Gloom, Doom, or Boom? Finance and Economics

[Typhoon]

DJIA hit a intraday high of 13,000 yesterday.

First time since 2008.

[Enki]

http://www.freerepublic.com/focus/f-news/2796356/posts

The Federal Reserve and Bank of America Initiate a Coup to Dump Billions of Dollars of Losses on the American Taxpayer

Bloomberg reports that Bank of America is dumping derivatives onto a subsidiary which is insured by the government – i.e. taxpayers.

Yves Smith notes:

If you have any doubt that Bank of America is going down, this development should settle it …. Both [professor of economics and law, and former head S&L prosecutor] Bill Black (who I interviewed just now) and I see this as a desperate move by Bank of America’s management, a de facto admission that they know the bank is in serious trouble.

The short form via Bloomberg:

Bank of America Corp. (BAC), hit by a credit downgrade last month, hasmoved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation…

Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.

Now you would expect this move to be driven by adverse selection, that it, that BofA would move its WORST derivatives, that is, the ones that were riskiest or otherwise had high collateral posting requirements, to the sub. Bill Black confirmed that even though the details were sketchy, this is precisely what took place.

And remember, as we have indicated, there are some “derivatives” that should be eliminated, period. We’ve written repeatedly about credit default swaps, which have virtually no legitimate economic uses (no one was complaining about the illiquidity of corporate bonds prior to the introduction of CDS; this was not a perceived need among investors). They are an inherently defective product, since there is no way to margin adequately for “jump to default” risk and have the product be viable economically. CDS are systematically underpriced insurance, with insurers guaranteed to go bust periodically, as AIG and the monolines demonstrated. [Background.]

The reason that commentators like Chris Whalen were relatively sanguine about Bank of America likely becoming insolvent as a result of eventual mortgage and other litigation losses is that it would be a holding company bankruptcy. The operating units, most importantly, the banks, would not be affected and could be spun out to a new entity or sold. Shareholders would be wiped out and holding company creditors (most important, bondholders) would take a hit by having their debt haircut and partly converted to equity.

This changes the picture completely. This move reflects either criminal incompetence or abject corruption by the Fed. Even though I’ve expressed my doubts as to whether Dodd Frank resolutions will work, dumping derivatives into depositaries pretty much guarantees a Dodd Frank resolution will fail. Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. [Background.] So this move amounts to a direct transfer from derivatives counterparties of Merrill to the taxpayer, via the FDIC, which would have to make depositors whole after derivatives counterparties grabbed collateral. It’s well nigh impossible to have an orderly wind down in this scenario. You have a derivatives counterparty land grab and an abrupt insolvency. Lehman failed over a weekend after JP Morgan grabbed collateral.

But it’s even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors. No Congressman would dare vote against that. This move is Machiavellian, and just plain evil.

The FDIC is understandably ripshit. Again from Bloomberg:

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Well OF COURSE BofA is gonna try to take the position this is kosher, but the FDIC can and must reject this brazen move. But this is a bit of a fait accompli,and I have NO doubt BofA and the craven, corrupt Fed will argue that moving the derivatives back will upset the markets. Well too bad, maybe it’s time banks learn they can no longer run roughshod over regulators. And if BofA is at that much risk that it can’t survive undoing this brazen move, that would seem to be prima facie evidence that a Dodd Frank resolution is in order.

Bill Black said that the Bloomberg editors toned down his remarks considerably. He said, “Any competent regulator would respond: “No, Hell NO!” It’s time that the public also say no, and loudly, to this new scheme to loot taxpayers and save a criminally destructive bank.

