BACK FOR ANOTHER TRY

The last time I wrote something substantive, Google blew it up. I have no idea why. I am still getting told I am being blocked and if this is to go through I have to decipher one of those stupid curly-cue messages to confirm identity although having done a half-dozen of those one would think Google might have figured it out by this time. We shall see. In the mean time all sorts of mischief has been going on which we will get to in a minute, but first Alan Greenspan was up on the Hill today getting grilled.

I think everyone realizes that Greenspan got it badly wrong. Fine, but what is the purpose of extracting a pound of flesh at this stage of the man's life. There is no point to it: he knows he got it wrong; he knows he was one of the major reasons things went south, he knows everybody else knows. Leave him to heaven and let's move on.

Now for substance.

The WSJ allowed Poo Bair to get into print on Monday. The woman is shameless, absolutely shameless. Now I can't prove it but the Journal pulled one of the great editorial hatchet jobs in history by following Poo's nonsensical piece with one byPeter Wallison and David Skeel today which demolishes every one of her arguments. Consider:

Poo: "Over its 76 year history, the FDIC has handled thousands of resolutions of all manner of size and complexity."

W & S: "The largest bank ever to fail, Con Il in 1984, had assets of $40 billion. At $639 billion Lehmam Bros. was over 15 times larger."

Poo: "...the legislation would allow the FDIC to create a temporary institution to...prevent a systemic collapse while the firm is being liquidated."

W & S: "In the course of Lehman's resolution...the firm had over 900,000 derivative contracts, more than 700,000 of which were cancelled and rest either enforced or settled...The FDIC has NO (emphasis added) significant experience with broker dealers, investment management, securities underwriting [or] derivative contracts."

It goes on and on. Poo actually has the audacity to say that, and I again quote, "Great Britain and the European Union are both seeking to construct special resolution mechanisms . The U.S. should draw on the FDIC's long experience and lead the way."

The other side of the pond has absolutely no interest in the U.S. leading the way especially led by a minor organization with outside-hired help, an with half of whose regular staff probably don't own a passport and never have. There is and never has been a relationship between the FDIC and non-American institutions that is in any way useful in creating some grand schematic of regulatory agreement. Neither she nor the institution she represents is taken seriously by anyone other than the clowns in Washington who bear a good deal of blame for the present mess and are about to insure that we are almost certain to have another one. With all the evidence to the contrary, I find it astounding that we continue to believe that we are the center of the financial universe. This remains a bad joke but one that could have some very serious consequences.

Now, lets see if Google has the nerve to block this!

BIRDS OF A FEATHER

Poo Bair and Paul Krugman spoke out today on the regulation of the banking system. As usual Poo hadn't a clue but oddly, Krugman got it right. Poo thinks that resolution authority will solve the TBTF problem because it will an orderly dissolution of an institution with expense to the taxpayer and not result in panic in the markets. According to her it was the bankruptcy of Lehman than caused all the problems.

In my mind, what causes panic is the thought that this dope would be allowed within 100 miles of the next mess. Size is what causes systemic risk; size which results in the involvement of the institution in multiple facets of the financial markets. She obviously has missed it so here's a head's up to Poo: there are A LOT of big banks out there that go to bed every night with a prayer of thanks that you are not one of their regulators. They are called French banks, British banks, German banks and a whole lot of other banks. Through no fault of their own one of our banks could wind up in deep do-do because of its involvement with one of those. Now what do you do. Resolution authority? By definition, we are in the sthook again and this time it's not our fault...not hat it was entirely our fault the last time. Not that she and her two-bit organization has a clue as to how to deal with the impending failure of a massive financial institution but she still misses the fact that when the balloon goes up what has to be done has to be done...right...now. And to think that this dumb-ass idea that $50 billion collected from the top 50 is going to anything to assuage the frenzied masses is beyond stupid. Think of it this way: Bank A in LA LA Land gets it all wrong and comes clean to the fact that they are a bit short of the ready. Big Bank B is their correspondent in the U.S. and clears for them. Everybody knows that Bank B has a big settlement risk with Bank A but nobody knows how much. If you are the rest of the bank alphabet he first thing you do is try to limit your exposure to both A & B; there goes B's liquidity and guess what? We are at the start of systemic risk. Now Poo what do you do? Announce that you are going to wind up Big Bank B like the 7th. National of Buttburn Alabama? No my love, because some adult somewhere will have said to the markets, "We have Big bank B covered." I bet the adult is in the Federal Reserve. Nobody likes it but that's the price of being in the regulatory business.

