Merkel's Smack Talk, Too Bigger to Fail, and Bagging on Greenspan's Easy Money: EU Edition



Okay, perhaps I'm reading a little too deep into Merkel's words but it seems as though Germany's fearless leader took her fair share of jabs at TBTF and homicidal maniac Alan Greenspan's easy money policy of yore. Frankly I couldn't be happier.

Reuters:

The leaders of Germany and France took aim at the banking sector on Monday, pledging to check banks' power and push for limits on bonus payments at a Group of 20 summit next month.

Chancellor Angela Merkel said bonus payments to bankers were "rightly driving a lot of people crazy" and that she and French President Nicolas Sarkozy wanted the G20 summit in Pittsburgh on September 24-25 to make progress on financial regulation.

"No bank may become so big that it could get into a position where it could blackmail governments," Merkel told a joint news conference with Sarkozy in Berlin.

Germany and France regard financial market excesses as being the root cause of the global economic downturn and want tighter regulations to prevent a repeat of the biggest financial crisis since World War Two.

"We want to see things changed in Pittsburgh," Sarkozy said. "These excesses cannot be allowed to be repeated as if nothing ever happened."

Merkel said Germany and France would propose that the European Union take a joint position to Pittsburgh, and called for the bloc to press for the full implementation of agreements that G20 leaders reached in April.

At their April meeting in London, the G20 leaders agreed to extend regulation and oversight "to all systemically important financial institutions, instruments and markets" including systemically important hedge funds.

Merkel believed a consensus could be found on dealing with bonus payments, drawing on new rules made by France and Germany.

She said G20 leaders would also discuss "exit strategies" from the fiscal and monetary policies they have used to blunt the impact of the economic and financial crisis.

"We must take care that, on the one hand, we act correctly with regard to the recession and the economic crisis but on the other hand we mustn't make the same mistakes again that led to this crisis," she added.

"After 9/11 the loose monetary policy in America was not withdrawn and this bubble was able to arise," she said.

If anyone else has an alternate interpretation of this I'd love to hear your thoughts but sounds like shit-talking to me.

Perhaps Merkel wasn't taking a jab at Goldman Sachs specifically after all...

WaPo:

J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.

A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected.

"It is at the top of the list of things that need to be fixed," said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. "It fed the crisis, and it has gotten worse because of the crisis."

Regulators' concerns are twofold: that consumers will wind up with fewer choices for services and that big banks will assume they always have the government's backing if things go wrong. That presumed guarantee means large companies could return to the risky behavior that led to the crisis if they figure federal officials will clean up their mess.

Um where are the regulators who are concerned that America cannot possibly take one more financial assraping? Point me to where those folks are.

Let us not forget that these too bigger to fail banks are, in fact, illegal as banks are not allowed to hold more than 10% of the nation's deposits. JP Morgan hits it on the dot at 10%, Wells Fargo at 11% and our friends over at Bank of America take the cake with 12.9% of all deposits in the United States.

Supersize me, bitches!

Here Comes the Madoff Charity Claw Back



Madoff Liquidator May ‘Claw Back’ Charities’ Profits
(Bloomberg):

Irving Picard, the liquidator for Bernard Madoff’s investment business, said he might sue charities that took out more money than they invested with the imprisoned con man to force them to return the difference.

As trustee, Picard by law must file so-called clawback suits against investors that profited from the fraud at Bernard L. Madoff Investment Securities LLC, even if they weren’t aware of his $65 billion Ponzi scheme. Charities aren’t exempt from such “avoidance actions,” Picard said today in an e-mail.

“Picard has an obligation to the bankruptcy estate to collect all the assets he can find and in theory he has to treat everyone the same way,” said William Josephson of Fried Frank Harris Shriver & Jacobson LLP, who previously helped to run the New York State Law Department’s Charities Bureau. “The bankruptcy code doesn’t differentiate” between charities and other institutions, he said.

Picard until now hasn’t spelled out his policy for dealing with charities that unknowingly profited from the fraud by investing with Madoff or his so-called feeder funds.

“He has been cagey,” Josephson said.

Picard, a lawyer with Baker & Hostetler LLP, declined to discuss specific nonprofit institutions. “We will look at charities on a case-by-case basis before determining what action may be appropriate,” he said.

Picard so far has only pursued charities that he claims should have known about the fraud. He sued longtime Madoff investor Jeffry Picower, a philanthropist and lawyer, and his charity in May for allegedly taking fake profit of $6.7 billion for himself and his affiliates over a 20-year period. His charity is now closed.

Burn.

Unraveling Madoff is almost as good as busting open the Hollywood Madam's little black book at this point!

NY Fed's Dudley: Monetizing Debt? Us? Never!



Oh, William Dudley, what are we going to do with you?

Bloomberg:

New York Federal Reserve Bank President William Dudley said the Fed has the tools to prevent inflation from accelerating and doesn’t need to begin trimming its balance sheet.

“It’s a little bit premature to be so confident that you want to pull all these things back right now, because the economy still isn’t growing very fast and we do have a very high unemployment rate,” Dudley said today in an interview on CNBC.

Dudley’s comments are in contrast to those of two Fed district bank presidents, Jeffrey Lacker and James Bullard, who said the central bank may not need to buy the full $1.25 trillion in mortgage-backed securities that has been authorized by year-end. Richmond’s Lacker and Bullard, of St. Louis, spoke at separate events last week.

“Obviously, as financial conditions improve, as the economy does somewhat better, which seems to be the trajectory they’re on, it’s a legitimate point to consider what you want to do in terms of your purchase programs,” Dudley said today.

I covered Lacker's thoughts already and will get to Bullard's later. As for Dudley, I have a few obscenities reserved especially for his ilk.

The impact from the Treasury purchase program is “more ambiguous” because it’s much smaller, Dudley said. The effort was aimed at creating additional stimulus when the fed funds rate was already near zero, and was not an effort to “monetize” the U.S. national debt, he said.

The Fed’s lending programs have led to a large expansion in the reserves banks keep at the central bank. Dudley said those reserves can be drained from the system before leading to an increase in lending and worsening inflation.

“My view is we have tools to manage our balance sheet so we’re not going to have an inflation outcome, a bad inflation outcome,” Dudley said.

Blah blah blah blah. I would like to see Dudley do slightly better but see he must have the same speech writer as Zimbabwe Ben. Saying "inflation is not a concern" does not act as garlic to the monetary vampire but he'll keep trying anyway and we'll be here laughing at him when he does. Am I the only one who feels like we've heard this speech a bazillion times already?

Sadly, the joke is really on us. Or is it on China? Fuck it, who cares?

I'd insert a joke about the Fed pulling out prematurely but frankly I'm out of LOLZ on this and am instead overwhelmed with rage and frustration. There's nothing funny about chronic asshattery of this magnitude.

Over Stimulation for the US Economy?




Yeah ok, I buy that. At least we can start putting away that whole "2nd stimulus" bullshit. I hope.

Reuters:

The U.S. economy does not need a second fiscal stimulus package, instead the government should cut spending over the next two years, according to a survey of business economists released on Monday.

Most economists in the National Association for Business Economics (NABE) semi-annual poll were concerned about the outlook for the U.S. government budget. Also, they doubted health-care reforms proposed by the Obama administration would lower costs while increasing access and maintaining quality.

"This is one of the fastest-moving and most controversial economic policy environments we have experienced in a generation," said NABE president Chris Varvares. "The more vexing policy challenges about which there is less agreement are federal health-care ... budget policies."

The government early this year stepped in with a $787 billion package of spending and tax cuts to break the worst recession since the Great Depression of the 1930s. Separately, it bailed out banks to prevent the financial system from collapsing.

Those actions left the economy saddled with a $1.58 trillion budget deficit in fiscal 2009, and a shortfall of about $9 trillion between 2010 and 2019.

The ballooning budget deficit is causing alarm and feeding into opposition to President Barack Obama's central policy priority of overhauling the U.S. health-care system, whose price tag is $1 trillion.

While economists in the NABE survey acknowledged that the stimulus package had helped to brake the pace of the economy's decline in the second quarter, only 35 percent viewed fiscal policy as being "about right".