Professor Black provided a “bottom line” summary in a separate email:

1.The bank holding company (BAC) is moving troubled assets held by an entity not insured by the public (Merrill Lynch) to the Bank of America, which is insured by the public 2. The banking rules are designed to prevent that because they are designed to protect the FDIC insurance fund (which the Treasury guarantees) 3. Any marginally competent regulator would say “No, Hell NO!” 4. The Fed, reportedly, is saying “Sure, no worries” by allowing the sale of an affiliate’s troubled assets to B of A 5. This is a really good “natural experiment” that allows us to test whether the Fed is protects the public or the uninsured and systemically dangerous institutions (the bank holding companies (BHCs)) 6. We are all shocked, shocked [sarcasm] that Bernanke responded to the experiment by choosing to protect the BHC at the expense of the public.

Karl Denninger writes:

So let’s see what we have here.

Bank customer initiates a swap position with Bank. In doing so they intentionallyaccept the credit risk of the institution they trade with.

Later they get antsy about perhaps not getting paid. Bank then shifts that risk to a place where people who deposited their money and had no part of this transaction wind up backstopping it.

This effectively makes the depositor the “guarantor” of the swap ex-post-facto.

That the regulators are allowing this is an outrage.

If you’re a Bank of America customer and continue to be one you deserve whatever you get down the line, whether it comes in the form of higher fees and costs assessed upon you or something worse.

Stand Up to the Coup

Bank of America has repeatedly become insolvent due to fraud and risky bets, and repeatedly been bailed out by the government and American people. The government and banks are engineering an age of permanent bailouts for this insolvent, criminal bank (and the other too big to fails). Remember, this is the same bank that is refusing to let people close their accounts.

This is yet another joint effort by Washington and Wall Street to screw the American people, and totrample on the rule of law.

The American people will be stuck in nightmare of a never-ending depression (yes, we are currently in a depression) and fascism (or socialism, if you prefer that term) unless we stand up to the overly-powerful Fed and the too big to fail banks.

[Zack Morris]

US is currency is fiat-based and therefore the cost of bail outs and emergency loans do not have to be paid back from actual tax revenue.

[Typhoon]

WSJ | Bad News for Boomers

Demographic trends will depress portfolio returns, this researcher warns

If you're a baby boomer, you've got a big problem when it comes to the investment returns you can expect in retirement: It's the sheer number of other boomers who are also getting ready to leave the workplace and rely on their portfolios to help pay the bills.

[Typhoon]

FT | China ditches double-digit growth

China cut its annual growth target for the first time in eight years on Monday, recognising that its double-digit growth rates are past and the world’s second largest economy will slow as it matures.
At the annual opening ceremony of the parliament on Monday, Chinese premier Wen Jiabao said the government’s target for economic growth in 2012 was 7.5 per cent, the first time it has dropped below 8 per cent since 2004.

In a move that will please China’s economic partners, Mr Wen emphasised the government’s ambition to refocus the country towards domestic consumption and away from investment and exports.

FT Alphaville | World’s changed, man! World’s changed! (China edition)

[Enki]

I am very interested in the proceedings against Tim Geithner. If he went down, it would be an interesting precedent. I think a whole house of cards would start tumbling.

[Typhoon]

I am very interested in the proceedings against Tim Geithner. If he went down, it would be an interesting precedent. I think a whole house of cards would start tumbling.

Who is carrying out "proceedings against Tim Geithner".

Source?

[noddy]

http://www.abc.net.au/unleashed/3882542.html

The country's strong growth, increasing importance and foreign praise has led to hubris. The July 30, 2009 editorial in the English language People's Daily, an official publication, boasted that China, under the leadership of the Chinese Communist Party (CCP), had coped successfully with the financial crisis, earning worldwide attention:

"High-level figures from the western political and economic spheres ... envy China's superb performance ... as well as 'China's spirit'– the kind of solid, unbreakable 'Great Wall' at heart to ward off the financial crisis."

The reality is that a part of China's growth has been an illusion. Since 2008, China’s headline growth of 8-10 per cent has been driven by new lending averaging around 30-40 per cent of GDP. Given that (up to) 20-25 per cent of these loans may prove to be non-performing, amounting to losses of 6-10 per cent of GDP. If these losses are deducted, Chinese growth is much lower.
The China economic debate is focused on the alternatives of a soft or hard landing. Both scenarios assume a slowdown in growth and transition to a troubled maturity.

