Warning: Mildly rough language contained herein. Don't gripe, you were warned in advance not to read this if you'll be offended!
You have to be kidding me.....
From Larry Summers:
"Financial institutions that have benefited from government support can, should and must use this moment to think about what they can do for their country -- by accepting the necessary regulation to protect the American people," Summers said in remarks prepared for delivery at the Economist's Buttonwood Gathering in New York. "There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system."
How about this Larry?
"Financial institutions will be placed under strong regulation and capital controls. We will mark every asset to the market, we will investigate all the fraud, we will force all off-balance sheet "assets" back on balance sheet and we will stop the looting."
Oh wait. I live in America, where the banks run the Congress, not the other way around. Never mind a President and Chairman of House Financial Services who can't manage to get up off their knees, and they're not praying when they genuflect either.
I've had it with the knob-polishing behavior of these jackasses in DC, especially when it comes to letters like this:
Banks should be given three years to raise capital for offsetting assets and liabilities that must be brought onto their balance sheets, Citigroup Chief Financial Officer John Gerspach said yesterday in a letter to regulators. Requiring banks to “assume the risk-based capital effects immediately, or even over one year, is an undeniably severe penalty,” he wrote.
What?
FASB has already postponed the implementation of this rule, which it voted on in July of 2008. It was originally to take effect in November of last year; the banks at that time said:
``The risks of too much haste are high,'' the securitization forum and Sifma said in a July 16 letter to the FASB. The ``abrupt consolidation'' of off-balance-sheet structures ``is likely to swell the balance sheets of the affected entities.''
So they got a reprieve for one year.
Now the banks are griping that this isn't good enough, and they want even more time!
An "undeniably severe penalty"?
Citibank, JP Morgan and the rest have all known about this for more than two years. They have had all this time to prepare for this event, they have had all this time to raise capital, they have had buoyant stock prices occasioned by FASB being literally extorted by Congress into allowing banks to lie about asset values, thereby cranking their stock prices up by 300, 400, even 600%. Specifically:
Citibank, $0.97 -> $4.59, 473%
Bank of America, $2.53 -> $17.26, 682%
JP Morgan, $14.96 -> $47.47, 317%
Wells Fargo, $7.80 -> $30.02, 384%
JP Morgan has a market cap of $181 billion dollars as of this afternoon. If they were forced to issue even two hundred billion dollars of equity, it would only erase half of their market price gain in the last six months.
Bank of America has a market cap of $149 billion dollars as of this afternoon. If it was forced to issue three hundred billion dollars in equity that issuance would drive its stock price down to about $6.00, leaving it with more than a clean double from where it was in March.
Citibank has a market cap of $52 billion dollars as of right now. If it was forced to issue one hundred billion dollars in equity, its stock price would be diluted such that it would still have posted more than a fifty percent gain since March.
Wells Fargo has a market cap of $140 billion as of this afternoon. If it was forced to issue two hundred billion dollars in new equity, its stock price would be diluted such that it would still have posted more than a sixty percent gain since March.
Of course the actual required equity issuance is nowhere near this high for any of these firms. Assuming a 10% Tier Capital requirement and two trillion dollars (in total) of off-balance sheet exposures to be brought back on these firms would have to post $200 billion between them all, or about 1/4 of the above amount (in total)
That is, most of the price gains they've seen since the March lows would be retained - and this assumes the market does not cheer such issuance, as it did last time. Indeed, in the spring when these banks issued new equity in each case the market rewarded them by bidding up their stock, not selling it off to reflect the dilution!
The truth is that if these firms are truly sound and solvent, going concerns, and are not hiding two trillion dollars in trash off balance sheet they can issue whatever new equity and/or debt that is necessary to meet reserve requirements right now. The market has shown that it will respond favorably to such issuance.
The truth is that the reason we are in this mess is because banks have abused FASB, The Administration and Congress for years, literally threatening them with financial Armageddon unless all of the above kneel down and perform an obscene act upon their CEOs and Boards.
The truth is that these institutions are still engaged in outrageous acts with regards to foreclosures, property (mis)management and other acts that by any reasonable standard can only be considered schemes, artifices or even frauds.
The truth is that I and the rest of America have had it with the obscenities that our elected and appointed officials perform daily while genuflecting in front of these latter-day Al Capones, and we will remember come next Fall should this crap not be stopped.
This far, no further Gentlemen.
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