Half of the respondents saw fiscal policy as too stimulative. About 266 members took part in the poll which was conducted between August 3-18. The U.S. economy contracted at a 1.0 percent annual rate in the second quarter after collapsing 6.4 percent in the first three months of the year.


"Too stimulative" LMAO. Like all those bazillions of jobs that were saved or created as a result? Or the sustainable projects funded by stimulus funny money? Oh wait... none of that happened.

I know when I get overstimulated I need a nap and maybe a nice cuddle. Perhaps the US economy can do the same once it's done convulsing on the floor. Just a suggestion.

Kiss my ARSs: Part 3



Remember kids, there actually is a difference between cash and cash equivalents.

A retired securities attorney is suing Nuveen Investments, Merrill Lynch, Citigroup, Deutsche Bank, and Mesirow Financial for the $2 million in losses that he and his wife suffered as a result of investing in auction-rate securities. According to the lawsuit, Joan and Howard Kastel allege that they are victims of a “fraudulent scheme” in which markets for the instruments were intentionally manipulated.

The lawsuit says that in August and September 2007 Mesirow Financial purchased 88 shares of auction-rate preferred securities for the Kastels’ account. The shares, which cost $25,000 per share, were issued by three Nuveen North Carolina funds through Nuveen Investments LLC, the Chicago-based broker-dealer, at auctions conducted by Deutsche Bank. As reported in an Aug. 26 article by Investment News, Merrill Lynch and Citigroup participated in the auction, as well.

When the $330 billion auction-rate securities market suddenly froze up in February 2008, the Kastels’ were unable to access their cash. According to their lawsuit, they are now stuck with 85 shares of Nuveen North Carolina ARPS, which pay “unconscionably inadequate” interest that “does not fairly compensate” the couple.

The Kastels are suing Mesirow, Nuveen and Merrill Lynch for approximately $6 million. In addition, they are seeking compensation for emotional distress.

Prior to the collapse of the ARS market, thousands of retail and institutional investors purchased auction-rate securities on the premise they were cash equivalents. When the market crashed last year, however, they discovered that their liquid investments had become essentially worthless. On the heels of lawsuits by state and federal regulators, some Wall Street banks and investment firms eventually agreed to buy back billions of dollars worth of the securities from retail investors, while other firms have continued to resist such measures.

(source)

Someone mark my words so I can get Roubini-esque props months from now: ARS lawsuits will start hitting like stray AK bullets in Compton. DUCK!

Dear SEC, WTF R U Doin? Venture Capital Gets B*tchslapped by Regulation... Again




One word for this: pfft

Why pfft? Because this is a joke. Venture capital? Please! Leave them alone! Before the SEC starts going after new projects, may I humbly suggest that they actually do the job they are already charged with? Just sayin.

NYT:

Various pieces of legislation now making their way through Congress would require private pools of investment capital to be registered with the Securities and Exchange Commission. The goal is to curtail abuses and protect the public from questionable practices. The proposed laws would cover the range of funds that deal in derivatives, auction-rate and mortgage-backed securities, highly leveraged transactions and a slew of other instruments so complicated as to defy description.

In registering, these funds would need to open their books to the government so that they could be duly monitored, thus limiting further risks to the financial system.

Unfortunately, however, with good intentions, the Obama administration and some members of Congress are aiming this legislation at all pools of private capital. That includes venture-capital funds, which pose no systemic risks and which, especially now, should be kept free of any new reporting rules and allowed the freedom to flourish.

Venture-capital funds deal solely with privately purchased equity securities in start-up companies, which are not traded in public markets. They have as their limited partners only people who meet the S.E.C.’s definition of a “qualified client” (meaning they possess a substantial amount of money to invest). These investors, who typically allocate a small percentage of their portfolios to venture capital, are familiar with risk, but it is long-term risk, stretching out 7 to 10 years. They put their faith not in publicly traded securities but in entrepreneurs, emerging technologies and new markets.

Because their business is contained within the ecosystem of limited partners, venture-capital funds and the companies in which they invest absorb all the risk: there can be no domino effect in the world financial system.

So what the hell does the SEC care? Trying to cash in on venture capital darlings a la Twitter? Or just looking for something else to do besides regulate markets and protect investors (since, you know, they seem to be so incredibly ill-equipped to accomplish that particular objective)?

I'm confused. I probably shouldn't be and maybe I'm not confused at all and had it right the first time.

The law of unintended consequences no longer applies in Bizarro World. It's all one big unintended consequence.

The venture-capital industry has been the target of new regulations before and has experience with unintended consequences. The better part of this decade has been spent working through those created by the Sarbanes-Oxley Act of 2002, which was meant to curb accounting abuses at large corporations like Enron but ended up imposing burdensome accounting rules on small, often venture-backed companies. One section of that law, which was meant to get large corporations to lay bare their accounting practices, has cost these small companies millions of dollars a year in labor, extra audit fees and external consulting expenses.

A side effect of Sarbanes-Oxley has been to discourage initial public offerings, reducing the amount of expansion capital available for start-up companies. Indeed, the number of venture-backed public offerings, which reached 1,353 from 1991 to 1997, declined to 392 from 2001 to 2008.

It would be a shame to impose any new limits now, when venture capital is the asset class that can best help build and nurture the companies that bring about growth and job creation. The figures are compelling. In 2008, venture-backed companies that went public in previous years accounted for 12.1 million jobs and $2.9 trillion in revenues for the United States Treasury.


Way to cockblock market ingenuity, SEC. Glad to see you're waving the capitalist flag high over there, you asshats. Is this for real?

And leave Sarbanes-Oxley out of this. Can someone please restore my faith in humanity? Because this is pretty much the last straw. Where is the logic?!

California Budget Crisis: Yard Sale Edition

Pic credit: Daryl Cagle



I am not quite sure how I feel about this. Is California clever or just pathetic?

NYT:

Ever wanted to buy a used Chevrolet Cavalier signed by a budget-challenged governor? Now’s your chance!

In a maneuver that signals both the pluck and ingenuity of Gov. Arnold Schwarzenegger and California’s desperate finances, officials have been frantically preparing this week for a two-day sell-off of items drawn from every corner of the state’s pack-rat bureaucracy.

The event, starting Friday at a warehouse here in the capital, is being billed as the Great California Garage Sale, and it is the largest such surplus sale since the state last rolled out its unneeded odds and ends in 2004.

“We’re going to have 6,000 items at this sale,” said Fred Aguiar, the secretary of the State and Consumer Services Agency, which is overseeing the sale. “There’s furniture, computers and office equipment. It’s a great opportunity for Californians.”

Ordered by Governor Schwarzenegger in July during a budget crunch, the sale is also an opportunity for the state’s agencies to clean out closets, drawers, garages and back rooms.

Among the ticketed items for sale will be a grand piano from 1862, complete with ivory keys and decades’ of dust, which is offered by the Department of Parks and Recreation. There are two collections of souvenir bobblehead dolls from the 2003 Sacramento Kings confiscated by the California Highway Patrol and going for $15 (decorative stands included). Then there are the oddities of unknown origin, including a songbook from a German opera, “Der Waffenschmied,” which may be overpriced at $3.

Where does it end? Why don't we crack into the evidence lockers of our many police departments across the state and unload all those kilos of cocaine and heroin to make up our budget "shortfall"? There has to be a few billion just lying around at Oakland PD alone!

Wait for it.

How much the sale will net is unknown, of course — Mr. Aguiar guessed the state could clear $1 million — but one thing is certain: it will not be anywhere near the $10.5 billion California needs to borrow to get through the current fiscal year. The state’s budget crisis included a $24 billion gap and the issuing of some $2 billion in i.o.u.’s.

The biggest-ticket items in the sale are likely to be about 650 passenger vehicles ordered sold by Mr. Schwarzenegger as part of a 15 percent reduction in the state’s fleet. They will be auctioned off whereas almost all the other items have price tags.

The governor, a Republican who has been actively publicizing the sale online and elsewhere, calls the sale the end result of a “promise to eliminate waste in state government.”

“This is a win-win for the state and shoppers,” said Mr. Schwarzenegger, who ordered the similar sale in 2004, just after being elected.