Now Krugman, for a change announced that the bill coming out of the Senate would actually CONFIRM the status of TBTF on the part of a number of banks. Could he have been reading the blog again? Whatever. He actually got it right. What he also got right was the concept that maybe TBTF is endemic in the business as it exists today. Of course his solution to this risk is more regulation as we will perhaps see from Barney's Boys in the Band...oops...House. Again, regulation governing U.S. financial institutions alone is about as useful as...well, let's not go to the barnyard. In fact it's about that useful in general. But like his hero, The Leader, Krugman is convinced of the power, intelligence and effectiveness of the government. Perhaps someone should ask Krugman how the GSEs got into such trouble under the direct oversight of Barney and Chris the Crook? I'm sure his answer would be they were just too lax. No, Paul. Politicize oversight and you have a recipe for failure, but he will never learn. What's the definition of mixed emotions? Watching a bus filled with economists going over a cliff and realizing their are three empty seats?

Anyway, Ky lost over the weekend and looked bad doing so. There is still justice in the world. Go Bulldogs. Woof! Woof!

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 .

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?

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.

MORE ON MIKE

So, we're sitting there and Mike says to me, "Do you remember ol' Daniel?"
"Daniel who?'
"Daniel Patrick Moynahan of course."
"Sure. He was the smartest guy in Washington since jefferson."
"Remember what he said about the poor?"
"Not really."
"He said the only difference about the poor is that they had no money. I think he said that at some Congressional hearing"
"Then, he walked out didn't he?
"Yes he did! (laughing). He was right."

Mike loved Moynahan because he was just like him. Moynahan had the ability to take a complex subject and explain it with devastating logic in about two sentences. Just like Mike. I could see where he was going...

"Moynahan's solution to the poor was just to give them money! And he was right!"

I thought about that for a minute.

"You mean like cash for clunkers?"
"No,no, no. Just give them money! Don't give them money to buy things. Just give them money and have them decide what to do with it. Cash for clunkers, what does that do?
"It gets them a car that they otherwise wouldn't have."
"No it doesn't! It gets them three years of car payments that they can't afford! It's like buying a house with no down payment and no income! It's Never, Never, again! Just give them the damn money and get the hell out of the way!"

Which is why I like my friend Mike.

On other matters of great import, the battles over who does what to whom in the regulatory area appear to be getting strident if not more intense...that is if one can believe the obviously Shelia Bair-planted story in the WSJ today. Seems as though over the weekend Our Hero lit into the regulators then-assembled with a profanity laced diatribe as to how they had better get their act together, shape up and get with the program. Quel horror! Is this intended to make us believe that Our Hero is breaking under the strain? Shelia baby was portrayed as the one who attempted to sooth the searing rage of the Tres Sec with calm, well-spoken thoughts, at a point where he was flying a bit out of control. What a gal, 'cept anyone who has been around Our Hero knows that his ability to adapt the four-letter favorite to use as a noun, verb, adverb or conjunctive in varying tenses and has done so over the course of his career would not be amused or surprised. She's a Dubya appointment for heaven's sake; can't Rahm or some other button man in this administration off her? She is really becoming a bore.

Finally, The Leader is coming this way again...to Wakarusa In. of all places. Taking AF One. Pretty plane. Only costs a zillion dollars to get it up in the air. Now this was never intended to be a political blog, but I know Wakarusa In. Nice town, a bit down on its luck perhaps as it is right smack in the center of the RV industry but filled with good, God fearing Hoosiers...all 1500-2000 of them. Has a bit of a Meth industry but who doesn't these days. For what the hell The Leader is going to Wakarusa nobody can figure out including the good, God fearing Hoosiers in Wakarusa. He could have taken his G-5 in which he goes on dates to NYC with Michelle and landed in Elkhart and saved a half a zillion, but he's not going to do that. Gonna land in South Bend one county over and cause two counties that don't have two bucks to rub together to pay time and a half to every cop for 40 miles around. Change. Sounds like Never, Never to me.

