Category — Banking

Jim Rogers calls most big U.S. banks “bankrupt”

Jim Rogers, one of the world’s most prominent international investors, on Thursday called most of the largest U.S. banks “totally bankrupt,” and said government efforts to fix the sector are wrongheaded. [snip]

Goldman Sachs & Co analysts this week estimated that banks worldwide have suffered $850 billion of credit-related losses and writedowns since the global credit crisis began last year.
But Rogers said sound U.S. lenders remain. He said these could include banks that don’t make or hold subprime mortgages, or which have high ratios of deposits to equity, “all the classic old ratios that most banks in America forgot or started ignoring because they were too old-fashioned.”

Many analysts cite Lehman’s Sept 15 bankruptcy as a trigger for the recent cratering in the economy and stock markets.
Rogers called that idea “laughable,” noting that banks have been failing for hundreds of years. And yet, he said policymakers aren’t doing enough to prevent another Lehman.

“Governments are making mistakes,” he said. “They’re saying to all the banks, you don’t have to tell us your situation. You can continue to use your balance sheet that is phony…. All these guys are bankrupt, they’re still worrying about their bonuses, they’re still trying to pay their dividends and the whole system is weakened.” (emphasis mine)[snip]

The hovering of the taxpayers’ pockets by Paulson and Congress won’t stop until voters rebel, toss these thieves out of office and indict them.
Actually, I like the Red Queen’s idea, “verdict first; trial later.” It’s suitable for the dirtbags in DC.

“It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes.”
Andrew Jackson

Have a good look at what is happening in DC now.

“Never underestimate the power of human stupidity.”

Robert Heinlein

Lede in today’s NYT trumpets the flight of investors into “safe” places for parking money.
Like T-bills, which were paying about 1.5%, but now in demand, pay under 1%. Revisiting the golden age of the Weimar Republic, our fearless leaders busily reproduce history by fabricating the “Weimar T-bill” just in time to crush the economy ending 232 years of successful existence. After this last round of bailouts, the inflationary spiral will start.

As soon as these idiots realize they aren’t making any money in T-bills, out of the “safe” place the money comes and back into the market it goes where it is at risk.
NOW, where does the government get the money it is using to pay off the incurred debt? Remember no T-bills; does the government jack up the interest rate, which slows down the housing market or does it default on the debt?
Neither, the Treasury just prints more money, boosting inflation.
Oil is back over $100 a barrel. Food is not coming down in price, thanks to the clowns putting corn in gas tanks. Now the government is giving the taxpayer all the toxic debt and the fat cats their money back. We are the proud owners of some where north of a half trillion dollars of crap.
Personally, I rather see the fat bastards jump out windows after they lost everything.

Excerpt from Paper Money by “Adam Smith,” (George J.W. Goodman), pp. 57-62.

Before World War I Germany was a prosperous country, with a gold-backed currency, expanding industry, and world leadership in optics, chemicals, and machinery. The German Mark, the British shilling, the French franc and the Italian lira all had about equal value, and all were exchanged four or five to the dollar. That was in 1914.[snip]

Germany abandoned the gold backing of its currency in 1914. The war was expected to be short, so it was financed by government borrowing, not by savings and taxation. In Germany prices doubled between 1914 and 1919. [snip]

America is off the gold standard too since 1971. We’re on a system of fiat money. So much for full faith and credit, since that change, we too have become a debtor nation,

But the bourgeois habits were very strong. Ordinary citizens worked at their jobs, sent their children to school and worried about their grades, maneuvered for promotions and rejoiced when they got them, and generally expected things to get better. But the prices that had doubled from 1914 to 1919 doubled again during just five months in 1922. Milk went from 7 Marks per liter to 16; beer from 5.6 to 18. There were complaints about the high cost of living. Professors and civil servants complained of getting squeezed. Factory workers pressed for wage increases. An underground economy developed, aided by a desire to beat the tax collector. [snip]

The nervous citizens of the Ruhr were already getting their money out of the currency and into real goods — diamonds, works of art, safe real estate. Now ordinary Germans began to get out of Marks and into real goods. [snip]

The flight from currency that had begun with the buying of diamonds, gold, country houses, and antiques now extended to minor and almost useless items — bric-a-brac, soap, hairpins. The law-abiding country crumbled into petty thievery. Copper pipes and brass armatures weren’t safe. Gasoline was siphoned from cars. People bought things they didn’t need and used them to barter — a pair of shoes for a shirt, some crockery for coffee. Berlin had a “witches’ Sabbath” atmosphere. Prostitutes of both sexes roamed the streets. Cocaine was the fashionable drug. In the cabarets the newly rich and their foreign friends could dance and spend money. Other reports noted that not all the young people had a bad time. Their parents had taught them to work and save, and that was clearly wrong, so they could spend money, enjoy themselves, and flout the old. [snip]

Sound familiar? Put it on plastic, live for now. In debt to the eyeballs and no hope of paying it off.

