The Market Ticker

From Marketwatch:

"NEW YORK (MarketWatch) -- Goldman Sachs Chief Financial Officer David Viniar said Wednesday that the firm would like to buy back an investment made in it by the Treasury under the government's Troubled Asset Relief Program as soon as possible, but there are certain restrictions and nuances to doing it. Goldman likely needs to raise Tier 1 capital before it would qualify to buy back the investment, and that could be accomplished via a common or preferred stock offering, Viniar said. "

Read that one kids and pay attention to the bold.

So if you paid it back, dear sirs, exactly what would your Tier Capital ratio be?

Under statutory minimums (or too damn close for comfort) perhaps?

There's the answer to those who say that "banks were forced to take TARP money."

Yeah, they were forced all right - was that "force" something like "either we do this or if the examiners come in and have a look we're broke"?

Gee, if they didn't pay those bonuses, maybe their Tier Capital ratio would have been ok without TARP money, yes?

Banking rescue my ass. 

"Banksters rob the American Taxpayer so they can have their billions in bonuses" is more like it.

Thanks Hank, Ben and George.

Oh, Barack?  He voted for it and all his recent "sound and fury" makes for good TeeVee, but where, my friends, are the clawbacks?

If you're wondering what THIS American thinks of all of this nonsense, here's your answer:

For any firm that takes government TARP money:

All salaries and other compensation must be "re-graded" under the "GS" scale for civil service.

The CEO is designed "SES".

All other legitimate executive positions may qualify for SES grade.

Professional positions (e.g. traders and analysts) qualify for "ST" pay scales.

All others must be re-graded from GS-15 on downward.

No exceptions.

You don't like this deal, you can give back all of your Federal Bailout money you've received up until now.  Give all institutions 30 days to either disgorge all such funds back to the government or re-grade their employees.

No exceptions.

And no bonuses or stock awards either.  The Government doesn't give them out for civil service employees.

The people have every right to demand that employees of government-funded institutions, including banks, operate under the General Schedule pay scale, as they are effectively government employees so long as they are sucking on the Taxpayer teat.

It appears that the confidence problem with our banking system has officially spread beyond investors and those who watch CNBC to "Joe and Jane":

A lot of money got scared out of the stock market and similar places back in the last half of the year, as you can see.  Where was it scared to?  Into FDIC-insured bank accounts; a whole lot of money went into banks.

A "Demand Deposit" is a checking account, basically. Its the "I want it now gimme my money" account at your local bank.

But notice what has happened to this series since the New Year - money in demand accounts is, essentially, collapsing, at the same time Bernanke has been shrinking The Fed's balance sheet.

But The Fed has been printing up new reserves, hasn't he?  Why yes he has.  So what's happening to all those nice dollars that have been deposited in demand accounts?

Where are they going?

Here's one possibility:

There are other possibilities, of course.  All this series tells me with certainly is where the money is not.  But I can surmise a few things - its not in the stock market, for example, as that amount (about $150 billion) is roughly fifty days worth of volume (from recent days) combined share-trading volume in the Nasdaq, DOW and S&P 500.  Its not in commodities, for example.  Its not in bonds either, as near as I can tell - they've been selling off pretty good.

Why is this a problem?

Well, mostly because there's several trillion in "deposit-like" accounts, including money markets.

See, all banking systems that rely on fractional reserves (that would be all modern ones) are always technically insolvent.  That is, with a typical 10% reserve ratio and 10 depositors of $10,000 each, if they come in and "ask to see their money" one at a time (but don't actually take it with them) the banker can easily fan the 10 grand in their face and they leave satisfied.

But if all of them show up at once and ask to see one hundred thousand dollars (that is, 10 x 10 large) he doesn't have it, the banker needs a new pair of pants and the joint might get sacked.

This isn't a function of only a "broke" system, it is in fact how all banking systems work.  The money is never all there because through the magic of fractional reserves it has been loaned out.

So all banking systems rely on confidence that when the depositor goes to the bank and withdraws his money, he will actually get it.  If that confidence is ever lost in the system, that is, the "jawbone" that comes out of various officials' mouths is determined to be a bunch of hot air (or worse) then you have an immediate problem.

It appears that a quiet little "movement" may in fact be under way.

Here's the problem, in brief - nobody really believes the government anymore when it comes to the banking system.  Getihner, our new Treasury Secretary, in addition to not paying his taxes, was one of the chief architects of the Bear Stears and Lehman debacles.  He's never answered for those messes, nor has anyone demanded that he do so. 

But we do know he cheated on his taxes, and unlike Daschle, he didn't quit when pressured on it either.

Further this is what people think of the largest depository institution over the last month, as measured by its stock price:

I think that is fairly called "no confidence" - that's a drop from roughly $15 to $5 in one month.