Sorry. I promise not to do this again.

WHEN I GROW TOO OLD TO DREAM...

It hasn't happened yet but I'm getting close. The Supremes got cold feet and ruined my dream of intervention in re the Great Chrysler Grab. I can see why as the amount involved was quite small and the fall-out would have been quite large. Perhaps they are saving their powder for GM where the same issue might well resurface with a far greater number attached to it. By the by, did you see GM's new CEO's answer to the question, "What do you know about cars?" Answer: "Nothing." OoooooooK.

Anyway, the papers got signed today and Chrysler is now Fiat by fiat. As stated in the past, Fiat does know a thing or two about cars and as the price of oil just passed $71 a barrel they may get lucky trying to sell the little things they have on the shelf. It's really going to be interesting to watch the surviving dealers switch sales pitches from Hemmis, 442s and four-on-the-floor to, "Ah che bella picalina macchina!" But back to finance.

Lots and lots of stuff. The Treasury agreed to allow a bunch of banks to pay back the Tarp money and released the numbers on the latest actions by Citi to become, "One of the world's best capitalized banks," in the words of their CEO, the besieged Mr. Pandit. This is coming about through the conversion of approximately $68 billion in preferred shares into common equity which will give Our Hero's shop about a 38% ownership in the joint that never sleeps. Now do you remember way back a few months ago when I stated that the concept of equity and capital adequacy involving banks was a myth? From a dog's breakfast, Citi, through the magic of accounting has been transformed into "one of the world's best capitalized banks" WHILE NOT ANOTHER DIME OF CAPITAL HAS BEEN ADDED! Thank you Mr. Geithner for making me look good again. God, sometimes I even scare myself! The amazing part is people and especially the media, the watchdogs of society, continue to fall for this crap.

Of course, this has given our girl friend, Ms. Bair, yet another reason to continue to yap. Now her pitch is the management of Citi must be changed to protect the investment of the American taxpayer in the common shares and to put in some, "Good, old credit managers," who she believes to be lacking in Citi's strength. For a change she may be right as Sandy Weil destroyed the great credit culture that had been a hallmark of the Bank for years while putting together a totally unmanageable mismash of businesses and strategies. Ol' Sandy went so far as to fire his fair haired boy, Jamie Diamond, now CEO of J.P. Morgan Chase after Jamie fired Sandy's daughter (who by all accounts was a first class pain in the ass). How delicious is that? But while Shelia may be on to something, the situation was hardly unknown among regulators with a brain which is why the merger with Wachcovia made considerable sense as it would have brought to Citi a solid group of domestic bankers and a large, solid core of domestic deposits which Citi sorely needed...not to mention some handy tax consequences. Of course it was Ms. Bair, in an outrageous act of conflict of roles, queered the deal while ADVISING Wells Fargo as to their strategy for capturing Wachcovia.
That's our girl.

Our Hero had a tough one today as well. Seems as though The Leader and his gang got hammered by the Wall Street guys on the issue to pay guidelines so they sent poor Tim out to tell the press that the administration was no longer thinking of proposing anything and that they would simply punt it over to Congress. Bad hair day all around. Of course this gives Barney Frank the ball but now the whole thing gets caught in the middle of both houses so it looks like a win for the execs.

The Leader is now telling folks that Congress is going to be under a strict "Pay as you Go" spending restraint--right after he spends all the money in the world over the next few months. This is a charade and a half, but I guess we have come to expect it. The bond market certainly has. Last time I looked the 10 year had ticked up to 3.96%. If summer comes can winter be far behind? Tune in tomorrow. Ciao!

BACK HOME AGAIN IN INDIANA...!

Well, the Hoosier State threw a real spanner in the works. As of 5:00 pm the stay against the Chrysler bankruptcy plan still stands with no clear indication as to how Justice Ginsburg or all of he colleagues will come down on what has been somewhat overlooked as one of the critical constitutional and business issues that has arisen in many a year. The United States has always had one immutable thing that has set it apart from all other nations save perhaps England; the absolute dominance of the rule of law and the consistency with which it has been applied. This has been an enormous advantage over the ages; the greatest advantage perhaps that we enjoy. Individuals of any nation and corporations regardless of their origin stand equal before the bar in this country. No other nation in history can claim this equality. The law has always been fairly and equally applied.

