Sunday, April 18, 2010

Road to Perdition...

Greetings good citizen,

In what looks like a game of ‘follow the leader’, almost every financial site is featuring a story asking if their readers ‘think’ Goldman Sachs committed fraud.

Naturally, it doesn’t matter what YOU think, most of us want an end to the farce in the Middle East but we got the classic ‘How’s it feel to want?’ thrown at us.

Most of us ‘think’ the war is, er, ‘unproductive’ but it seems our so-called leaders think otherwise…not that we would have received action more ‘in tune’ with the majority opinion from other candidates.

It’s not a big stretch to envision candidate Hillary screaming ‘bomb here, bomb now!’ and candidate McCain made no secret of his commitment to ‘the long war’.

Perhaps more curious is how the only candidates that may have been more inclined to react in line with ‘public sentiment’ all got the ‘bums rush’ from the MSM as being ‘unfit for office’.

But I digress…although not by much.

Once again good citizen the name of the game is ‘perception management’.

Does it strike you as odd that is has taken three years for the SEC to, er, ‘file charges’ in an incident that screamed ‘fraud’ at every step of the way?

It’s like a bad movie, the public has been, er, ‘dissatisfied’ with the decisions of our lawmakers and our lawmakers have been ‘acting’ like they have an extreme hearing problem.

Screams to protect US jobs have been answered with ‘illegal immigrant’ witch hunts. Speculators driving up the price of crude has been met with illegal invasions of sovereign nations…making us wonder what kind of morons we send to Washington?

Which is to say we are once again confronted with a ‘leadership’ that is convinced they know better than the average citizen what is ‘good’ for them…

It is only the occasional MSM article that makes even the vaguest reference to the blatant level of ‘perception management’ the DOMINATES the ‘news cycle’…

So we arrive at tonight’s offering

[Kudos to Gretchen Morgenson for, if nothing else, daring to speak the truth…albeit, the only way this piece got past an editor is as a ‘counterweight’ (and a feeble one at that.)]

This Bailout Is a Bargain? Think Again
Published: April 16, 2010

IT’S way too early to tally the costs of the government’s various efforts to help our nation’s financial institutions survive the credit debacle. But that hasn’t stopped anonymous Treasury officials from claiming in recent days that their Armageddon-avoidance will wind up costing far less than many feared. [This merely points to something we all know, just how, er, ‘careless’ Mr. Obama’s choice of Treasury Secretary has proven to be…]

One Treasury estimate, leaked to The Wall Street Journal last week, put a price tag of $89 billion on the financial bailout. That’s far below the $250 billion the Congressional Budget Office estimated last year or other analyses that put the all-in number at $1 trillion or more.

It is understandable, of course, that Treasury might want to transmit good news about bailouts the same week Americans were rushing to meet the I.R.S.’s tax deadline. And given that Treasury is run by Timothy F. Geithner, the man who doled out bailout billions as president of the Federal Reserve Bank of New York, his current minions certainly have an interest in peddling the view that the price of these rescues has become less onerous. [Sadly, the facts contradict such ‘happy’ (if not downright ‘glib’) pronouncements.]

But before we break out the Champagne, let’s look at the costs this estimate included — as well as those it left out.

What the $89 billion included were costs associated with stabilizing Fannie Mae and Freddie Mac, the mortgage finance giants; loan guarantees by the Federal Housing Administration; and liquidity programs offered by the Federal Reserve, such as those authorizing the purchase of mortgage-backed securities from financial institutions. It also included the Troubled Asset Relief Program — which, nameless Treasury officials contended, may someday generate a profit.

But if the Treasury wants to provide a full assessment of the costs of this financial debacle, it will have to add some more beads to its abacus.

“If you are going to do a ledger, you have to do a full and complete ledger,” said Christopher Whalen, editor of the Institutional Risk Analyst. “To talk about making money on short-term transactions with the TARP while you have this huge cost to the nation is incongruous.”

A major factor missing from Treasury’s math is the vast transfer of wealth to banks from investors resulting from the Fed’s near-zero interest-rate policy. [‘Near Zero?’ Nice of them to bring up this ‘floating’ interest rate thing…reminding us of the unanswered question of ‘who’ gets to borrow at zero interest and who is ‘penalized’ at .25% interest?]

This number is not easy to calculate, but it is enormous. The Fed’s rock-bottom interest-rate policy bestows huge benefits on banks because it allows them to earn fat profits on the spread between what they pay for their deposits and what they reap on their loans. These margins are especially rich on credit cards, given their current average rate of 14 percent and up. [Again we need to ‘qualify’ the above statement by adding ‘with your good credit’, because that’s the only way you are still getting 14% from a chiseling credit card company!]

The losers in this equation are savers and investors, especially people on fixed incomes. “All interest-sensitive investors have been transferring what they should be receiving to Uncle Sam and the banking industry,” Mr. Whalen said. “And you are talking about a lot of money.” [Here’s a class ‘A’ slippery slope. We start with a crisis ‘caused by’ too much money chasing too little return…then we turn around and cry about all of the savers who can’t ‘protect’ their, er, ‘liquidity’…their ‘capital’ is being devoured by (crooked) investment vehicles as well as by officially ‘non-existent’ inflation.]

