Let's start with AIG: $122 billion may not be enough.
Why? Because the CDS they wrote keep going down in value and forcing margin calls for more collateral (money).
First question: The OTS is their primary regulator. Why aren't the people running the OTS being strung up by their toenails in Congress?
Second question: Why isn't AIG's management in leg irons if they did not properly disclose this risk to both shareholders and regulators - and if they did, let's see the proof.
Next up, let's talk about Freddie Mac and Lehman.
"Freddie Mac, the mortgage lender that was seized by federal regulators, has asked a bankruptcy judge to investigate the whereabouts of $1.2 billion that Lehman Brothers borrowed."
...
Freddie Mac loaned the money in two chunks -- first $450 million then $750 million -- in mid-August.
Huh? Since when was Freddie Mac a bank or other firm that had free rein to loan money out to various entities? Why would Freddie Mac loan Lehman money? Where was this disclosed in Freddie's corporate filings? In its quarterly reports? How many more loans have been made, to whom, and why? And why aren't the executives of Freddie in the dock on this - right now?
Oh, you know how everyone was up in arms about "naked shorting" stocks? Well how about naked shorting Treasuries?
"The latest data from the Federal Reserve Bank of New York showed that cumulative failures hit a record $2.29 trillion as of Oct. 1. The federal settlement period is T+1 (trade date plus one day). The outstanding U.S. public debt is $10.3 trillion.
"Current [fail] levels are at historic levels," said Rob Toomey, managing director of the Securities Industry and Financial Markets Association's funding and government and agency securities divisions. "There's been significant flight to quality" with the market turmoil, he said. "
Oh, so because people want to buy what they can't acquire without paying up for them, we just short into that and pretend securities exist that really don't?
And you'll love this on "what we're doing about it":
The Department of the Treasury has a buy-in rule for the cash markets, but the repurchase markets rely on contracts, Mr. Toomey said. Currently there are no penalties for failures, and regulators to date have not required disclosure whether the dealer or the client fails to deliver.
Nothing like a bit more fraud. After all, the fraud we've seen thus far isn't all that much, right? We should encourage more of it. Oh wait - we are.
Never mind that THIS fraud is on sovereign United States Debt. Ain't that grand?
You know what the really cute part of it is? If you "bought" a T and it was FTDd, the counterparty is required to pay your coupon to you on the failed T. When its a bill yielding 10 basis points (as has been the case of late) who cares - the money is inconsequential, right?
Ok, now what happens if the counterparty goes under?
Hint: He has your money, and the bond doesn't exist. How do you spell "100% loss"?
Now, one tiny little inconvenient question - Treasury Money Market Funds - you know, the ones we all think are quite safe because they hold ONLY short-term Treasury paper?
Do all those T-bills they allegedly hold really exist? And if not, uh, exactly what is my "money market" fund holding? You do know that a lot of those funds use repos, right? That's those "private contract" things they're talking about. You know, the kind where they lie and then rip you off behind your back?
Now let's talk banks. You know, those things that are supposed to hold reserves against deposits when they make loans? Well guess what - there are no reserves. The non-borrowed reserves have been negative for months - since the turn of the year, in fact, and now total over $300 billion dollars.
What does this mean? Simple - the banks lost (blew, speculated with and got caught on the wrong side of, issued or purchased crap securities with, paid bonuses with, paid the light bill with, etc) the reserves they are supposed to hold against deposits. This would usually result in them being declared insolvent and the FDIC would seize them, but that would be inconvenient. So instead they went to The Fed which loaned them reserves so it appears they have some. It appears they have subsequently lost some of that money as well, because the "non-borrowed" reserve number continues to increase in the negative direction (that is, its a negative number - a very large negative number.)
But wait - where did that money they borrowed come from? Why Treasury issued debt against which was issued money, cranking The Fed's balance sheet up. So in effect, what were bank reserves held back from your deposits are gone (kaput, vaporized, in some banker's yacht at The Hamptons, etc) and have been replaced by debt issued by Treasury against FUTURE tax collections to be levied against you!