Some weeks ago we joked that Fiat may not understand their relationship with the government of the United States as its relationship with the various governments of Italy have been, shall we say, cozy. This suit, brought by the Attorney General of the State of Indiana on behalf of Indiana government investors against the Chrysler bankruptcy plan is IMHO in the finest of traditions of American jurisprudence. One and all should watch the disposition of this case. It may well prove critical not only in the specific incidence but as to what kind of a system under which we shall go forward. Are we to have a free market society in which the sanctity of contract and the rule of law stand unabated, or will we live under a different understanding of the definition of rights? All societies evolve but not always to the general benefit. Is this one of those moments? We shall see.

$35 Billion in new auctions and refundings this week in the 3, 10 and 30 year maturities. No one seems to be too concerned as to their success but the 10 year benchmark continues to creep upward towards the important--at least from an emotional standpoint--to the 4.00% level.

As this is being written, Oil is well-bid at $70.54 a barrel, up over 2 bucks from the open. Commodities continue to move higher and the dollar in getting crushed. One talking head mused whether these actions might impede the recovery. It would be funny if not so sad. There is no recovery: unemployment is up, the lower advance figure is present only because people now realize the temp jobs number is way up, income levels are down across the board; unemployment has pushed through the 9% level with some Federal Reserve Banks hinting at 10-11.5% by next year. The Leader's plan, after five months has been a failure heading towards a catastrophe with spending out of control and a new czar for some segment of the economy being created daily seeming without any Congressional oversight. Results and improvement need to be shown quickly or confidence, which showed a nice up-tick in March will begin to quickly erode. I fear that this may well be a lost year leaving the country even more vulnerable to exogenous shocks. One hopes one is wrong.

Meanwhile, Our Hero s getting some of his money back as a number of TARP institutions are going to be allowed to repay the advances most of them didn't want in the first place. How nice. But here's a goodie: the TARP funds were allocated by Congress for a specific purpose. The monies to be returned seem to be destined for some sort of "rainy day fund" that Our Hero can use for whatever his little heart desires. Where is Barnie and his "oversight" when you really need it?

Finally, The Leader, Our Hero and their entire mob have apparently decided that the regulatory mechanism presently in place needn't be rejiggered; what we have is ok, what we need is better regulation. So much for Shelia Regina...or is it too soon to announce her demise? Methinks somebody better have a wooden stake close by. This is going to be a hell of a summer.

T.G.I.F.

I'm beaten. I have no idea what's going on. I checked with all the smart guys I know and they left me with the impression that in the capital markets things are looking a bit dicey. The 10 year is up 30% in a couple of months. My son and his wife refinanced their mortgage for 30 years at around 4.60 last month and today the rate would be over 5.00%., Seven year auction stank, the dollar is sliding against everything but the Yen, Chicago Purchasing report today was simply awful, GM is about to go into Chapter 11, Chrysler is gone, the price of oil has more than doubled in 5 months, Our Hero is crawling on his knees to the Chinese--or at least that is the perception everywhere but in D.C.--the spikey-haired dwarf sets off a big one, BiBi tells the Leader to mind his own business, Europe's economy is almost in free-fall and he DJI closes up 93 points in the last 10 minutes. I have this terrible feeling that it's Berlin and the music is from "Cabaret." Then again, what do I know.

From all reports there is a hell of a fight going on in D.C. over what the new regulatory regime is going to look like with sides being drawn up all over the place. That of course is just what we need...a political brawl when there is a bit of light at the end of the tunnel. I have to admire my favorite gal regulator, Miss Shelia and how she plays things. Jockeying for a place at the head of the table she just hammered Our Hero early in the week with one of the great backhand shots of all time in proclaiming Mr. Geithner's public/private partnership, "essentially dead" as a result of the position of the major banks being so much better that there is very little interest in any of them in participating. Next great idea, Tim? She knows how the game is played or else she is an avid reader of this Blog. Somehow, I doubt the latter. This is not a sideshow, however. Who winds up with the reins going forward is vitally important to the ongoing success of the rebuilding of the financial institutions and the financial markets. One would wish that Ms. Bair restricted herself to trying to get our good ol' boy Ken fired as she has been trying to do for the past year. Why? who knows. But it was good theater without much consequence. Last time she got involved with something serious she went off to advise the Stagecoach boys how to screw poor ol' Citibank with the take-over of the OTHER North Carolina bank. Girl is a pain.