The case for the soft landing assumes that the investment and property bubbles are less serious than thought. Beijing has sufficient financial capacity to boost growth by loosening monetary policy and bank lending, while adjusting specific policies, such as lifting restrictions on housing sales to prop up prices. China is able to boost domestic consumption, replacing investment as the key driver of its economy. Excess capacity is gradually absorbed as the world economy recovers.

Growth comes down gradually, without causing social and political disruptions.

The case for the hard landing assumes the rapid and destructive unwinding of asset price bubbles and problems within the Chinese banking system. A poor external environment and losses on foreign investment exacerbates the problem. Growth collapses triggering massive social unrest and political tensions.

The end of a cycle of debt and investment driven growth is typically disruptive. Japan's experience, which China has drawn on in shaping its economic model, is salutary. Japan grew by 10 per cent in the 1960s, 5 per cent in the 1970s, 4 per cent in the 1980s, and has remained stagnant since, adjusting to the deflation of its debt fuelled bubble.

As an old Chinese proverb, probably apocryphal, holds: "There is no feast that does not come to an end".

[Typhoon]

2nPzUnvyb3w

Bemused to find some people shocked by such revelations.

Blowing up a client and other dubious behaviour toward the muppets, er, clients was well documented in Liar's Poker by Michael Lewis who noted that rather then being treated as a cautionary tale, most of his readers used it as an instruction manual.

[Mr. Perfect]

These kinds of melt downs always crack me up so hard. Nobody forces anybody to be a Goldman client, and if they don't like the performance of the firm they can always take their business elsewhere. Personal emotional tirades of former employees impact on any of this... well. Some people run on drama.

Re the bailout, if you make yourself a sucker (USG/Democrats) don't be upset when someone takes advantage of you. Maybe you deserved it.

[Parodite]

These kinds of melt downs always crack me up so hard. Nobody forces anybody to be a Goldman client, and if they don't like the performance of the firm they can always take their business elsewhere. Personal emotional tirades of former employees impact on any of this... well. Some people run on drama.

Re the bailout, if you make yourself a sucker (USG/Democrats) don't be upset when someone takes advantage of you. Maybe you deserved it.

Bold statements. Nobody is obliged to buy food that turns out detrimental to your health either. Only the suckers with weak stomachs die.

How would you qualify a salesman who tries sell you something claiming it is good for you but knowing it is good only for his own bankaccount and bad for the buyer?

Yes, a conman. Thief. Criminal.

Simple.

[Mr. Perfect]

Goldman Sachs does not deal with the helpless and infirm-ed.

When I was a child I became aware that there are people everyday out there trying to sell me things that are good for them and not for me. I developed strategies for myself to deal with such people and am I am very happy with the results. Never really had a problem.

And I'm a dumb@$$, ask anybody. Nothing special in my accomplishment.

[AzariLoveIran]

.

These kinds of melt downs always crack me up so hard. Nobody forces anybody to be a Goldman client, and if they don't like the performance of the firm they can always take their business elsewhere. Personal emotional tirades of former employees impact on any of this... well. Some people run on drama.

Re the bailout, if you make yourself a sucker (USG/Democrats) don't be upset when someone takes advantage of you. Maybe you deserved it.

.

Come on MP, come on

Goldman same Goldman as last 30 yrs, not worst or better

and

You 100% right .. anybody dealing with Goldman .. he himself crook .. knows this battle of crooks

That John Paulson or all other hedge fund boss, for them everything goes .. was told, they would not have a cup of coffee without having inside information .. they all from the tribe, if one not from tribe, he fucked, poor ராஜ் ராஜரத்தினம் .... very funny

challenging all on this board to post anybody from tribe to go to jail for massive fraud inflicted on America

.. Medoff in "protective custody" .. voluntarily .. he himself indited himself, self-indictment


so, MP, question now

is

why now ?

well

seems, there's concerted plan to ruin Goldman

already for some time in play

question is why

Hmmmm


.