Senate Banking Committee at Work

After thoroughly stinking up the U.S. banking system, the Senate Banking Committee met behind closed doors and converted their holdings to gold. The U.S. taxpayers will be notified after finalizing all congressional transactions.
(photo supplied)

Nine Senators Urge Reid to Delay Countrywide Bailout Vote

 June 18, 2008

The Honorable Harry Reid
Majority Leader
United States Senate
Washington, DC 20510

Dear Harry,

We are concerned that you plan to begin consideration of the 630-page housing bill as early as today. We are also concerned with recent allegations related to Countrywide Financial, a private entity that by some estimates would receive more than $2.5 billion in benefits from this bill. We request that you delay consideration until we have adequate time to read the bill and better understand the allegations and how much Countrywide will benefit from the bill.

Sincerely.

Senator Jim DeMint (R-South Carolina)
Senator Tom Coburn (R-Oklahoma)
Senator Jim Inhofe (R-Oklahoma)
Senator Saxby Chambliss (R-Georgia)
Senator Jim Bunning (R-Kentucky)
Senator David Vitter (R-Louisiana)
Senator Roger Wicker (R-Mississippi)
Senator Mike Enzi (R-Wyoming)
Senator John Ensign (R-Nevada)

So, do you think the Dinge will hold off giving Countrywide and “Friend Angelo” a helping hand. After all, Angelo  helped a bunch of Donks get loans they needed to purchase cottages for themselves and the Missuses.

Of course he will, Harry is above board in all dealings, right?

Each parcel of assistance caused by government trepidation prolongs the problem. Strewing capitalism’s path are the financial statements of failed businesses. The demise of the weak merely reinforces the rest.

The bankers’ profits went to the stockholders; the losses must reside there as well.

Uncle Subprime

Mortgage foreclosures haven’t yet hit their peak, it’s an election year, and Congress is back in session. Hold onto your wallets because a housing bailout is moving forward unless the White House says no.

Senators from both parties agreed late yesterday to throw about $11 billion more at the housing market, and we’ll have more to say about that later. But think of Uncle Sam as the subprime lender of last resort and you are getting close to what the Beltway is contemplating. In the name of preventing foreclosures, House Financial Services Chairman Barney Frank wants to transfer the risk of further declines in home prices to taxpayers from lenders and borrowers.

Mr. Frank’s idea is that, for mortgages originated between the start of 2005 and mid-2007, a lender and borrower would be able to agree on a federal refinancing plan. Lenders would have to write down their loan to no more than 85% of the current appraised value of the property – which means the banks will use this opportunity to unload the biggest stinkers in their loan portfolios.[snip]

The only thing similar is a proctologic examination and finding both the doctor’s hands on your shoulders.

Liberal economic equality indubitably delivers one item: universal suffering.
Contrary to the unremitting rant from the politicians blaming the President for the economy, all are getting a hearty peek at just how little control he has over the market.
Congress, on the other hand, does make monetary policy since all fiscal legislation starts in the house. Here is the result of their meddling in business affairs.

Bernanke expects bank failures

Federal Reserve Chairman Ben S. Bernanke yesterday said for the first time that he expects some bank failures as a result of the spreading financial crisis, while consumers as well as banks will bear the brunt of what could be a protracted economic downturn.

J.P. Morgan Buys Bear in Fire Sale,
As Fed Widens Credit to Avert Crisis

Pushed to the brink of collapse by the mortgage crisis, Bear Stearns Cos. agreed — after prodding by the federal government — to be sold to J.P. Morgan Chase & Co. for the fire-sale price of $2 a share in stock, or about $236 million.