Speaking of regulation, I've been thinking about this quite a bit and would like to share with you a couple of very unconventional thoughts next week. In the mean time, keep this thought in mind; a great deal of focus has been spent on what was done and why it went wrong--with good reason. Very little time has been spent on who did it. Ultimately, it always comes down to the people.

Have a great weekend. My tomatoes get planted tomorrow.

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.

...COMES A PAUSE IN THE DAY'S OCCUPATIONS...

Our Hero was center stage today. True to his reputation, The Secretary put together every idea that had been put forth over the past six months, mixed them together, shook them up and came forth with his plan to save the financial sector. At last look the Dow was up 380 points with financials leading the way which put a smile on my son's face, he of the long positions, and the talking heads on TV. Not a bad day's work.

Forgive me if I am not quite as ebullient, because for the life of me I can't yet come to grips as to how...much less whether...this is going to work.

As I understand it, Our Hero and his guys are going to partner up with a bunch of investors in the public, each put in a bunch of capital and then Our Hero is going to drop on the private guys a bunch of non-recourse debt to fund the biggest Dutch Auction in history after which, if all goes well, we'll be out of the woods as the banks will be out of "toxic" debt. Shelia Blair has made it clear that she and the FDIC will provide the highest of scrutiny to the entire operation. I'm telling you, this gal must have photos because why in the world bones have to be thrown her way is beyond me but that is a subject for another day.

The private guys must be thrilled. For a small slug of equity, they get a huge load of taxpayer's money that they never have to pay back except from the corpus of the purchases--i.e. non-recourse TO THEM--financing, and the possibility of a huge upside ROE if all goes well. Tim gets a hugh upside as well for the People of America if all goes well but undertakes a huge downside if it doesn't. Funny, it sounds exactly like how Wall Street has been run ever since everybody went public: big risks, high returns but what the hell, it's not your money. This boy learns quick!

Once everything is in place, there will be an auction, conducted by someone, on assets (yet to be determined) held by the banks. Now it has not yet been announced if these assets will be differentiated (or how), size of tranches, maturities or whether there will be reserves placed on the assets (the bid must be at or above an agreed-upon level or else no deal) but there is the belief that all these little details--and others--can be worked out. No mentioned has been made of due diligence or timing but again, details, details. Once again, dear friends into the breach!

Our Hero was on TV today with Erin Burnett on CNBC--where I suspect we would all wish to be--musing that if we could only get a few of these auctions off, we would be able to get a better view of the real value of these assets. Huh? Let's see if I understand this. The consortium bids for 5 million of a certain asset held by a bank and wins. What is the effect? Does this mean that every like asset at every institution WORLDWIDE need be marked to the purchase price? There is no question that many of these assets have been marked to a level well below there intrinsic value at certain institutions but not at others. If the seller of the 5 million has a mark of 40 and he bid is 50, simply to get rid of a small problem a bank may well be willing to lose the asset even though it believes it will be money-good in the end. But what happens at another institution whose mark is 60...and the asset level is 100 million? Are they forced to change the mark to 50 and lose 10 million in capital (tax neutral)? Does the first bank book a profit? Do you mean that due to the size of a relative holding we create a situation in which one bank books a gain and another a loss ON THE SAME ASSET? Riddle me that one Bat Man.

I hate to beat a dead horse, but FASB 157 became effective in November of 2007. From that moment the stock market tanked. Hello? If this doesn't get fixed we accomplish nothing because we will never be able to fix the valuation question unless the volatility of these valuations is ended and they are approached on a different basis. Or to put it another way, there ain't gonna be no way to price these things at an auction. Surely, the government will attempt to bully the banks into participating if it gets to that point but that, I am afraid, is more than questionable. This is a moment in time...WHICH WILL BE KNOWN AS THE CHILDREN'S HOUR

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.