[Parodite]

It is always possible to con people. People keep trying and find ways to get away with it.

But I'll say I don't believe moral behavior is entirely natural. Animals con each other all time. The predator pretending not to be there and then suddenly strike etc. However, animals mostly do not prey on members of the same social unit, except for sexual intercourse. They must co-operate because that way the social unit they belong to and are dependent upon, has better chances in life.

If bankers and their customers would belong in similar fashion to the same social structure where they are interdependent in a more fundamental way... conning would not occur that much since it would destroy the structure and its members. Fact is: they don't.

[Mr. Perfect]

Well the whole world is a giant laboratory. If anyone wants to try to do things a different way they are free to try.

[Parodite]

Social units are internally highly regulated. The interaction with their surroundings are more premordial and hardly regulated: to eat or be eaten. Predatory relationships require as little as possible regulation.

[AzariLoveIran]

.


Goldman resignation tip of iceberg

.
Congress and prosecutors are almost certain to look into Smith's claim that Goldman sold investments to clients that it wanted to get rid of.
.

Everybody knows and knew Wall Street all crooks .. they siphon wealth created by American entrepreneurs and hard working American labor .. WS basically a tax on America .. all siphoned and send to "you know where"

and

now

that America flat broke

they putting their dicks on the table

meaning

take it, it's yours



this not the first time

Oh Lord, have Mercy


.

[Azrael]

US is currency is fiat-based and therefore the cost of bail outs and emergency loans do not have to be paid back from actual tax revenue.

True. If the economy were running near capacity, we'd have to worry about the bailouts increasing inflation, but at this point, even that isn't much of a factor.

And most of the entities receiving bailouts have paid back the Treasury with interest.

[Typhoon]

FT | The [commodity] supercycle is so over, iron ore edition

BHP Billiton Ltd. (RIO), the world’s biggest mining company, said China’s steel production is slowing as the world’s fastest-growing major economy starts to shift to focus more on consumers than large building projects.
“The big infrastructure build clearly will come to some end,” Ian Ashby, the Melbourne-based company’s president of iron ore, told reporters today in Perth. “Steel growth rates will flatten, and they have flattened, and we still see positive growth out to the middle of the next decade.”

Infrastructure megaprojects reaching saturation in China?

[Typhoon]

FT | Auditors on alert over Chinese results

A new wave of scandals involving Chinese companies listed overseas could hit New York and Hong Kong in the coming weeks as the annual results season get under way with auditors on high alert for fraud.

Auditors are under great pressure this year to detect discrepancies in their clients’ results, having faced embarrassment and legal action in 2011 following dozens of accounting scandals at Chinese companies listed in North America.

In the last fortnight, Deloitte has resigned as auditor of two Hong Kong-listed Chinese companies: Boshiwa International, a maker of children’s wear, and Daqing Dairy Holdings, which produces milk formula.

[Mr. Perfect]

Uh oh, not good for Obamya.

http://money.cnn.com/2012/04/13/real_es ... ?hpt=hp_t3

The golden age for foreclosure squatters may soon be coming to an end now that the $26 billion mortgage settlement has been approved.

The settlement, agreed to by the nation's five largest mortgage lenders, is expected to speed up the foreclosure process by providing stricter guidelines for the banks to follow when repossessing homes.

The banks involved include Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citibank (C, Fortune 500), Wells Fargo (WFC, Fortune 500) and Ally Financial.

Many foreclosures have been in limbo since fall 2010 following the so-called robo-signing scandal, when banks allowed employees to sign off on thousands of foreclosure documents a month with little verification.