Among the vehicles are five “CHiPS”-style BMW motorcycles, dozens of former highway patrol cars, and an untold number of Chevy Cavaliers, apparently California’s governmental car of choice. The governor even autographed the visors of some of those vehicles to help move merchandise.

Autographed Cavaliers? WELL SHIT! There's no way this could turn out badly. Personally I'd pay more for a signed "My Governor Fucked Up My State Budget and All I Got was this Lousy T-Shirt" t-shirt than I would some burnt out state Cavalier. Or even better, since the state might be too broke to cover the shirts themselves, how about Arnie just Sharpies his name across my chest with a note about how he's sorry but they couldn't afford actual shirts?


(h/t cl5v5r for this hilarity! It's so sad that it's funny, only because *I* live in this sad state and cl5v5r does not. Win-win indeed)

Barney Frank is an Idiot and Shouldn't Speak About the Fed Ever Again




Listen, I really wanted to give this post a serious title, I swear. But WTF. Shut up already, Barney, for the love of all that is sacred and holy in this Godforsaken world. Please!

Rep. Frank eyes Fed audit, emergency lending curbs (via Reuters):

In congressional testimony on July 22, he signaled a willingness to work toward a middle ground. "We are quite willing to work with Congress to try to figure out exactly where the line should be," he said.

Frank said the House legislation would pave the way for an audit to look into what the central bank "buys and sells," but he said the data would be released after a period of several months to avoid impacting financial markets.

Bernanke is widely expected to win needed Senate backing for a new term as Fed chairman, but the central bank's aggressive efforts to stem the financial crisis have stirred controversy that is likely to color his re-nomination hearing.

His current term expires on January 31, 2010.

Blah blah blah blah blah. Reuters must be hard up for some content eh? Apparently so am I if I bothered to share this. Whatever.

Yawn.

Is the Fed Cutting the Cord, or Just Getting Blown Off?



Is this the elusive "exit strategy" in action or just a case of investors trying to wean themselves from the toxic teat?

The U.S. Federal Reserve said on Friday it is scaling back offerings of emergency cash to banks amid waning demand in a step toward pulling back its extraordinary support for the financial system, which appears to be stabilizing after a devastating crisis.

The Fed said it will reduce each of its two Term Auction Facility auctions in September to $75 billion from $100 billion.

The Fed created TAF auctions to supply financial institutions with cash as the credit meltdown, which began in the second half of 2007, became more pronounced and the Fed steadily increased the amounts it was offering.

In its most recent auction, the Fed offered $100 billion but had bids for only $73.4 billion.

As financial markets heal, the Fed will begin to exit from its policies of providing massive liquidity and cutting interest rates to near zero.


And of course, JDA's favorite Fedhead weighed in on this in a recent speech to the Danville, VA Chamber of Commerce:

Richmond Fed President Jeffrey Lacker said on Thursday the Fed should curtail its purchases of longer-term securities if an economic rebound that appears to be in place gains strength.

Lacker and others are concerned the Fed's bloated balance sheet will set the stage for inflation when the recovery gets going.

'Anything that'll help reduce the Fed's balance sheet is greatly welcome,' Ablin said. 'I would expect further steps down the line.'

Some Fed programs will roll off naturally as demand dies down. Others, such as the purchases of longer-term Treasury and mortgage-related securities, will be harder to unwind.
(source)

"Demand"? We still care about that?

Gary North: The Fed on the Defensive


Even the Fed eagle saw what the Fed did there



Presented (mostly) without commentary (via Lew Rockwell):

I do not recall this in my lifetime. A majority in the House of Representatives has co-signed H.R. 1207, a bill introduced by Ron Paul to have the Federal Reserve System audited by an independent government agency, the Comptroller General's office.

The bill has been bottled up in committee by Barney Frank, who has insisted that he is doing this in order to better coordinate consideration of the best way to gain greater transparency from the Federal Reserve. He has not said that he favors an independent audit of the FED.

It would be easy for Congressman Frank to hold hearings on the bill. This would allow Dr. Paul to bring in expert witnesses on the FED to make the case for an independent audit. It would get a lot of YouTube play. It would be the first time since the replacement of eccentric Congressman Wright Patman in 1975 as the chairman of the House Banking Committee that the FED has been exposed to anything like serious criticism in Congress. (Patman, an inflationist and a greenbacker, hated the FED. He was chairman of the House Banking Committee, 1965–75.) Congressman Frank has yet to announce hearings.

There was a posting on the DailyPaul site that Frank will hold hearings soon. Someone heard it on the radio. I will believe it when I see the YouTube videos.

The FED in June hired a public relations expert, Linda Robinson, to deal with Congress. She was formerly a lobbyist for Enron. I have little doubt that it was H.R. 1207 that forced the FED into this move.

Now Ron Paul's book, End the Fed, is about to be published. It is expected to become a best-seller. Think about this. There have been books attacking the Federal Reserve System for over ninety years, but they have been written by obscure people who no one in the general public has heard of. They have not sold well. They have not been written by someone who persuaded over half of the House of Representatives to support a bill to audit the FED. They have not been written by someone who once raised over $30 million in a run for President.

This is unprecedented. For the first time in the history of the Federal Reserve System, there are literally millions of people who have heard of the FED and who would like to see it shut down.

There have been academic and investment critics of this or that policy of the FED, most notably Milton Friedman, who criticized the FED for not inflating enough, 1930–33. But there has never been a serious audience ready to listen to arguments on why a system of 12 private banks should oversee monetary policy, and why one of them, the New York Federal Reserve Bank, should execute this policy without having to answer to anyone.


A Fed audit? Pfft, good luck with that. (see my July 15th You Want to Audit the Fed. But Why?) I initially supported the idea of a Fed audit until I realized that cracking open their books is a futile gesture. They make their own accounting rules! How could any agency, independent or otherwise, decode their financial statements if they are coded in the Fed's special accounting?

But it doesn't end there. As most of you already know, no sooner did a judge say the Fed was obliged to share information on the wheres and whens of bailout programs than the decision was put on hold. Worse, it appears to be frozen indefinitely while the Fed formulates its strategy.

The Board of Governors' lawyer insisted that the Board has no knowledge of what the New York FED – its legal agent – really does. The lawyer said, "We don't control the system of record-keeping in New York." She insisted that the Board of Governors just cannot find out what the New York FED did with the money in time to meet the deadline.

Apparently, the Board of Governors, a government agency, has taken seriously Jesus' words regarding charity (alms):

But when thou doest alms, let not thy left hand know what thy right hand doeth: That thine alms may be in secret: and thy Father which seeth in secret himself shall reward thee openly (Matthew 6:3–4).

The two FEDS, the government one and the private one, were surely involved in the charity business, to the tune of a trillion dollars or so. This was a system of handouts on an unprecedented scale.

The Father in Washington has surely rewarded the FED in the past. The FED expects more of the same in the future. But now this pesky lawsuit forces an opening of the books.

Is the lawyer's argument credible? Perhaps the judge will not regard it as credible. So, the FED had another argument. The FED wants her to wait until the case can be heard on appeal. But there was a hitch. The FED did not say when it intends to appeal.

Here is the FED, with a court ruling against it, and with the clock ticking, admitting that it has no date set to file an appeal. Its lawyers apparently had no fall-back position. Is this credible? Of course not.

Fun fact: the book of Matthew contains the first mention of accounting in the Bible.

Again, one must argue here that calling the Board "government Fed" is a bit of a misnomer. Does the FDIC have the luxury of telling Congress to fuck off when questioned about its policies? Can the USDA simply say "I can't tell you where our money goes"? And if the Fed is government, why in the hell are we in perpetual debt to them for issuing our money?

Food for thought.

The pressure is on and the Fed knows it is in the frying pan. It will be interesting to see how they attempt to get off the stove but regardless of how this plays out, I think we can safely say that we have accomplished some level of transparency in bringing the Fed out of the shadows and into the light.

Bet none of their bubble experts saw that one coming either.

