all means turn her loose. The FDIC has
neither the resources (people, money) nor the understanding, and
certainly not the mental capacity to contribute ANYTHING to this
situation other than nonsensical interviews such as that given on PBS
this week by the aforementioned Ms. Bair. The woman is a toxic asset
and should be shuttered. Let us agree without objection

My view, tempered in the crucible of experience with issues such as we
face is that it is never a good idea to allow politicians too close to
stew pot as they will, at some point, surely tip it over. The
politicians are in this piece is of course the Treasury and not
because of Sec. Geithner who I took to task yesterday. Despite have a
goodly long lead time to get organized and what should have been a
clear understanding of what the problems were, this administration has
allowed Sec. Geithner to function essentially without a staff for the
past 50 days. Known as a consensus builder and not as a top down
leader, the Secretary must by finding it damn hard to form a consensus
with no one. He has been put in a truly tough spot. It would appear,
therefore that the point in this exercise must be given to the Fed--
where, IMHO it belonged in the first place--it has the people and the
understanding to accomplish the goals to be set. I have been an
admitted admirer of the Fed for some time but even without my bias we
simply do not have the time to wait for the Cavalry to arrive at
Treasury and get set up. I think we have a small, but very
interesting and exciting window of opportunity to grasp this thing by
the neck if the administration were to move forcefully and without
regard to the politics of the Hill or bit players in this play.

A further thought: the further involvement of the politicians either
through Treasury or directly by the Congress may well have
consequences that are not only undetermined but immensely harmful to
the future of the financial industry and the country as a whole. We
are not dealing with just our financial system: this is a global
order. Before we hop into bed, we had better be sure in what town
Down East is the Inn.

More tomorrow.