Bear Stearns had a stock-market value of about $3.5 billion as of Friday — and was worth $20 billion in January 2007. But the crisis of confidence that swept the firm and fueled a customer exodus in recent days left Bear Stearns with a horrible choice: sell the firm — at any price — to a big bank willing to assume its trading obligations or file for bankruptcy.
“At the end of the day, what Bear Stearns was looking at was either taking $2 a share or going bust,” said one person involved in the negotiations. “Those were the only options.”

The lowering of interest rates causes a bigger problem than it fixes. When interest rates on T-Bills and bonds drop, investors move to positions paying higher returns more or offer a “flight to safety.” To buy metals or energy such as gold or oil, they shed USD, which increases supply and ebbs value.

Americans are feeling this as they get lower interest of savings/investments while commodities rise in price. Look at gold, oil gas and food for the results. Beyond the current travails are the future adjustments as inflation rips through the financial system.
I want the reader to speak to what they think will occur. I might be wrong after all.

Dollar Doomsayers Draw
Signs From Bernanke Rate Cuts

March 17 (Bloomberg) — Ben S. Bernanke’s interest-rate cuts have touched off a vicious circle of doom for the dollar.

The Federal Reserve reduced the rate on direct loans to commercial banks by a quarter-point to 3.25 percent before Asian financial markets opened today. It will likely lower its target rate for overnight loans between banks tomorrow to at least 2.25 percent from 3 percent, according to futures traded on the Chicago Board of Trade. Lower borrowing costs work against the dollar by making fixed-income securities issued by the government less appealing to global investors.
The relative return on U.S. assets is not attractive enough and we have moved back into looking for dollar weakness,” said Robert Robis, a bond fund manager in New York at OppenheimerFunds Inc., which oversees $260 billion. Robis last month was betting the dollar would rally versus the euro.
If that weren’t enough to make bears out of bulls, the weakest dollar since at least 1971 based on a Fed trade-weighted index is helping push oil, grains and metals, which are priced in the U.S. currency, to record highs. That in turn is causing economists to lower growth forecasts for the U.S. and preventing central banks concerned that inflation is accelerating from cutting interest rates, further undermining the dollar.

As I type this, world markets are dropping over the Bear Sterns failure.
This too shall pass, but when it does, hyperinflation will be the 800 lb. gorilla entering the room. We certainly live in interesting times. (Ancient Chinese curse)

All power to the presidential candidates for they have plans to clean up the deflationary power spiral, institute universal health care and rid the world of acne. Not to be out done, Congress puts forth wonderful ideas of how the bank shareholders can bear the entire weight of saving morons from themselves and world financial markets from meltdown. That way it’s not just some widows and orphans losing their mite.
Remember how the banks needed to be “more aware, more inclusive.” We get this; “Congress presents multiculturalism in banking and displays progressive results.”

‘Ninja’ loans explode on sub-prime frontline

It is now pretty well established, too, that these loans tended to go not merely to the poorest families, but, in general, were marketed at America’s black and Hispanic populations. They were the most likely to take on the so-called “ninja” loans (no income, no job, no assets).

Strange days are upon the residents of many a suburban cul-de-sac. Once-tidy yards have become overgrown, as the houses they front have gone vacant. Signs of physical and social disorder are spreading.
At Windy Ridge, a recently built starter-home development seven miles northwest of Charlotte, North Carolina, 81 of the community’s 132 small, vinyl-sided houses were in foreclosure as of late last year. Vandals have kicked in doors and stripped the copper wire from vacant houses; drug users and homeless people have furtively moved in.

The subprime crisis is just the tip of the iceberg. Fundamental changes in American life may turn today’s McMansions into tomorrow’s tenements.

Since the politicians caused the debacle, each idea conveyed by them compounds the problem. Depositing this genie back in the bottle is unachievable, for the economic missteps are global. Caught in the liquidity trap are Europe and Asia for they bought the sub-prime loan packages through their banks. Led by Germany, the EU bankers sit in the headlight of the oncoming train.
It is instructive to do some reading about the history of the Dutch tulip debacle. More recently, look at the Beanie Baby craze for a macro of herd mentality. Follow up with the dot com bubble to get the reader to the 201 level. To round out the lesson, inquire into the silver speculation by the Hunts in the early ‘80’s.
The one common thread is the one foisted on the electorate by Washington: you can have something for nothing; get rich without work. Life under socialism is risk free.