Lehman Bankruptcy Won't Be Pretty



Last weekend we wrapped Regulation in San Jose so I'm all too familiar with bankruptcy law. Secured creditors up to 100%, unsecured, government, blah blah blah. Point being, I sincerely hope Lehman creditors aren't holding their breath.

Maybe the Goldman boys will toss a few million at them to keep things quiet? Speaking of which, why isn't this being treated as a murder investigation instead of a bankruptcy?

Reuters:

Administrators of the London arm of Lehman Brothers said the claims it is handling against the collapsed Wall Street bank could total as much as $100 billion.

PriceWaterhouseCoopers, which is working with over 100 companies, mostly in the UK but also in continental Europe, said on Sunday: "We're dealing with a large number of entities and therefore the claims could be as much as $100 billion.

"These claims are exceptionally complex and we anticipate a large amount of further work in dealing with (them)."

A significant amount of the claims arose as a result of guarantees issued by the parent company to its subsidiaries, the administrator said.

PwC said it had worked with administrators in other affiliates to understand Lehman's accounting system so a standard approach to the reconciliation of inter company balances could be agreed.

"If this can be achieved then it should reduce the likelihood of affiliates suing each other in pursuit of amounts that are owed between the different Lehman estates," it added.

Have fun with that, PwC, we'll pray for you.

NY Judge Decides Fed Transparency is Totally Overrated


Pic credit: me!
Can you believe they let me skeeze on over
to the Board and wave hello?



Just when you thought transparency had a snowball's chance in hell, the Fed has successfully cockblocked Bloomberg's attempt to dig into the "secrets of the temple" and get at the meat of the bailout madness.

What.
the.
fuck.

Reuters:

The U.S. Federal Reserve won a delay of a federal judge's order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received.

Chief Judge Loretta Preska of the U.S. District Court in Manhattan stayed her August 24 order in favor of Bloomberg News, which had sought the information under the federal Freedom of Information Act, so that the central bank could appeal.

The Fed's board of governors has worried that disclosure would stigmatize the participating banks, threatening both them and the U.S. economy.

It argued disclosure threatened "irreparable harm to these institutions and to the board's ability to effectively manage the current, and any future, financial crisis."

The case and a similar one involving News Corp's (NWSA) Fox News Network LLC raise the issue of how much the public has a right to know about how the government is bailing out a troubled financial system.

The Fed was not immediately available for comment.

Preska directed the Fed's board of governors to file a notice of appeal and an emergency stay application with the 2nd U.S. Circuit Court of Appeals.

She also said Bloomberg will not, for now, insist on a search of "official files" at the Federal Reserve Bank of New York, after the central bank's representation that a search would likely be fruitless.
Shit! Here I thought we were WINNING!!

Back to the drawing board. Who wants to see if we can get some indictments?

Richmond Fedhead Lacker on the Economic Outlook, Fed Exit Strategy



The last time Richmond Fed's fearless leader brought us through the landmine-heavy territory of "the economic outlook" from Charleston, South Carolina, the FDIC had a few extra billion lying around, and of course we were all still licking our wounds from a rough late fall just a quarter behind us. It was late March and we'd only just begun our trip on the financial pain train. If anyone can remember that far back, certainly the overwhelming feelings of fear and panic are still fresh in one's mind? The good news is that one need not swallow a handful of Prozac before analyzing the economic outlook of today; even the most pessimistic among us can begrudgingly admit that things are looking up (myself included), at least in comparison to Q1 2009. That being said, much of that "looking up" can be attributed to accounting magic, funny money, and blatant misinformation ("the majority of US banks are extremely well-capitalized" anyone?). The free fall has slowed but we are a long way from "recovered," and it would not be unreasonable to say that we may never return to "old normal" which, frankly, I prefer to this "new normal" which means complacency and denial.

So before we get into where we are now 5 months later, let's look briefly at where we came from:

"[a]fter gradually weakening through most of the first three quarters of 2008, the economy has taken a dramatic turn downward in the last few months. We find ourselves in the midst of a deep recession that is stretching into its second year."

(see, many are quick to pat Zimbabwe Ben on the back for saying the economic outlook is "good" for the first time in months but I argue here that it is an honest assessment of the situation from one of the Fed's own that is most effective. In other words, ZB is a liar and a fat mouth, at least Lacker knows better than to try and convince us everything is just fine)

In his March version, Lacker also bemoaned the hazards of the safety net, or rather the perception thereof and insisted that before we could begin discussing recovery, we would need to address certain regulatory shortfalls that landed us in the lion's mouth. Well yes, that's just a part of the problem.

So! A little more back story and we're ready to roll. Take it away, JL (to the Danville Chamber of Commerce, Danville, VA August 27):

The year 2008 began with the economy in a recession that at first seemed to be relatively moderate. Through August of 2008, for example, payroll employment fell by an average of 137,000 jobs per month. The recession then intensified, and in the last 11 months, employment has fallen by an average of more than a half million jobs per month. I could cite many other dismal statistics, but it is clear that the decline in economic activity intensified last fall and has been large and widespread since then. The result was the worst recession since the 1930s.

I would have liked to see the dismal statistics but maybe I'm just sick that way.

As Lacker so astutely points out, things are looking up but there is no clear sign that things have actually turned. There are still critically disabled areas of concern, without which recovery will be harder to encourage, if not impossible. Jobless recovery? Bah, not possible.

The composite index of manufacturing activity published by the Institute for Supply Management has increased substantially this year to a reading just a smidgeon below the level that would indicate an expanding manufacturing sector. Closer to home, our own Richmond Fed Fifth District Index of manufacturing activity in the Fifth District has risen sharply this year to a level consistent with solid growth in manufacturing. And just as with the national index, our index of new orders has shown a striking improvement in recent months.

We also have seen a significant improvement in financial conditions since the turmoil last fall. Corporate borrowing costs have declined considerably, as interest rates on commercial paper and corporate bonds are now much lower than they were last year. Many major banks have sold stock successfully and now have the capital to support new lending, even if conditions turn out worse than expected. Although many borrowers face tougher credit terms in a soft economy, the banking system as a whole appears capable of supporting business investment and expansion.

Academic and industry economists have taken all this into account, and most now see the second quarter as the low point for GDP in this cycle. The typical forecast calls for positive GDP growth in the current quarter and a gradual improvement beyond that. I agree with this outlook. Indeed, since the beginning of this year I have been expecting positive growth before year-end – but I must emphasize that the recovery is likely to be slow and uneven for some time. We obviously have major difficulties to overcome before we can feel really good about the economy.
Great, there's your outlook. I was hoping for a bit more doom and gloom from my favorite Fedhead but whatever, I'll give him a pass, he probably hasn't been doing much blog reading these days (I can imagine the man is a tad busy).

Anyway. The important part of all of this is inflation as always. Is Janet Yellen still trying to evangelize 2%+ inflation? I stopped paying attention several weeks ago and now that she's not going to take Bernanke's place (ugh!), I'm totally content with ignoring her completely for the foreseeable future. But this isn't about her, is it?

I digress:

Some economists stress the importance of expectations in determining price setting behavior as an alternative source of inflation. According to this view, if expectations are firmly anchored, then the behavior of individual buyers and sellers will be consistent with the expected outcome and inflation will remain fairly steady. I have a lot of sympathy for this view, because it also matches up well with modern macroeconomics. Unfortunately, we have less than ideal measures of the expectations that form the basis of individual behavior. What we do have suggests that inflation is not likely to decline significantly from here. First, there is evidence from monthly surveys that puts the expected long-term growth in the Consumer Price Index at about 3 percent, near the center of where it has tracked over the last decade or so, a period in which inflation has averaged over 2 percent. Second, we can get an implicit measure of longer-run inflation expectations from the prices of certain financial security, and those readings imply that inflation is expected to be higher a few years down the road. While neither type of measure is without its flaws, both seem to suggest that inflation is more likely to rise than to fall.

This evidence does not illuminate why people might expect inflation to be higher. Market commentary, however, suggests that uncertainty over the likely course of monetary policy might be important.

