Goldman Rats' Bloody Footprints Leading Out of Greece

Pic credit: banksy

(h/t WC Varones)

It isn't enough to bankrupt entire municipalities with exotic debt instruments that they don't understand, the big banking boys are also happy to destroy entire countries. Oh dear, JP Morgan, Goldman is making you look bad, why didn't you think to take down Greece?! Jefferson County, Alabama? What a bunch of fucking amateurs. Oh wait! I forgot, JP Morgan is already being sued by the City of Milan for pulling this derivatives crap in Italy. Close enough.

Point is, Goldman has some more sins to atone for. Add them to the ever-growing list.

Via Spiegel (love those freaking Germans sometimes):

Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country's already bloated deficit.

Greeks aren't very welcome in the Rue Alphones Weicker in Luxembourg. It's home to Eurostat, the European Union's statistical office. The number crunchers there are deeply annoyed with Athens. Investigative reports state that important data "cannot be confirmed" or has been requested but "not received."

Creative accounting took priority when it came to totting up government debt.Since 1999, the Maastricht rules threaten to slap hefty fines on euro member countries that exceed the budget deficit limit of three percent of gross domestic product. Total government debt mustn't exceed 60 percent.

That last part is hilarious because I just came off of a 32 hour binge of financial accounting class, the last part of which focused exclusively on governmental accounting. I can't claim to know the intimate details of how Greece debits its expenditures but I can guess that you've got to be in REALLY bad financial shape if you are a government agency looking to fudge the accounting rules. Fudge is implied in the term "governmental accounting", there's no need to balance or - as we already know quite well here in the US - live within one's fiscal means.

Now, though, it looks like the Greek figure jugglers have been even more brazen than was previously thought. "Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future," one insider recalled, adding that Mediterranean countries had snapped up such products.

Greece's debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period -- to be exchanged back into the original currencies at a later date.

Well hell, who could resist the temptation to push liabilities into the future? Can you even blame the Goldman rats for capitalizing on an opportunity when one presents itself? It's not their fault no one read the marketing materials.

The On Again Off Again Made for a T-Bill Mess?

"only average"

Reuters:

U.S. Treasuries broadened losses on Tuesday after the government saw only average demand for its $40 billion three-year auction.

Bidding at the auction was complicated by conflicting reports on whether euro zone countries agreed to help debt-stricken Greece.

"It looks like the on-again, off-again Greece-aid sideshow made for messy bidding," said Tom Simons of Jefferies & Co in New York. "The results of the three-year note auction were quite sloppy."

Yields on the auction were about 1.5 basis points above expectations, and the bid cover was the weakest since the October 2009 auction.

Simons said the buyside participation was quite strong.

In the when-issued market, the yield on the new three-year Treasuries yield rose to 1.385 percent from 1.363 percent before the auction.

Benchmark 10-year notes, which had been down 12/32 before the auction, were down 20/32 afterwards, yielding 3.64 percent. The 30-year bond fell a point to yield 4.56 percent, up from 4.49 percent on Monday.

I respectfully disagree, the fact that no one wants this crap made for "messy bidding" but I could be wrong. Can't keep it up forever.

The Fed Tries to Start Mopping Up Its Mess

Pic by Troy Williams

Yeah right. That stuff stains fabrics, good luck with the clean up project.

MarketWatch:

The Federal Reserve's exit strategy may leave traditional rate hikes until 2012, said James Bullard, the president of the St. Louis Federal Reserve. The Fed may focus initially at mopping up the money that it has poured into the markets to keep credit flowing, he said "You could take back some of the quantitative easing, not in a really rapid way, but in a slow way as the economy improves -- that might be a helpful way to proceed while you are waiting for the day to raise interest rates," Bullard said in an interview with Fox Business News. On any decision to raise the Fed funds rate, Bullard said: "If you look at...how the FOMC has behaved in the past, it's been two-and-a-half to three years before we've raised rates after the end of a recession. So if you think the recession ended in the summer of 2009, two-and-a-half years later is a long ways -- it's all the way to 2012," Bullard said.