That's right - your reserved deposits were lost, and replaced by an IOU from Treasury against YOUR FUTURE EARNINGS.
You not only gave your money to a bank which lost it, they then (by the magic of the Treasury and Fed) then turned around and enslaved you going forward to get it back from your tax payments.
Circle, meet jerk. Isn't life grand when you can lose your customer's deposit money speculating and then recover it by taxing them?
I guess that's supposed to be ok, since its the same thing that Congress did with the EESA/TARP right? The banks don't have enough capital so instead of forcing them to sell assets and/or go out and get it on their own (possible on Guido terms if they can get it at all) Treasury forcibly enslaved all of America to provide that capital via a "call" on future tax revenues, and give it to the bankers so they could pay bonuses and play "corporate raider" with one another.
And how did the banks that are "benefiting" from the TARP lose the capital in the first place? The same way they lost the reserves - by speculating in property markets, by making imprudent loans to people who couldn't pay them back, and by getting wound up in fraudulent transactions like Credit Default Swaps that were in fact a fancy game of "pick pocket" - a game gone horribly wrong. Oh, yeah, and by bonusing out $70 billion dollars - half of their revenues - to their staff.
For all of this YOU THE TAXPAYER is expected to pay.
Still trust banks and our government?
This much is true - you can trust 'em to rob you blind and you can trust the government to hand them the guns necessary to do so. You can also trust The Fed and Treasury to conspire to cover up the losses and stick the lot on your tax bill; they've been doing a great job of it thus far, to the tune of nearly $3 trillion dollars in the last nine months, or an expansion of 30% in the Federal Debt.
Back to my previous Ticker today and Greenspan's testimony:
"The longtime Fed chief acknowledged under questioning that he had made a “mistake” in believing that banks in operating in their self-interest would be sufficient to protect their shareholders and the equity in their institutions. Greenspan called it “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.”"
That is a bald-faced lie. Again, from the Ticker this afternoon with the reference to the original testimony given before Congress in the early 90s:
"""If Congress again opens up banking to Wall Street speculation, as it opened up S&Ls and banks to real estate speculation, regulators will quickly lose control over the complex series of events that a pervasive marketplace will immediately set in motion. Insider abuse, self-dealing, and back scratching relationships between institutions will run rampant""
This was not an error, as Greenspan and Congress were both warned in plain, blunt English. It was an intentional act of willful blindness - nothing more or less, and it is an outrage that we the people, say much less Congress, tolerate this sort of intentional falsehood in testimony.
Now Bloomberg says Congress is "starting to question" the bailout?
"Shelby, an Alabama Republican, questioned why Paulson shifted tack and decided to use the first batch of the $700 billion plan for bank-stake purchases. The Treasury chief originally had asked Congress for authority to buy distressed assets from financial companies. "
Heh Richard! Yes, you, Shelby. You got personal faxed copies of several letters, The Genesis Plan, a white paper, a half-dozen petitions with hundreds of signatures on them and several Tickers in the days, weeks and months leading up the passage of that abortion you call the EESA.
You were told dead-on that it would not work and guess what - it isn't and can't. Oh, and by the way, what Paulson is doing now with the money is worse.
See what happens when you don't read the damn bill before you vote on it and refuse to read the material people take the time and money to send you?
Congress signed a blank check to Paulson and now you're questioning him when he cashes it?
How about if you (collectively) did your damn job before the bill was voted on and recognize the facts that I and others faxed and emailed you about, specifically, that the bill gave Paulson the right to spend an unlimited amount of money on anything he wanted and also allowed him to compel any firm to do anything he wanted?
Oh no, that would require taking responsibility for that piece of crap legislation you and your cronies in The Senate rammed down the throats of every American through the use of parliamentarian tricks - legislation you apparently did not even freaking READ!
Nor did you, apparently, bother asking other people from The Federal Reserve System before you passed your bill. Only Ben Bernanke was asked, and that sucks, because not everyone in The Fed system agrees with them.