But wait a second, JL, market commentary suggests as much because markets are only slightly skeptical of the Fed's ability to pull out in time. Can he even argue against this perception? Apparently, as he assures us the Fed has the means to get out in time. Coming from him, I'll buy it but I'm not entirely sure even he would be able to assess the gravity of the situation. How can any of them possibly know the when and how of the Fed's exit strategy? These are not only uncharted waters but shark-infested on top of it.

Market participants have at times expressed some doubts that the Fed will be willing and able to reverse course promptly enough to keep inflation in check. From a technical point of view, I do not see a problem – we do have the tools to contract our balance sheet and remove monetary stimulus when we need to do so, as Chairman Bernanke explained in detail in last month’s Monetary Policy Report to Congress. The harder problem is choosing when and how rapidly to remove stimulus as the recovery begins. I am certainly aware of the danger of aborting a weak, uneven recovery if we tighten too soon. But there can be a strong temptation to hesitate when emerging from a recession, awaiting conclusive signs of robust growth. Keeping inflation well-contained may require action before a vigorous recovery has had time to establish itself.

Judging when to withdraw monetary stimulus by raising our policy interest rate is hard enough. But assessing the degree of stimulus provided by our expanded balance sheet poses special challenges.

No shit. At least he acknowledges as much.

So where does this put us? Only slightly better off than we were before. I take from this that while the worst is obviously behind us in terms of economic decay, the scariest part is ahead in how and when the Fed chooses to implement their elusive exit strategy. I sense a thread of doubt in this speech, whether Lacker intends for it to come across or not. Or maybe that's just me reading way too much into things again, I guess only he knows what he meant and just how frightened (or not) he is by the prospect of putting this plan into action.

Good luck with that one, Fed boys, you're certainly going to need it.

Goldman Sachs Owes Back Rent on Property it Sublet to AIG

I'm not entirely sure WTF is going on here
but I am fairly sure it's tangentially appropriate.


Developer sues Goldman Sachs for back rent (Crain's NY):

On Wednesday, Mr. Monian sued Goldman—which had backed some of his deals in the past—for at least $75 million, alleging that the investment bank broke the terms of its lease of his building at 180 Maiden Lane. Mr. Moinian’s action followed a lawsuit that Goldman Sachs filed against him last month alleging that he owed it at least $3.1 million.

Goldman leased the building from Mr. Moinian in 1998 for 15 years. The bank alleges Mr. Moinain owes it $3 million because it didn’t exercise a termination option in the lease last year. Sources said the bank sought to use the building as a sort of safety valve so it can stagger its move into the new headquarters it is constructing downtown, which is slated to begin in the fourth quarter.

Instead, Goldman subleased the building to insurer AIG but retained the right to keep employees in the building. According to Mr. Moinian’s lawsuit, AIG is paying the rent for Goldman on the space the investment bank has already left at 180 Maiden Lane. The suit claims the arrangement means that Goldman is profiting from the sublease and that the lease terms require it to share 50% of any profit with Mr. Moinian. He alleges that Goldman has spared itself $150 million in rents because of the arrangement with AIG.

“Goldman pushed Moinian too far—thinking he would not push back,” said Stephen Meister, who is representing Mr. Moinian. “Goldman’s cozy deal with AIG will not withstand judicial scrutiny.”

AIG declined to comment. Mr. Meister speculated that the troubled insurer would only agree to pay Goldman’s rent because the lease carries two five-year renewal options at below market rates. AIG agreed to sell its headquarters and another building downtown earlier this year.

A Goldman spokeswoman said Mr. Moinian’s suit had no merit.

Well, sure, Goldman spokeswoman, you may be right but to be entirely honest, Goldman itself has no merit so I'm not sure you are entirely qualified to discuss things of which you are not familiar.

Now I haven't been able to determine this yet but I'm wondering if perhaps there is some hilarious irony to be found in Goldman Sachs subletting AIG a property at Maiden Lane that I'm missing because I'm too outraged by the audacity of our friends from GS?

Bank of America Takes Most but Not All of TBW's Loans



The official BofA press release says:

Bank of America announced that it has completed the transfer of the servicing of about 180,000 Ginnie Mae-securitized mortgage accounts previously serviced by Taylor, Bean and Whitaker (TBW) to its home loans servicing portfolio. Letters welcoming those homeowners to Bank of America will be mailed this week and should arrive by September 4.

Recently, Ginnie Mae announced it was ending TBW's ability to continue to service Ginnie Mae-securitized loans and that the loans serviced by TBW were being transferred to BAC Home Loans Servicing, a Bank of America subsidiary and the government corporation's master sub-servicer under a long-standing agreement. These are government-guaranteed loans financed through FHA, VA, the Department of Agriculture's Rural Development program, and the Office of Public and Indian Housing. Bank of America will not become the new servicer of all TBW-serviced loans. Homeowners with other types of loans serviced by TBW, including loans securitized by Freddie Mac and Fannie Mae, should check for further information at www.taylorbean.com.

Wha?

This will teach you to do loan modifications in the future, Bank of America.

Loan mod redux:

If Bank of America is "America's bank" and America is underwater and in desperate need of their help to refinance, why are they being so stingy with the loan modifications?

Does Timmy have to grab Bernaulson's shotgun and start forcing loan mods or what?

Bloomberg:

Bank of America Corp. and Wells Fargo & Co. were the worst performers among the biggest U.S. banks in modifying loans for struggling homeowners, according to a Treasury Department report.

Bank of America began 27,985 trial loan modifications, or 4 percent of its eligible loans, under the government’s Making Home Affordable program started in March, the report today shows. Wells Fargo had a 6 percent rate, trailing JPMorgan Chase & Co.’s pace of 20 percent, and Citigroup Inc.’s 15 percent.
So I suppose this clears up that little "problem."

Karma is a B*tch, Ben Bernanke: Identity Theft Ring Nails The Bernankes


When I first heard about this earlier this morning, I couldn't help but laugh. And not just laugh but LOL and hard. Seriously? I am certainly not totally heartless, of course, but struck by the irony of a Fed chair falling victim to the very scheme his own organization warns us about like the boogeyman lying in wait in each of our wallets. Poor Zimbabwe Ben. Or Mrs. Zimbabwe Ben. Whatever.

CNNMoney:

Fed Chairman Ben Bernanke, the man in charge of the nation's money supply, discovered last summer that even he is not immune to the risk of identity theft.

A thief stole his wife's handbag, taking with it a family checkbook, credit cards and her identification, according to a police report and court documents.

Investigators say they eventually tied the case to a wider scheme of bank fraud that has led to a federal indictment against 22 people. Among them is the suspect in the Bernanke theft, who authorities believe is the man seen in a bank surveillance video trying to use one of the stolen checks to get money from the Bernanke account.

The Federal Reserve Board chairman and his wife, Anna, had to take steps against identity theft after the August 2008 loss, according to Newsweek magazine, which first reported the story Tuesday on its Web page.

Bernanke, through a spokesman at the Federal Reserve, acknowledged the theft and said in a statement provided Thursday to CNN: "Our family was but one of 500 separate instances traced to one crime ring."

The purse was taken in the customer area of a Starbucks coffee shop at Washington's famous Eastern Market.

Metropolitan Police Department records show Anna Bernanke was carrying four credit cards, her driver's license, the checkbook, and a small amount of cash in the handbag. The police officer who took the theft report quoted her as saying the purse was stolen from the back of her chair, and she did not see the theft take place.

According to a criminal complaint filed in October with District of Columbia Superior Court, the suspect, George L. Reid, 41, was involved in a scheme to pass fraudulent checks against multiple bank accounts, including Bernanke's.

I sincerely sympathize for both the Bernankes and any criminal stupid enough to try and pass fake checks in Bernanke's name. Didn't the thief know that only Bernanke himself can perpetuate funny money fraud? Duh!

The original Newsweek article may be found here. But the best part of this entire story is actually this little tidbit: "One of the alleged ringleaders, Clyde Austin Gray Jr., was nicknamed 'Big Head.'"

And that's really all that needs to be said on that.