Congress cannot fix the problem; the money is gone. It is this simple, if you borrow a dollar to purchase a pencil and when you want to sell, all you can get is $0.50, where’s your other $0.50? For you it is gone. However, you still owe one dollar to the pencil company. This is the terminus for congressional abuse of fiscal prudence; the dollar has devalued. The following expands on the condition:

The Federal Reserve’s rescue has failed

The verdict is in. The Fed’s emergency rate cuts in January have failed to halt the downward spiral towards a full-blown debt deflation. Much more drastic action will be needed.

Yields on two-year US Treasuries plummeted to 1.63pc on Friday in a flight to safety, foretelling financial winter.

The debt markets are freezing ever deeper, a full eight months into the crunch. Contagion is spreading into the safest pockets of the US credit universe. [snip]

Why won’t it end? Because US house prices are in free fall. The Case-Shiller index for the 20 biggest cities dropped 9.1pc year-on-year in December. The annualised rate of fall was 18pc in the fourth quarter, and gathering speed. [snip]

“There probably will be some bank failures,” said Ben Bernanke. [snip]

Untouched by regulation is a secret banking system built on derivatives called shadow banking. For a quick study of this go here and here.

Bill Gross of giant bond management company PIMCO says losses on credit default swaps could reach $250 billion based on historical default rates.

The candidates will need something else to occupy their time. So take a peek here for what the next president and congress will deal. Platitudes won’t work anymore. Neither will socialist panaceas or raising taxes. They cannot raise taxes high enough to stall the downturn.

The $34 trillion problem

Medicare is poised to wreak havoc on the economy. And our presidential candidates are avoiding the issue.
[snip]
Unfortunately, the day of reckoning is imminent. Sometime in the next President’s first term, Medicare Part A (hospital insurance) will go cash-flow-negative, and it’s all downhill from there. [snip]

Demand answers; how they are going to fix this mess. From where does the money come? The entire government is broke; we’ve sold out to buy votes with entitlements, special funds and all the pork spending. Barney Frank wants the government to buy up worthless mortgages. That lays the entire cost on the taxpayer. Let Frank’s constituents pay for his marvelous idea.

I’d suggest converting much equity in to metals or currency. I don’t think holding U.S. currency is a good financial choice. Look at what the rest of the world investors are doing for cues. Diversify holdings among safe harbors.

Citigroup’s hopes for investment from Chinese bank hit a snag

NEW YORK: Citigroup’s talks with the China Development Bank to make a multibillion-dollar investment in the company have reached an impasse after the Chinese government spurned a possible deal, according to a person close to the situation.

While Chinese investment groups have bought big stakes in Wall Street firms like Bear Stearns and Morgan Stanley, the scuttled deal suggests there may be limits on how much the Chinese government is willing to invest in the Western banking system. The exact reasons for the breakdown are unclear, and it is possible the two sides may return to the negotiating table.

Citigroup is turning to cash-rich investors, including foreign governments, for a second time as it confronts mounting losses on mortgage-related investments. It hopes to raise about $10 billion, people briefed on the plan said Friday. [snip]

In the prior post on this subject, I mentioned how the Chicoms have bought into the US banking industry, along with the Arabs. Well, I think the Chinks just choked. There are limits; someone in charge of the yuans, woke up saying this ain’t chop suey!

Where did the $24 billion go? It wasn’t and isn’t paper profits like a stock purchase. This money changed hands many times. The 24,000 individuals getting the free career makeover will have time to look for the loot.

This isn’t a speed bump in Citi’s business, it’s what a pilot calls a mountain: “a vertical speed brake.”

Hits like this can finish off a business, if only because others shy away from getting caught in the slipstream. WHEN, not if, all lending slows down, the clanking you hear is the wheels coming off the tracks.

Citigroup’s Layoffs Could Reach 24,000 This Year

Citigroup plans to announce a writedown of as much as $24 billion and layoffs of up 24,000 due to subprime and credit-related losses, CNBC has learned.

The plans will be unveiled Tuesday by Citigroup’s new CEO, Vikram S. Pandit, after the banking giant reports fourth-quarter earnings. At the same time, Citigroup could also announce that it is cutting its dividend payment. [snip]

The MSM keeps talking about the deficit, never a peep about the national debt. (Deficits are a common condition in business)

Meanwhile, the Chicoms hold enough T-Bills to destroy our economy. Arab consortia are bailing out the banks, actually owning enough through loans to become shadow owners. The Social Security costs shortly finish off any spare change in our economy.