There are in fact other voices - like this one from the Federal Reserve Bank of Minnesota:
"1. Four Myths about Quantities
The financial crisis has also been associated with four widely held claims about the nature of the crisis and the associated spillovers to the rest of the economy. The financial press and policymakers have made the following four claims about the nature of the crisis.
Bank lending to nonfinancial corporations and individuals has declined sharply.
Interbank lending is essentially nonexistent.
Commercial paper issuance by nonfinancial corporations has declined sharply, and rates have risen to unprecedented levels.
Banks play a large role in channeling funds from savers to borrowers
Uh, myths?
The conclusions are interesting:
3. Conclusion
Our analysis has raised questions about the claims made for the mechanism whereby the financial crisis is affecting the overall economy. We emphasize that we do not dispute that the United States is undergoing a financial crisis and that the United States economy maybe in a recession or may experience one in the near future. Our analysis is based on publicly available data. Policymakers have access to other sources of data as well. Policymakers could well believe that bold action is necessary based on data that are different from that considered here. If so, responsible policymaking requires that they share both the data and the analysis that underlies the need for bold policy with the public."
Oh.
You mean The Federal Reserve Bank of Minneapolis can't find justification for the "extraordinary" actions in the data they examined? You mean all this extra debt for taxpayers and all this extra authority for Paulson and Bernanke wasn't necessary?
So just what was the real reason for all these "interventions", if the stated reason wasn't the actual reason?
Let me posit a theory that happens to fit with the facts.
Markets do just fine on their own - provided you let people blow up when they deserve to blow up.
But we can't have that, you see.
If we let people blow up that deserve to blow up, then the entire scheme of ponzi layering of debt upon debt would come to an end immediately. No longer could individuals and corporations play that game, because all the non-serviceable debt would be forced into the open and default, bankrupting the participants who could not meet their obligations. We would be forced as Americans to live within our means and buy only that which we can pay for, and take only that debt which we can pay down and extinguish in a reasonable period of time.
That would put a permanent end to the idea of 30:1, 40:1 or higher leverage, it would put a permanent end to low or zero-down payment mortgages and it would expose the millions of Americans and thousands of business that are over-levered and, in fact, bankrupt.
It would force debt issue to be based off savings, and that would mean you couldn't live off your plastic and then HELOC out the money to pay that down (effectively layering debt upon debt yourself, just like these banks) because nobody would issue you that debt, as they would (justly) understand that you are unlikely to be able to pay.
You would have to save and invest, and as you did so, you would provide the foundation for capital formation - a real foundation instead of the void space now claimed to be "The Great Accomplishment of American Capitalism" - which has led us to the brink of The Greater Depression.
Of course getting rid of Ponzi Finance would mean no billion-dollar bonuses for Wall Street banks, it would mean no billion dollar payouts to ratings agencies to slap phony-baloney "AAA" labels on trash securities and it would mean less power and money - a lot less - for the Wall Street types and other "money changers."
And finally, and perhaps most important, it would mean that Congress could no longer operate under the charade that it can spend more than it takes in via taxes on a permanent basis, nor can government make promises that can't possibly be kept, like, for instance, the promise to pay $53 trillion in Social Security and Medicare benefits, none of which we actually have as we've stolen the entirety to fund other spending.
So when Bear Stearns got in trouble in August of 2007 there was a "wink wink nod nod" that The Almighty Fed and Taxpayer have their back, so they didn't have to face the music that comes from too much leverage and speculation.
Instead of taking down risk across the spectrum of firms at that point, fully six months later Bear Stearns actually blows up and is "rescued" via an "inside baseball" deal where there are allegations that a Federal Reserve Loan from the NY Fed was pulled at the 11th hour to force Bear into a merger on favorable terms to JP Morgan - a firm who's CEO is on the board of that very same NY Fed. Inside dealing? Perhaps. Fraud? Maybe.
Where are the cops who are supposed to figure this stuff out? We the people would still like to know what really happened and why that supposedly-secure NY Fed borrowing facility was suddenly yanked over the weekend - and whether the way it happened was proper.
But it doesn't stop there! Fannie, Freddie and AIG also get bailed out!