Guest Post: The New York Fed Attempts A Facelift



Several weeks back, I grew a pair and approached The Center Lane's John Burke with the prospect of a guest post here on Jr Deputy Accountant because I am always impressed with his thorough and spot-on analysis. Plus his Photoshop creations tend to make me LOL every time. I should thank StockTwits for introducing us in the first place; were it not for the viral quality of a couple well-placed $$s, I may have never found John's work (or maybe he found me, who remembers?). His site is highly recommended and if I had more free time, I wouldn't have to lie here and say
I read it consistently. I'm happy to say John has broken the JDA guest post cherry (who would want to be associated with this potty-mouthed, Fedbashing site?) and hope you appreciate John's thoughts as much as I do.

Adrienne


The New York Fed Attempts A Facelift


By John T. Burke

TheCenterLane.com

Of the 12 regional banks in the Federal Reserve system, the Federal Reserve Bank of New York is obviously the most powerful, since it oversees the investment banks on Wall Street. As a result, there have been longstanding criticisms that the New York Fed’s relationship with those banks has been more than a little cozy. The New York Fed’s own board consists of nine individuals. Three of these are Class A directors who represent (and were elected by) the member banks. These people are: Jamie Dimon (CEO of J.P. Morgan Chase), Charles Wait (CEO of The Adirondack Trust Company in Saratoga Springs) and from Puerto Rico (which is under the New York Fed’s jurisdiction) there is Richard Carrion of Banco Popular. Three Class B directors are elected by the member banks to represent “the public” and the three Class C directors are chosen by the (national) Federal Reserve Board of Governors to represent “the public”. There are currently two Class B director vacancies (supposedly representing the public) at the New York Fed since Richard Fuld (the CEO of Lehman Brothers) resigned as his ship was sinking last fall. The other former Class B director Indra Nooyi, seemed a little more appropriate for representing the public since she was the CEO of PepsiCo which is not (yet) in the mortgage-backed securities business. The only sitting Class B director is Jeffrey Immelt, CEO of General Electric. The Class C directors are Lee Bollinger (President of Columbia University), Kathryn Wilde (CEO of the Partnership for New York City) and finally, our star: Denis Hughes (President of the New York State AFL-CIO).

On Monday, Denis M. Hughes was named chairman of the board of the New York Fed. Hughes has been acting chairman since May, when Stephen Friedman resigned due to widespread outrage over the fact that as shareholder and board member of Goldman Sachs, he violated New York Fed policy. You see, once the (national) Fed Board of Governors allowed Goldman Sachs to become a “bank holding company” they fell under the jurisdiction of the New York Fed. As a New York Fed board member (not to mention: chairman) Friedman was supposed to get a waiver to keep his millions of dollars of Goldman stock and remain on Goldman’s board. Although the waiver was requested in October, by December he spotted another 37,300 shares that he just couldn’t resist. So he just went ahead and bought them without the waiver. Although the waiver was eventually granted in January, by late April, Friedman’s conduct added to the mounting concern that the New York Fed seemed to be built on a foundation of conflict of interest.

Prior to Turbo Tim Geithner’s five years as president of the New York Fed, previous presidents, including E. Gerald Corrigan and William J. McDonough left that position to lead investment banking firms. There has been widespread acknowledgement of a “revolving door” between the New York Fed and the Wall Street banks.

Jo Becker and Gretchen Morgenson of The New York Times provided us with a rich history of Turbo Tim’s tenure as president of the New York Fed, discussing the three “no bid” contracts he gave to BlackRock during last fall’s financial crisis and Geithner’s personal friendship with Ralph Schlosstein, who founded BlackRock and remains a large shareholder. On a more general note about the New York Fed, Becker and Morgenson relied on the opinion of an objective expert to explain that institution’s relationship with Wall Street:

Willem H. Buiter, a professor at the London School of Economics and Political Science who caused a stir at a Fed retreat last year with a paper concluding that the Federal Reserve had been co-opted by the financial industry, said the structure ensured that “Wall Street gets what it wants” in its New York president: “A safe pair of hands, someone who is bright, intelligent, hard-working, but not someone who intends to reform the system root and branch.”

After the selection of Hughes as New York Fed chairman was announced, the 40-year member of the International Brotherhood of Electrical Workers explained his responsibilities to James Parks of the AFL-CIO Now Blog:

“My job is to do whatever I can to make sure working families are considered when decisions are made.”

It sounds as though we have a new, “kinder, gentler” New York Fed, doesn’t it?

The reaction of Jon Hilsenrath of The Wall Street Journal, expressed the opinion that the selection of Hughes raises an important legal question:

The Federal Reserve Act (section 4, paragraph 20) says that chairmen of boards overseeing regional Fed banks need to have “tested banking experience.” Mr. Hughes, who is head of the New York branch of the AFL-CIO labor union, doesn’t seem to have that kind of banking experience on his resume. He’s spent most of his professional life as an electrician and union leader.

The law, written in 1913, puts the Fed in a difficult position, because it also dictates (section 4, paragraph 15) that a chairman of a district bank can’t be an officer, director, employee or shareholder in a private bank, a hurdle Mr. Hughes easily clears.

The century-old rules, in other words, say chairmen of regional Fed banks have to have banking experience, but can’t have anything to do with banks – a pretzel of a provision which ties one hand behind the Fed’s back, and the other hand in front.

One solution to the problem would be to rewrite the law. But you’re highly unlikely to hear a Fed official utter those words. If Congress gets started on that, who knows what else it will change?


It will be interesting to see whether a debate ensues over this issue. The easy solution would involve finding examples of other regional Fed chairpersons who similarly lacked “tested banking experience”.

In the mean time, the New York Fed has now provided us with this handy map illustrating different types of loan deficiencies as they appear across the country. Here’s how they explain it at their website:

The U.S. Credit Conditions section offers new interactive maps and data on auto and student loan delinquencies, and mortgage “roll” rates. These features complement existing maps and spreadsheets on mortgage foreclosures and delinquencies, measures of subprime and alt-A mortgages and bank credit card delinquencies. The data are available at the state and county level.

This information is aimed at helping government agencies, community groups, commercial institutions and other practitioners better understand, monitor and respond to local conditions associated with foreclosures and credit and mortgage delinquencies.

“Our goal is that a wide range of decision makers in the public and private sectors will use this information to advance their efforts to resolve delinquency and foreclosure problems,” said Erica L. Groshen, vice president and director of Regional Affairs at the New York Fed.

Now you can watch the entire country go broke in living color, courtesy of the new, kinder, gentler, Federal Reserve Bank of New York.



(editor's note: if you're addicted to the stuff, John may also be found on Twitter @isunburn)

The SEC Finally Commits to a Chief Accountant, Goes for Deloitte Alum Kroeker


Pic credit: Stan Lomax?


It's about damn time. Now all we're holding out for is a final decision on IFRS. So gee, thanks!

Forbes:

James Kroeker, who has been acting chief accountant at the Securities and Exchange Commission since January, has been named to the job permanently, the agency announced Tuesday.

It was the latest personnel appointment by SEC Chairman Mary Schapiro, who has brought a number of changes to the embattled agency since taking over in January.

The SEC has been buffeted by criticism for failing to detect signs that major Wall Street banks were in trouble before the financial crisis erupted and for failing to discover the multibillion-dollar Ponzi fraud orchestrated by now-imprisoned money manager Bernard Madoff, despite red flags raised to agency staff by outsiders over many years.

Kroeker directed the SEC's study on so-called mark-to-market accounting rules issued late last month. The report was mandated by Congress as part of the $700 billion financial bailout package. With the study, the SEC officially rejected a banking industry push to suspend the rules, which force banks to value assets on their balance sheets at current market prices even if they plan to hold them for years.

The study recommended maintaining the fair value rules but also suggested improvements to current accounting practices.

Kroeker, who came to the SEC from accounting firm Deloitte and Touche LLP in early 2007, also has led the efforts by the chief accountant's office to address the current economic turmoil, including steps to improve guidelines for off-balance sheet accounting, according to the agency.

Blah, blah, blah. I won't be holding my breath for Kroeker to change the world or anything.

Hey Fed Boys, We Didn't See What You Did There. But We'd Really Love To.



Ohhhhhh how the tables turn. Don't go celebrating just yet, Zimbabwe Ben, we're coming for dat ass and it won't be pretty.