Better, WaPo has a piece in today's edition about mopping up their mess and a mission to make the project as transparent as possible. WTF, this isn't Julia Child stuffing a pork tenderloin, we don't need Ben Bernanke announcing each step. "And now we add the reverse repos and..."

Oh fuck it.

WaPo:

When you've flooded the economy with trillions of dollars, mopping up is no easy task.

That's the reality the Federal Reserve is confronting as it starts to explain how it will undo the aggressive growth-supporting steps that were put in place when the economy was in its deep dive -- and begins to be clearer about when that may happen.

But it is a fraught exercise. Federal Reserve leaders and private economists expect the jobless rate to remain high for years, despite a dip in the unemployment rate to 9.7 percent in January, and the Fed could make the situation worse if it moves too abruptly. In the meantime, financial markets have shown new signs of fragility, swooning in the past three weeks, including a 1 percent drop in the stock market Monday that drove the Dow Jones industrial average to close under 10,000 for the first time in three months.

Fed Chairman Ben S. Bernanke is betting that if the central bank is open about how it will phase out its expansive initiatives to prop up the economy, it will provide faith that the Fed will not allow inflation to flare down the road. That in turn would help keep long-term interest rates low and could allow the Fed to keep the short-term rates it controls at ultra-low levels for longer.

Again, we're looking at 2012 for a Fed rate hike which, of course, is hilarious if you pay attention to Mayan prophesy. Til doomsday, bitches!

If You Have to Point It Out...

... you are most likely full of shit.

Business Week:

CIT Group Inc., the commercial lender that hired John Thain as its new chief executive officer, said the U.S. Treasury Department doesn’t have a stake in the company anymore.

“While the U.S. Treasury no longer has an investment in CIT, we are generally endeavoring to apply Treasury governance best practices,” CIT spokesman Curt Ritter said today in an e- mailed statement.

The Treasury said in a filing earlier this month that it still held “contingent value rights,” which the New York-based lender had distributed to preferred shareholders as part of its bankruptcy reorganization. The Treasury’s preferred stake, originally valued at $2.3 billion, was obtained when CIT sought funds from the Troubled Asset Relief Program.

CIT said in a filing today that the contingent value rights “are terminated and cease to exist.” Today was Thain’s first full day on the job.

This is a guaranteed winner.

St Louis Fedhead Bullard Forgets the Important Part in Fed Asset Sales, Oopsie!

Reuters:

The Federal Reserve could sell some assets later this year in an effort to whittle down its bloated balance sheet to avoid inflation, a senior Federal Reserve official said on Monday.

The Fed's purchases last year of longer-term Treasuries and other debt, undertaken to help revive the economy, were financed by adding cash to the financial system. But leaving large amounts of cash sloshing around as the economy strengthens risks fueling inflation.

"Maybe you get in the second half of 2010 or something like that, if things are going pretty well, maybe then you'd sell a little bit at that point and you'd try to see how the market reacts," St. Louis Federal Reserve Bank President James Bullard told Reuters in an interview.

Don't pull out too quick there, killer!

Bullard said markets would be disrupted if they came to believe the Fed was planning large-scale sales of mortgage-backed securities. However, he said the idea of gradual sales as a strategy is under discussion.

"Selling has more sympathy than you might think. It's more a question of timing and speed," Bullard said.

"You'd kind of want the situation to be back to normal in some kind of time frame before the next storm comes for the economy so that at that point you'd have a fresh set of tools and you can react at that point," he said. "There will be a lot more discussion going forward about how exactly to do this."

I hope at some point in the discussion period someone asks the most important question of all, which would be "who the fuck is going to buy these garbage assets the Fed is holding shit tons of?!"

Surely that has come up as these are brilliant economic minds we're talking about.

LMFAO I couldn't even say that one with a straight face. Sorry, I did my best.