Then there are the losses suffered by the Federal Deposit Insurance Corporation when it has to take over faltering institutions. The estimated cost to its insurance fund is $6.65 billion for the 43 banks that have failed this year. The fund is financed by bank fees.

Treasury’s recent figures also don’t reflect hits that may result from loss-sharing arrangements the F.D.I.C. set up with healthy banks to persuade them to take on the assets of failing ones. How much the government might have to swallow as part of that program is unknowable now, but Mr. Whalen said he expects such losses to hit $400 billion when all is said and done. [This is, in my assessment, a very conservative number indeed!]

There are also costly consequences of our government’s relatively easygoing approach to bank assistance, a practice Mr. Whalen calls “extend and pretend.” [Yet more evidence that the economy (or what passes for it) is being ‘held together’ by accounting fraud…]

“The refusal of the Washington political class to address the issue of bank insolvency quickly via restructuring and recapitalization has extended the economic recovery process by years,” he said. “Lending will continue to shrink and real economic activity is suffering. The cost of ‘extend and pretend’ goes into the trillions of dollars of lost economic activity.” [Naturally, it is debatable if the ‘over-extended’ consuming public is capable of generating /absorbing this phantom ‘economic activity’?]

By allowing the banks to keep bad loans valued on their books at unrealistic levels, the government has prolonged the agony of this downturn. Mr. Whalen suggested that the government should have made the banks write down loans to realistic levels a long time ago, while letting them keep the TARP money as a financial cushion. [Crap good citizen, just how pervasive is this ‘there’s no such thing as ‘good government’ meme? The capitalist freakazoids blow up the economy and now it’s the government’s fault? You can see where this is going good citizen; it’s only a matter of time before this becomes YOUR fault for accepting a paycheck from your employer. You ‘should have’ told them to stick it and slowly starved to death (for the good of the economy) while continuing to selflessly surrender your labor for that same ‘greater good’. Your employer would be ‘grateful’ for your sacrifice while (somewhat unkindly) defending their action by stating “I can’t help it if they’re stupid!”]

Instead, the banks were encouraged to pay back TARP and put off the day of reckoning when it came to assessing the real-world value of the toxic assets lurking on their books. And so the shrinkage of the banking system continues. [A ‘banking system’ that was far larger than the ‘real economy’ could support, which goes a long way towards explaining why it melted down!]

Of course, the $89 billion estimate also excludes big costs associated with the implied government guarantees of large, interconnected and clubby financial institutions. Dean Baker, co-director of the Center for Economic and Policy Research in Washington, estimated last year that 18 large banks that the market viewed as too big to fail received advantages — such as artificially cheap funding costs — worth $34 billion a year.

Such financial benefits represent yet another cost of the banking crisis and the continuing actions the government is taking to protect our system from the mistakes of megabanks. Even if Treasury doesn’t want to acknowledge them, they’re real. [This is worse than it appears good citizen because it is not that the Treasury is ‘ignorant’ of these facts, it is their willingness to lie about it that ‘should be’ your chief concern…if we can’t trust the people running our society, who can you trust? Which is the same as asking how you/they can sleep at night?]

ANDREW G. HALDANE, executive director for financial stability at the Bank of England, examined some of these costs in an excellent speech last month before the Institute of Regulation and Risk in Hong Kong. Calling such costs “banking pollution” and the “noxious byproduct” of systemic risk, Mr. Haldane took a stab at measuring some of them.

In past financial crises, Mr. Haldane noted, costs appeared to be “large and long-lived, often in excess of 10 percent of pre-crisis G.D.P.” But he said that current estimates in the United States that peg bailout losses at around $100 billion represent less than 1 percent of domestic output. (This is the relatively rosy view Treasury is promoting.)

He said low-ball accountings “are almost certainly an underestimate of the damage to the wider economy” as a result of the crisis. World output last year was thought to have been 6.5 percent lower than it might have been had the crisis not occurred. Globally, this translates to $4 trillion in lost output, he said.

He also says such losses can be “permanent” or “persistent.”

“Measures of the costs of crisis, or the implicit subsidy from the state,” Mr. Haldane said, “suggest banking pollution is a real and large social problem.”

Sadly, it is one that our leaders here at home seem more willing to underplay than control.

You know and I know that the TARP was a $700 billion dollar deal…so $89 billion is basically bullshit. As the ‘overseer of bailouts’ put it, the taxpayer is on the hook for some 23 ‘Trillion with a ‘T’ dollars worth of, er, largely fictional assets. So how we ‘got off light’ is a rather mysterious claim unless they are referring to the ‘perps’, who have gotten of light indeed!

What is perhaps ‘comical’ is how they keep inventing new, colorful phrases to avoid using ‘harsher’ terms, like theft and fraud.

What do you suppose ‘banking pollution’ really is? Is someone guilty of taking a steaming dump in the money supply and none of these wussies are up to the job of cleaning it up?

Most perplexing good citizen is the financial system is based upon trust…so how much confidence does this doubletalk that only takes a small fraction of the larger picture into consideration give you?

Worse, it won’t straighten itself out.

So what are you gonna do?

The price of remaining idle is a Banana Republic…and I sure don’t want to do that to our kids.

Time to ‘nut up or shut up’ good citizen,

Thanks for letting me inside your head,


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