Lenders hit the pause button on foreclosures because they "were afraid that anything they did would be under a microscope," said Eric Higgins, a professor of business at Kansas State University.

As a result, borrowers who were seriously delinquent on their loans have been able to stay in their homes for months or even years without making a single payment. Nationwide, the average time it takes to foreclose on a home -- from the first missed payment to the final bank repossession -- stretched to 370 days during the first quarter, almost twice as long as it took five years ago, according to Daren Blomquist, the marketing director at RealtyTrac.
Foreclosure free ride: 3 years, no mortgage payment

In some states, delinquent borrowers have been squatting in their homes much longer. In Florida, the average time was 861 days, and in New York it was 1,056 days -- close to three years.

"Perhaps a million foreclosures could have been pursued last year but weren't," said Rick Sharga, executive vice president for real estate investment company, Carrington Holdings.

But that's all about to change, he said. "We're going to see an increase in the speed of foreclosures and a higher number of foreclosure starts."

In fact, there are indications that the pace of foreclosures are already starting to pick up.

While overall foreclosure activity was down during the first quarter, filings were up 10% in the 26 states where foreclosures must undergo court scrutiny, according to RealtyTrac.

[Typhoon]

Great post from another board . . .

Markets Rise on Hopes for Less Personal Responsibility

...and fall all by their lonesome.

At the slightest hint of reality rearing its ugly head and giving the world its inevitable comeuppance for decades of spendthrift profligacy and pretending risk can be hedged (rather than just transferred to the most well-connected fool), a savior emerges to deliver us from our self-made evils. Alleluia!

Like the gods whom he has usurped, the savior goes by many a name. At times he is called Mervyn, though it might soon be changed to Jim. He also answers to Mario. In the mystical East he can be invoked by chanting Shirakawa-sama. For simplicity sake, let’s just call him Ben. (By the way, as in most religious tradition, there is also a virgin involved. At least she looks like she might be a virgin. Her name is Christine, and if not herself a virgin, she runs a rescue fund pregnant of money that arose without engaging in the act of wealth procreation. Truly an immaculate deception.)

This man Ben drives a helicopter, which apparently allows him to outrun the Four Horsemen of the (Financial) Apocalypse, and from this conveyance he rains down all manner of manna, from endless permutations of QE to ZIRPetuity.

Ben preaches a New Age religion, not a stodgy and barbarous old faith from a long dead Golden Age. It is a Montessori-style faith, where you prize just for competing, especially if you fail.

Our old saviors forgave sins. Ben forgives debts.

Old saviors said those who err must atone and repent. Ben says those who err shalt be handsomely rewarded for their transgressions.

One old savior tossed the gamblers out of the house of worship. Ben has restored the gamblers to their rightful place, as Masters of the Universe, and given them an endless line to boot.

One magic man turned straw into gold. Ben may have turned gold into tungsten.

One savior took bread and fish from a few and fed hungry thousands; Ben took from hungry millions and gave to an already bloated few.

One book says it is easier to pass a camel through the eye of a needle than for a rich man to get into the Kingdom of Heaven. Ben’s Beige Book says it is easier for an AAPL short to pay retail for a Gulfstream than for an Austrian economist to get into the Kingdom of Norway (during Nobel season).

Ben, when our spirits were deflated you inflated us! When our bonus pools were empty you filled them to overflowing. When we were on the verge of being contrite, you led us back unto temptation! Show us the way to S&P 2000!

Says Ben, “No one gets to the Hamptons except through me.”

Let he who is without sin……pay for everybody else.

Wish I could convince chindit13 to post here.

[Typhoon]

TUpFTM5s4UA

[Hoosiernorm]

http://video.cnbc.com/gallery/?video=3000088095&play=1

[Endovelico]

An interesting chart:



Surprising is Germany's public debt (83% of GDP), way above the "virtuous" limit of 60%. And UK's overall debt is a lot more worrisome than I had thought.