Court Orders Fed to Disclose Emergency Bank Loans (via Bloomberg):

The Federal Reserve must for the first time identify the companies in its emergency lending programs after losing a Freedom of Information Act lawsuit.

Manhattan Chief U.S. District Judge Loretta Preska ruled against the central bank yesterday, rejecting the argument that loan records aren’t covered by the law because their disclosure would harm borrowers’ competitive positions.

The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programs, most put in place during the deepest financial crisis since the Great Depression, saying that doing so might set off a run by depositors and unsettle shareholders. Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued on Nov. 7 on behalf of its Bloomberg News unit.

“The Federal Reserve has to be accountable for the decisions that it makes,” said U.S. Representative Alan Grayson, a Florida Democrat on the House Financial Services Committee, after Preska’s ruling. “It’s one thing to say that the Federal Reserve is an independent institution. It’s another thing to say that it can keep us all in the dark.”

The judge said the central bank “improperly withheld agency records” by “conducting an inadequate search” after Bloomberg News reporters filed a request under the information act. She gave the Fed five days to turn over documents it told the reporters it located, including 231 pages of reports, and said it must look for more at the Federal Reserve Bank of New York, which runs most of the loan programs.

The central bank “essentially speculates on how a borrower might enter a downward spiral of financial instability if its participation in the Federal Reserve lending programs were to be disclosed,” Preska wrote. “Conjecture, without evidence of imminent harm, simply fails to meet the Board’s burden” of proof.

David Skidmore, a Fed spokesman who said the board’s staff was reviewing the 47-page ruling, declined to comment on whether the central bank would appeal to the U.S. Court of Appeals in New York.

I'm shocked that FoIA would even work on the Fed. Here I thought the evil cabal was above that sort of thing?

The U.S. House may vote as soon as next month on a bill to require the Fed to submit to audits by the Government Accountability Office, said Representative Scott Garrett, a New Jersey Republican on the Financial Services Committee.

The judge’s ruling “is strikingly good news,” Garrett said. “This is what the American people have been asking for.”

The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg suit, filed in New York, didn’t seek money damages.
I hate to break this to Bloomberg in case this is news to them but, uh, the Fed isn't exactly a government agency. That's really cute though.

In case you missed my $0.02 on the concept of a "Fed audit", they may be found here. It's laughable at best that we can accomplish anything by cracking open their books. Not to discount Ron Paul's determination but an audit is only as good as the rules upon which it is conducted. Seeing as how the Fed provides its own accounting, there is no way any outside source could conclude anything of value.

Harpoon the fuckers already and put them out of their misery. Or rather, put us out of ours. Thanks!

Leave It to GS to Reassure the Unwashed Masses: Fed Balance Sheet Could Swell to $4 Trillion



First of all, I'd be curious to know if anyone can actually confirm the $2 trillion number. GAO? Independent team of auditors? Exceptionally talented money-counting hamsters who live in the Board of Governors bunker? Anyone?

Goldman’s Hatzius Says Fed Balance Sheet Could Hit $4 Trillion (via Bloomberg):

Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc., said the Federal Reserve could double the size of the central bank’s balance sheet again if needed to support economic growth.

A rise in the balance sheet to $4 trillion is a “possibility,” Hatzius said in an interview on Bloomberg Radio in New York. “It is going to depend on not just what inflation does, but also on whether the economy does move back to a slower growth pace.”

Fed Chairman Ben S. Bernanke has cut the main U.S. interest rate to almost zero and more than doubled total assets on the central bank’s balance sheet to unclog credit markets and help meet banks’ demand for cash. Fed officials have started to phase out such programs, deciding this month to let a $300 billion program to purchase long-term Treasuries expire in October.

The size of the Federal Reserve’s balance sheet has increased to $2.02 trillion as the central bank purchased assets aimed at lowering interest rates, as of the week ended Aug. 12.

The Fed must now guide the world’s largest economy back to growth and reduce unemployment approaching 10 percent while shrinking the balance sheet to prevent a surge in inflation, Hatzius said.

“Rates need to stay low,” he said. The Fed “could become more aggressive in purchasing assets. They have not gotten a lot of bang for the buck on that policy so far.”

U.S. unemployment will surge to 10 percent this year and the budget deficit will widen to $1.5 trillion next year, reflecting a “deeper recession” than previously expected, the White House said today.
This is absolutely hilarious. Bernanke gets his second term and all the sudden the Fed is interested in the "take it nice and slow, baby" method.

Pfft. I'm unimpressed. There are no more validations remaining for the Fed to expand its balance sheet regardless of whether we are referring to $1 or $1 trillion. Not one penny more. What is going to happen to Maiden Lane parts 1, 2, and 3? Does the Fed plan to fund Obamacare all on its lonesome? Is it truly "handmaiden to the Treasury" like Dallas Fedhead Richard Fisher insists it most certainly is not? (please see my July 23rd Dallas Fed's Fisher: "The Fed is not the Treasury's Bitch, Bitch" for further clarification on that point)

Perhaps Fisher did not get the memo because it appears to me as though the Fed has just been turned into the Treasury's bitch, bitch! LOLZ!

Government Intervention: the "Dash for Trash" Continues




I always laugh at my landlord and my roommate the Chinese heart surgeon when I catch them in our kitchen talking about Citigroup. They can't seem to get enough of $C U Next Tuesday and I can't seem to stop making fun of them for it. Hey whatever, it's not my portfolio, right?

Reuters:

In late August's quiet trading, four troubled financial companies have accounted for a big piece of total volume on the New York Stock Exchange, in what one analyst referred to as a "dash for trash."

Citigroup (C), Bank of America (BAC), Freddie Mac (FRE) and Fannie Mae (FNM) have dominated trading recently as each has more than doubled in price from 2009 lows.

On Monday and on Tuesday morning, the four accounted for more than 40 percent of composite volume on the NYSE. Some attributed this to bets on hoped-for economic improvement and ongoing government support, but others said the volume was due to speculation in popular names with low share prices.

"We've been referring to the heavy volume on these as the 'dash for trash,'" said Jon Najarian, the co-founder of Optionmonster.com in Chicago. "No one is buying them based on their fundamentals, they're buying based on what the government might do to keep them alive."

Citigroup should have been shot out back like a racehorse with a broken leg months if not years ago.

Bank of America may make it out alive but things don't look promising at this point, especially if they continue getting snagged by the same bear traps along the way.

As for Fannie and Freddie, these disgusting monsters should have been tranquilized and put down 8 quarters ago. If it weren't for the threat of Chinese retribution if they were to lose how ever many bazillion$ in FRE/FNM securities we conned them into taking on, we'd have put them out of their misery a long while ago.

Oh and then there's some real tin foil hat stuff here that could be inferred about the invisible hand propping up markets and all that but I'll leave that be for now. Make your own inferences if you wish.

TBW Files for Chapter 11


This should not come as much of a surprise to anyone with a heartbeat.

Reuters:

Taylor, Bean & Whitaker Mortgage Corp filed for Chapter 11 bankruptcy protection and said it may liquidate, three weeks after it closed its mortgage lending business and was suspended by a federal agency.

The Ocala, Florida-based company, which was the nation's 12th-largest U.S. mortgage lender from January to June, filed for protection from creditors on Monday with the U.S. bankruptcy court in Jacksonville.

Saying its business has been "crippled," Taylor Bean said it plans to operate on a scaled-down basis as it works to recover, restructure and possibly liquidate its assets.

It named Neil Luria of Navigant Capital Advisors as chief restructuring officer, and restructuring specialists Bruce Layman and Bill Maloney to its board.

"The speed of its collapse has been stunning," Luria said in a statement.

According to the bankruptcy petition, Taylor Bean has more than $1 billion of both assets and liabilities, and between 1,000 and 5,000 creditors.

The Federal Housing Administration said it suspended Taylor Bean on August 4, citing its failure to submit a required annual financial report, its having "misrepresented" that it had no unresolved issues with its auditor, and "irregular transactions that raised concerns of fraud." The FHA also proposed to sanction the company's chief executive and its president.