And by the way, that's the bank that holds more deposits than any other in America - about 10% of the total money that people have deposited in those "demand deposits"; Bank America is, in fact, up against statutory limits which has constrained their merger activity in the past.

Here's a larger-timeframe view of their stock price from October:

Looks kinda like Lehman or Bear Stearns eh?

That's not good.

They're not alone.  Here's another behemoth - Citibank:

Now the thing about both of these behemoths is that they have both gone to the well more than once in TARP funds and the government has "backstopped" or "ringfenced" their debt.  Therefore, in theory at least the institutions are safe.

Or are they?

We have no real way to know because "the truth" keeps changing.

That's the root of the problem when you get down to it, and now this has gone beyond "Wall Street" and speculators who are either shorting or buying these stocks - it is seeping into the consciousness of Americans, who apparently are deciding they'd like some physical cash in their hands - whether that's rational or not.

See, we have a problem in this country.  We want to keep believing that it was all a mistake that led us into this mess.  That there really wasn't systemic fraud and intentional, willful blindness up and down the line.

But then we run into people who, eventually, and usually as their life is unraveling, confess.  People like Bernie Madoff - or Christopher Warren:

"Over the course of the 3 years, over $810,000,000 in mortgage backed securities originated from my companies.

That’s a 24 year old selling a billion dollars in bad mbs securities which by 2008 were in default with out doubt."

You really need to read that whole document.  It's not an easy read - it wasn't proofread well, and the guy who wrote it is either under great stress, isn't paying attention to his keyboarding, isn't much of a writer, or all of the above. 

It will, however, infuritate you.  It did me.

There were a lot of these people but what's worse is that our banks and other "securitizers" intentionally looked the other way while this sort of thing was going on.  As long as the money was good they were cool with it - no matter whether their securitizations were laced through with fraud or not - and they were.

Then there's the curious case of Mr. Markopolos.  Here is a man who spent ten years trying to get the government to look into the largest (admitted, thus far) Ponzi Fraud in our financial system of all time.  The litany of Mr. Markopolos' interactions with government regulators in his attempt to blow the whistle on this fraud, and the intentional obfuscation along with clear lack of competence throughout our government displayed within his testimony is appalling - and frightening.  If these are our regulators it is no wonder that we were robbed; you may as well put Larry, Curly and Moe in the bank as guards and then advertise The Three Stooges as your new "high-tech" bank security.

Our government has utterly refused to address these issues at their root.  The truth is that those banks and other institutions that were involved in this trash-passing have no meaningful way to survive.  Government cannot guarantee several trillion in bad assets - it just can't.  What's worse is that the "pumped" value of homes that was created as a consequence of this fraud is in fact false value.  We are discovering this as home prices contract.  This contraction in turn exposes the fact that those "assets" are not worth what is claimed and in many cases are worth nothing - whether "AAA" rated or not. 

If government attempts to "guarantee" these "assets" it will in fact guarantee that monstrous, unacceptable, and possibly un-fundable losses will be taken by the taxpayer.

Instead of encouraging and even forcing that contraction, which will clear the market, our government is hellbent and determined instead to hide the fraud that occurred, along with its consequence.  As a result we have turned what was a nasty housing correction into a near-certain economic Depression.

Worse, as our government has refused to call out those institutions that are responsible for this mess and close them down our citizens have lost faith in the banking system.  Slowly at first, but now at an accelerating rate.

President Obama, passing "stimulus" bills that spend millions of dollars on birth control and analog TV converter boxes will not fix our economy.  Nor will it shore up confidence in our financial markets.

No, in order to do that we must arrest the fraudsters, close the banks and other institutions that were complicit, transfer off the good assets to other, non-involved firms and take the bad assets (in receivership, costing the government nothing) onto the FDIC's balance sheet.  From there we can recover that which is recoverable via an RTC-like process - although for fraudulently-procured and processed loans, recovery is likely to be small.

What we cannot and must not do is continue to lie to the American people.  We have heard lies for more than two years Mr. President, going back to the winter of 2007 when the first Asian market selloff triggered this crisis.  We have been repeatedly told that "the economy is fundamentally strong" and that "subprime is contained."  We have been told by Sheila Bair that "our banks are strong" when the market says otherwise.  And we have been told not to worry, while we see our neighbors lose their jobs and be foreclosed upon.

Mr. President, you can no longer snow the American People nor can you allow others in the government to do so.  They've figured it out - that this was one gigantic layered Ponzi Scheme, and frankly, they don't trust their government any more.  They don't trust the FDIC.  They don't trust Ben Bernanke and The Fed. They don't trust a Treasury Secretary that you appointed and pushed through confirmation despite the fact that he cheated on his taxes.