Along with these four firms we of course must bail out money market funds that made imprudent investments, banks that can't manage to access credit because they have intentionally-opaque balance sheets stuffed with dodgy collateral and dozens of firms writing commercial paper that also have dodgy collateral behind those issues.
As we bail each of these "things" and "firms" out we simply create the need for more bailouts at an ever-increasing rate. Why? Because the money flows immediately to the "saved" and that impoverishes where it was previously, and they (of course) then demand "their" bailout.
Down this rabbit hole lies The Greater Depression, and soon if it is not stopped. Like trapped rats The Fed, Treasury and Congress are scampering around afraid of the dark - or the next bank that says "boo!"
Yes Richard Shelby, I understand you voted NO on the ESSA.
Guess what - you still didn't do your job because I didn't see you in front of a TV camera explaining that this bill was going to screw our nation.
You along with the other few in the Senate who likewise voted against didn't spend 1/10th of the time on TV as did Bush and Paulson cheerleading, nor did you call either of them out in public on the obvious conflicts of interest.
There are times when a vote is not enough - like when our nation's future is at stake. This was one of those times.
There is nothing wrong with "free market capitalism" so long as when you do stupid, imprudent things you go bankrupt! That is called "market discipline" and is what we should be enforcing across the board.
We're not because Congress and The Fed have created this bubble of an economy and banking system over the previous twenty years and none of them want to confess to the truth, which is that all of this so-called "prosperity" was nothing but a farce and a fraud, based on debt being issued to consumers and businesses that they could not pay it back with real earnings and productivity, relying instead of a "greater sucker" to be able to roll over the payments into yet more debt.
Now we're out of suckers, the check is on the table, and Congress and The Fed have as their solution taking all of the leverage onto their own balance sheets instead of forcing it into the open! The Fed is now geared at nearly 40:1 itself, and the obvious response to "how come this isn't dangerous?" is "because we can (and by implication will) simply print as much money or debt as we need to make sure we don't blow up, and we'll make damn sure your children and grandchildren get socked with the bill.
Let's put in stark relief why Congress and the rest of our government must cut the crap right here and now:
"The FSC has not only limited insurance company exposure to Fannie, Freddie and Ginnie bonds and mortgage-backed securities, but has decided that existing credit ratings are meaningless.
The Insurance Bureau at the Financial Supervisory Commission in Taipei announced revised rules on how insurance companies can treat investments in mortgage-backed securities (MBS). The FSC says it cannot see how the United States will develop a valid mechanism to assess the credit quality of MBS issued by US federal housing loan agencies, namely Fannie Mae, Freddie Mac and Ginnie Mae."
That's right folks. Taiwan's primary regulator for insurance companies has ruled that:
- Ratings issued by our so-called "agencies" are worthless.
- Agency securities can no longer be considered sovereign, "money good" debt.
Now maybe you think this is funny.
It is not funny. In fact, there is absolutely nothing funny about it.
This is how we lose our credit access worldwide.
It has now officially started and what Taiwan has done will spread.
Count on it.
Russia may be about to have exactly that happen:
"Russia's financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.
The cost of insuring Russian bonds against bankruptcy rocketed to extreme levels yesterday. Spreads on credit default swaps (CDS) reached 1,123, higher than Iceland's debt before it sought a rescue from the International Monetary Fund."
....
"This crisis is starting to look like the Black Wednesday in 1992. Unless we see an extension of central bank swaps in dollars and euros to Eastern Europe within days to stop this uncontrolled process of deleveraging, this could get out of control and do serious damage to Western Europe. We could see the euro fall to parity against the dollar by next year," he said.
And once again the "solution" is for Uncle Sammy to ride to the rescue? More "swap lines" with the ECB eh? To bail out Russia? The very same Russia that just got done rolling tanks into Georgia?
I think not; how much do we have out in swaps already? How many dollars have we printed and how much debt have we issued against dodgy collateral (at best)?
Too much.
The difference between Russia and The United States is that Russia has plenty of oil and gas and doesn't have to buy it on the international market with its currency.
We don't, and we may not be far behind them.
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