Shortly afterward, Freddie Mac (FRE) and the Government National Mortgage Association, also known as Ginnie Mae, suspended Taylor Bean as an issuer of mortgage securities.


You would really think a major player taken out of the game like this would have more of an impact on markets in general. I guess the apathy has fully taken over.

Re: Pulling the Plug on the Fed




Someone known for the phrase said it again tonight. "The entire institution should be canned" is much more polite than how Skeptical CPA puts it. I think I'm somewhere in the middle of their argument but that's for another day.

Oh snap, Safe Haven is pissed:

Last week's buzz in Jackson Hole Wyoming and around Wall Street is whether or not Banana Ben Bernanke should be reappointed to the Fed Chair. CNBC also held a panel discussing this issue with Bob McTeer (former President of the Dallas Fed). The consensus was that it was ridiculous not to have Barack Obama indicate he would serve another term as soon as possible. The agreed upon reason being that no one could do a better job than he has done.

So please allow me to inject a little sanity into the discussion. While most people in our industry are quick to hoist Mr. Bernanke on a pedestal -- just as the former maestro Allan Greenspan was -- I think the entire institution should be canned.

First let me say that Gentle Ben, or any Fed Chairman for that matter, can only do a few things if his goal is to pull the economy out of a recession. He can print money, exchange Treasury holdings for a lesser quality asset, or lower bank reserve requirements. So, basically they can either dilute the value of our currency or decrease the quality of their asset holdings. That's it.


But who is to say what his goal is? Is there some Fed handbook that dictates the mantra or is this some secret class he taught at Princeton? Esoterica 201, Dr Bernanke. As if.

Deja vu anyone?

“Under Arthur Burns, who chaired the Fed from 1970 to 1978, and under G. William Miller, who was chairman from January 1978 to August 1979, the Fed provided the monetary fuel for an inflation that began as a flicker and grew into a fearsome blaze... If Nixon appointee Burns lit the fire, Miller poured gasoline on it during the administration of President Jimmy Carter. Without question the most partisan and least respected chairman in the Fed's history, this former Textron executive worked in tandem with fellow Carter appointee, Treasury Secretary W. Michael Blumenthal, in pursuit of monetary policies that were expansionist domestically and devaluationist internationally. The goals were to spur employment and exports, with little thought to the dollar's value. By early 1980, inflation was running at 14%.”
[homicidal maniac] Alan Greenspan (1987 – 2006)

Bob McTeer also seems convinced that duh, GDP will point the way
. Is he referring to the real GDP or the number that they make up to tell us?

It's not money created that matters; it's money spent. Not money (M), but money times velocity (MV).

As confidence improves the velocity of money will presumably move back toward normal. It will not be difficult to see that and respond accordingly with slower money growth. Since gross domestic product equals money times velocity (GDP = MV) and since velocity equals GDP divided by money (V = GDP/M), a close eye on GDP growth is another way to see the need coming.

This is not rocket science.

Hahahahahaha ok, Bob.

Where is our compassionate release?!

The Audacity of Regulation


Pic credit: Obama unicorn guy
I'm serious



On this national day of mourning in honor of Ben Bernanke's second term (I declared it, bitches), just look at the painting above and think it could be worse. As WC Varones put it, we could have ended up with the corpse of Alan Greenspan back in the saddle again.

No wait, here's a better shot of everyone's favorite homicidal maniac:


That's Wikipedia for you.
Guaranteed pure evil every time.


Anyway. We get Bernanke for 4 more years but I hope we can put that into perspective. How fucking long will we put up with this shit? Name this decade:

"In the South and Southwest, particularly, you've had banks getting away with murder for years -- racial discrimination, redlining and dealing almost exclusively in commercial loans," said New Orleans neighborhood activist Michael Shea, national director of housing and banking campaigns for ACORN, the Association of Communities Organized for Reform Now. "I think the Atlanta Fed (Federal Reserve Bank) is shielding the banks from the public."

Regulators say evidence of disproportionate lending patterns is not enough to cause a bank to be penalized.

"It's not our job to allocate the credit geographically. We don't have hard and fast lines on that," Governor Seger of the Federal Reserve testified. Proposed changes in the law

This contentious triumvirate of bankers, community groups and regulators is lobbying now as Congress considers several proposals to improve enforcement of the CRA.

If names were not attached (yeah don't try to cheat and Google it), would you even know the difference between a decade ago and today? How about 2?

A test that few banks fail -- in federal eyes Regulators say 98% obey lending law, but skeptics say communities shorted

By Bill Dedman, The Atlanta Journal-Constitution
Published May 3, 1988, Page A1

I will ask you again how long will we put up with this shit?

(h/t this OG of central banking - who knew this stuff could be so interesting?)

Ben Bernanke's Second Term: The (Pre-)Aftermath



Sometimes, this really does remind me of a bad zombie movie.

So I guess I'm supposed to talk about how this entire thing makes me feel. The overwhelming sentiment I heard this evening was one of relief that zombie Greenspan wasn't summoned from beyond the grave to take back the Fed. Though one must wonder what sort of world we live in where we settle for the least bad option every time.

Larry Summers? No fucking thank you.

Janet Yellen? You had to be kidding me.

Ben Bernanke? Why not?

I may regret saying this later on but this may be the first time I don't feel disappointed by Chairman Maobama. I suppose like a bad Wall St analyst I simply shot low and was then amazed by the results. I didn't expect much, nor did I expect Obama would extend Bernanke a second term. Perhaps he is due some credit. God, this is going to bite me in the ass later, isn't it?

We don't need a cowboy as Fed chair. We don't need a Tim Geithner and we certainly don't need zombie Greenspan. Bernanke is moronic at worst and diabolical at best and maybe that's exactly what we need right now. We don't want a mini Greenspan. Bernanke is docile enough not to be a threat as long as he keeps Geithner away from his agendas (he still has cooties).

Come on now:

Mr. Greenspan refused to answer a question about how far the Fed would push up interest rates in order to defend the dollar’s value, responding simply, “I pass.” Indeed, the Fed chief indicated a general reluctance to speak forthrightly about monetary policy. “Since I’ve become a central banker,” he said jokingly, “I’ve learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said.”

Or how about this AG winner:

I know of no Federal Reserve policy actions which are affected by the Treasury Department. We do not solicit their views on policy questions. We obviously try to coordinate with them in the sense that we are part of the United States government. We should not have conflicting policies with the Treasury if we can avoid it, and, as best I can judge, we seem to be at the moment looking at the work at large in a similar manner, and I hope we can continue to do so… but the presumption that the Treasury controls monetary policy is false.



You know you've thought it more than once,
come on now


I have never heard Ben Bernanke speak like that. He stumbles in front of Congress. He matches his tie to Timmy and wears brown socks with black shoes. Come on, look at the infamous Wikipedia shot! The guy isn't capable of singlehandedly destroying the economy. He may, however, be the guy who has to dispose of its remains.

Who better than the rocket scientist of economics to dissect the corpse? Larry Summers? Please, he's gross. His agenda was far too obvious to be effective; Bernanke, as a politically-castrated Republican (or so he claims), is a perfect fit right now. Suspicious? Gentle Ben? Yeah right.

I'd stay out of the market when OMG Obama makes his official announcement unless you're into cumshots, it's going to be an all out porno shoot in response to this news.

I will not be participating. FYI.

Shouldn't this 2008 Time magazine Bernanke jerk off have been tagged "artists and entertainers" instead?

Bah. I'm not impressed. This is the best we could do right now and that's not saying much.

Since Bernanke and I not only share a sign but a birthday, let's see what the stars had for us today (8/24 will end up being a bank holiday next year in his honor):

You are often upfront with your feelings, yet you don't necessarily dwell on them. You normally prefer to let your actions speak for you. Now, however, you might believe that you have something to hide. Luckily, keeping your emotions to yourself is easy today with the Moon in your 12th House. Remember, there's a lot to discuss about all the developments at your place of work, which can take the focus off of your inner process.


LOLZ. I can see how he'd be distracted by work. Hang in there, Zimbabwe Ben. I've said it before, if you want to effectively dismantle the Fed, you need to leave them alone. Insanity? Try strategy. ZB has four more years to fuck things up further.