I know you're out of touch Mr. President, as most politicians are, but here in the real America where people go to work for a living every day firearm and ammunition sales are off the charts, as are concealed carry permit applications.  People are afraid.  They're afraid that the government no longer exists to protect individual rights and prosecute wrong-doers, but instead now exists to steal hundreds of billions of dollars from them and their children and give it to a group of greedy banksters who willingly looked the other way while the nation was looted so they could pay their bonuses.

They have seen Bernanke take actions that have never before occurred, that are arguably beyond his lawful authority in The Federal Reserve Act, and which can (and have) exposed taxpayers to loss - hundreds of billions of dollars of loss - without Congressional approval or debate.

They've seen your first acts, which were not to address the greater fraud, but to pander to labor unions.  It's all fine and well to repay a constituency that helped elect you, but what good will having a bunch of signs taken down in union shops do when all those businesses close and the union workers wind up unemployed?

Bluntly, America doesn't trust Washington DC and they're not sure they trust you.

We need a leader Mr. President - someone who will discharge the Office Of The President in The Executive Branch.  We need a tough CEO for this nation.  If you're that man - the man we elected - then now is the time for you to stand up and prove it.

The American People have great hope, and great promise.  We believe in our nation and we believe in ourselves.  We can do great things - we put men on the moon, we mechanized automobile production, we invented powered flight, we developed the personal computer and we built The Internet.  Unlike Al Gore, I really was a part of making the latter "real".  I know what America can do, because I've seen it with my eyes and felt it with my fingers.

But we must have the rule of law Mr. President. 

We must have wrongdoers punished, not rewarded.

We must both tell and hear the truth.

Government must stop trying to prevent asset prices from contracting to sustainable levels.  The house prices of 2005 were driven by fraud; that "value" never really existed.  Pretending that it did or does won't make it come back, but you can bankrupt America - literally - by continuing down that path.

Government must stop mollycoddling malfeasors and their enablers.  Businesses who engaged in profoundly-unsafe or even crooked practices must be closed.  This is a capitalist society - if we close one bank, another will rise to take its place.  In addition, there are plenty of banks who did nothing wrong during these years, and they should be able to profit from the good loans and deposits that the bad actors are forced to disgorge.  We have, over the last 20 years, refused to yank the licenses of malfeasing corporations; it is manifestly unjust that out of all the fraud from the 1990s to today only one firm, Arthur Anderson, paid such a price.

Those in Congress and other regulatory agencies, such as the SEC, who willfully looked the other way (or worse) must be ejected from public office, prosecuted when criminal wrongdoing can be shown, and safeguards put in place with full transparency to the public so as to insure that this never happens again.

The Fed must be prevented from attempting to make fiscal policy and guarantee asset prices.  Monetary policy doesn't extend there, and Bernanke and his band of Merry Men have literally stolen that authority from The Executive and Congress.  The Federal Government must take that authority back by whatever means are necessary, up to and including repeal of The Federal Reserve Act of 1913.

Treasury, if reports in the press are accurate, continues to insist that "bad assets" are worth more than the "market price" if held to maturity.  You are being lied to by your own people in Treasury Mr. President; your Treasury Secretary, Mr. Geithner, was in part personally responsible for the "operations" performed on both Lehman Brothers and Bear Stearns and further, he was part of the "team" that ignored the risks of these institutions' 30:1 and greater leverage - one of the root causes of this mess.  The market is never wrong on today's value, and it's the best guess we will ever have on tomorrow's.  The Dutch government just got scammed by ING on a similar deal to what your "bad bank" discussions would yield.  Don't fall for it; the American People will not sit for being robbed again by the banksters, and Geithner is one of them.  Read up above about the fraud in these products along with S&Ps recent ratings actions on similar assets and then tell us - how can you possibly believe these loans will perform?

Should confidence in our financial markets be lost in their entirety the consequences would be cataclysmic, and yet that confidence, today, is hanging by a thread.  I see people on my forum and in my daily life talking about keeping money in "The Bank of Sealey" daily - a clear reference to a refusal to trust the government, the FDIC and the financial system at its most-basic level.  Precisely where the line is in the American psyche that leads to a feedback loop in our public consciousness culminating in the people refusing to trust any financial institution in any form is unknown, but that this line can be crossed is a certainty.  My grandparents grew up during The Depression and to the day of their death they did not trust banks, they refused to invest in what they perceived as an intentionally-crooked marketplace and they did not believe a word that came out of government mouthpieces.

Our government must put a stop to this corrosive atmosphere, and it can only happen via true leadership, a new direction, a commitment to the truth under all circumstances and a demand that the law be enforced against all who have broken it.

You were elected to bring that to our republic.

Now is the time.