He's an optimistic little bastard, that Bullard, but he's missing the most obvious piece of the puzzle: DEMAND. Come on, don't the little kindergarten economic students learn this in their first week of Econ 101? You ain't sellin' if no one's buyin', how the hell do you expect to pawn this crap off on anyone?

Bwhahahahahaha LOL. Good luck with that.

SF Fedhead Yellen: US Interest Rates are Too Hot for Asian Markets

Dude, China, take the hint. Janet Yellen is telling you to unpeg from the US dollar as she and her Federal Reserve System colleagues are dead-set on doing whatever it takes to save the economy, even if that means taking the dollar down with them.

*snicker*

Don't say she didn't try to tell you.

WSJ's Real Time Economics:

A top Federal Reserve official said Monday U.S. monetary policy is too hot for China and Hong Kong and explained any trouble those nations ultimately face because of this situation arises from their own foreign exchange policies.
Yellen

“Because both the Chinese and Hong Kong economies are further along in their recovery phases than the U.S. economy, current U.S. monetary policy is likely to be excessively stimulatory for them,” Federal Reserve Bank of San Francisco President Janet Yellen said. “However, as both Hong Kong and the mainland are currently pegging to the dollar, they are both to some extent stuck with the policy the Federal Reserve has chosen to promote recovery,” she wrote in a bank Economic Letter published Monday.

The central banker said that if China wants to prevent U.S. policies from overheating its economy and driving inflation, it will have to do something about its foreign exchange policy.

“Increased exchange rate flexibility could mitigate growing inflationary concerns, and also act toward easing global imbalances and encouraging the development of the household sector, a shift the Chinese government now officially says it wants,” Yellen said.

The Economic Letter in question may be found via FRBSF here.

Essentially, Yellen is both dismissing the massive bubble in China and admitting that they're openly tanking the dollar. That's cute. Damn you, Janet, your wacky ass is starting to grow on me.

There must be something in the water. Like sharks. And bubble-blowing idiots with their floaties on so they don't drown.

Tim Geithner's Secret IFRS Endorsement?

Monday is a catch-all day for me over at Going Concern so I figured I'd kick my Monday off with a little globalization conspiracy and everyone's favorite: the adoption of IFRS in the US. Wooooo! Happy Monday, bitches!

GC:

Tim Geithner has inadvertently given his endorsement to standardized financial regulation around the globe, so is he also giving the adoption of IFRS in the US his approval?

Possibly, since he told ABC that “he wasn’t worried that tighter financial regulation would put U.S. banks at an international disadvantage. ‘I’m very confident we can make sure that we are working very closely to raise global standards around the world so we have a level playing field,’ Geithner said.” His motivations are only slightly suspect. Why?

Under IFRS, assets are overstated as derivatives are measured in gross exposure, as opposed to GAAP which concerns itself with net value. More magic financial reporting; of course Geithner would want to see banks magically healed by a change in accounting. If we’re going to do it, let’s also restate years 1999 – 2009 so we can compare at least.

Want the rest? I know you do. Better go over to Going Concern to get it. Quick before the Thought Police put JDA in the punishment corner.

Little do they know I like it there.

CIT Adds a Dash of FAIL with Merrill Lynch's Thain

pic credit: driftglass

The last time John Thain tried to "help", things got scary and ugly. Oh wait, they already were, my bad.

WSJ:

Former Merrill Lynch & Co. chief John Thain is joining embattled lender CIT Group Inc., bringing together two prominent casualties of the credit crisis.

Mr. Thain, who left Bank of America Corp. 13 months ago amid controversy over its takeover of Merrill, will be CIT's chairman and chief executive. CIT, a major lender to small businesses, nearly collapsed in 2009, several years after it expanded into subprime mortgages and student lending.

Thain doesn't have a very good resume at this point, it's a wonder guys like this can stay employed.

CIT is squealing, releasing this Sunday:

CIT Board of Directors Elects John A. Thain Chairman and Chief Executive Officer

NEW YORK, Feb 07, 2010 (BUSINESS WIRE) -- CIT Group Inc. (NYSE: CIT), a leading provider of financing to small businesses and middle market companies, today announced that its Board of Directors has elected John A. Thain Chairman and Chief Executive Officer effective immediately. The Board has tasked Thain (54) to continue CIT's transition to a more streamlined commercial lender focused on serving the small business and middle market sectors and optimizing the Company's business model.

Thain replaces Peter J. Tobin, who has been acting as interim Chief Executive Officer.

Tobin will remain a Director of CIT.

Vice Admiral John Ryan, Lead Director, speaking on behalf of the Board of Directors, said, "John is a well respected financial services executive and proven leader who is uniquely qualified to lead CIT at this critical stage. CIT and its customers will benefit enormously from his breadth of experience, industry acumen and deep knowledge of the financial services sector. We have the utmost confidence in John and are pleased to welcome him to CIT."

Speaking about his appointment, Thain commented, "I am pleased to have the opportunity to lead the newly reorganized CIT. The Company's numerous market-leading positions are evidence of the resiliency of the franchise and its unwavering commitment to its customers."

Everyone is "pleased", that's not exactly a squeal.

Geithner: We'll Never Lose Our AAA Rating

*sigh* Remember this is also the guy who said "a strong dollar is our priority" and subsequently issued record amounts of Treasury debt to fund everything from car company bailouts to bullshit "job" initiatives. Dear Timmy, don't do us any huge favors and for the love of God, please step away from the credit card.

Reuters:

The risk the U.S. economy will slip back into recession is lower now than at any time in the past year, U.S. Treasury Secretary Timothy Geithner said on Sunday, while conceding that recovery will be slow and uneven.

In an interview on ABC News' "This Week," Geithner dismissed concerns that rising U.S. indebtedness might put pressure on the United States' prized triple-A credit rating.

Credit ratings agency Moody's last week warned that anemic U.S. growth, on top of already stretched government finances, could put pressure on the country triple-A status.

"Absolutely not," Geithner said when the interviewer suggested rising debt levels could put pressure on the top-notch rating. "That will never happen to this country."

Meanwhile, back here in reality:

It is unclear how the 2009 budget deficit was financed. A likely source was the bank reserves created for financial institutions by the Federal Reserve when it purchased their toxic financial instruments. These reserves were then used to purchase the new Treasury debt. In other words, the budget deficit was financed by deterioration in the balance sheet of the Federal Reserve. How long can such an exchange of assets continue before the Federal Reserve has to finance the government’s deficit by creating new money?

via Altheo News.

The clock is ticking.

Dear China, Please Stop Crying

Seriously, China, it isn't protectionism when a) you have a history of lead-tainted toys and crappy bootleg products b) you peg your shitty currency to the even shittier US dollar c) everyone is broke and can no longer afford even your deep discount bootleg wares d) you have the US by the balls but can't exactly exercise your right to tighten the nut vice since you totally fell for $2 trillion of it.

WSJ:

China's efforts to extend its dominance as the world's top exporter are facing stiff challenges, as the policies it has used to support exports bring new economic problems and escalate tensions with a growing list of trade partners.

Key elements of the strategy—including a cheap currency, regulated interest rates and low energy prices—are stoking discontent in fellow developing countries, not just Western capitals. That could crimp its drive to seek gains from emerging markets as growth in the rich world falters. At the same time, many economists argue, China's export-friendly policies are fueling inflationary pressures at home, placing a burden on the rest of the economy.

Beijing is increasingly pushing back against what it calls unfair protectionism. Chinese authorities Friday set duties on some U.S. chicken products to counter alleged dumping. And on Thursday, Beijing filed a complaint to the World Trade Organization against European Union tariffs on imports of Chinese shoes.

China's current-account surplus narrowed sharply in 2009, the government said Friday, a reflection of the impact of the global financial crisis on the nation's trade balance.

But that may have just increased the pressure on Beijing to support its exporters.

China now accounts for more than 9% of global exports, a share that, after stagnating for most of 2007 and 2008, has been rising since the outbreak of the financial crisis and the ensuing collapse in global trade.

Cry cry cry.