- Mark-to-market is dead
- Geithner On Ousting CEOs, Reviving Economy
- G20 summit: European demands threaten to wreck deal
- UN chief says crisis could result in failed states
- China agrees on need for co-operation
- G20 Summit must focus on Derivatives, Off-Balance-Sheet Vehicles
- Did Larry Summers fire derivatives whistleblower at Harvard
- The Beast Screams to Be Fed
- Obama Pushing "Quick, Surgical" Big Auto Bankruptcy Fantasy
- What Was Going on Inside the Paulson Treasury?
- Auto Sales (Chart, March ’09 vs. March ’08)
- Top 10 Things the Letters "GM" Stands For
This comes via Marc Chandler of Brown Brothers Harriman and is an even-handed review of what just happened:
As widely expected FASB modified fair value accounting rules. The key seems to be for assets for which there is not a market. The last traded price does not have to be used. Rather other methods, like discounted cash flows can be used. In essence, previously there was a presumption that if there was not market for an instrument, it is distressed. Within a few hours FASB is expected to make another announcement about the treatment of permanently distressed assets. Financial stocks appear to have led the equity rally in recent days, ostensibly partly on the anticipation of today’s FASB announcement. Although it seems clear that the political pressure was brought to bear on FASB helped expedite the decision, this seemed to be the direction that they were moving. Cynics will claim this is a thinly veiled attempt to disguise the seriousness of the financial crisis and losses being faced. On the other hand, there are many who see the mark-to-market as an unreasonable demand for financial instruments with no markets. Regardless though of the merits or de-merits, the net impact could help boost bank earnings, reduce the need for capital injections and may help encourage participation in P-PIP and TALF programs.
Days after GM’s CEO Rick Wagoner was forced out by the Obama administration, Treasury Secretary Timothy Geithner left open the possibility that such moves could happen again.
In an interview with CBS Evening News anchor Katie Couric, Geithner acknowledged the government has had to do "exceptional things" – citing AIG as well as Fannie Mae and Freddie Mac.
"We have changed management aboard," he said. "And where we’ve done that, we’ve done it because we thought that was necessary to make sure these institutions emerge stronger in the future."
Watch full version of Katie Couric’s interview with Treasury Secretary Timothy Geithner:
When asked if he would leave open the option to pressure a bank CEO to resign, Geithner replied: "Of course."
In a separate interview with ABC News, Geithner said there was no difference in the way the administration has handled the auto and finance industries.
France and Germany delivered a late threat to derail Gordon Brown’s efforts to secure a global recovery deal last night by demanding new concessions from the United States on financial regulation.
In a classic show of eve-of-summit brinkmanship, Angela Merkel and Nicolas Sarkozy joined forces to give warning that they would refuse to sign any agreement that did not meet their "red lines" on tax havens, hedge fund regulation, tracing "securitised" assets sold around the world and capping bankers’ remuneration. They also wanted the "naming and shaming" of tax havens that refused to go along with tougher regulatory rules, which is being opposed by the United States.
UN chief Ban Ki-moon warned Thursday that failing to act to halt the global economic crisis could lead to widespread social unrest and failed states, ahead of the G20 crisis summit here.
"What began as a financial crisis has become a global economic crisis," the UN secretary general wrote in an article in the Guardian newspaper.
"I fear worse to come — a full-blown political crisis defined by growing social unrest, weakened governments and angry publics who have lost all faith in their leaders and their own future."
He said the global economic downturn affected the poorest countries the most, and noted that in these countries "things fall apart alarmingly fast".
The White House also announced that Mr Obama would visit China in the second half of the year.
But with China demonstrating that it now wants to play a much more decisive role in international economic affairs, their meeting may have also set the tone for the rest of the London summit.
While talk of an emerging "G2" ignores the increasingly multilateral basis of financial diplomacy, it does reflect the reality that on a growing range of international issues, little can happen without agreement between the US and China.
The global size of the derivatives bubble which was calculated last year at USD 190k per person-on-planet, has risen to USD 206k per person-on-planet. The ever rising commitment of governments for the repeated bailouts of financial institutions is partially linked to various flavours of derivatives exposure settlements and "black hole" losses emanating from off-balance-sheet vehicles.
The traditional argument has been to discount derivatives altogether: "On one side of the equation there is a loss, on the other side there is a gain. Nothing disappears. It is just one big shuffle of wealth and assets." However, if this is the case, why has the US tax-payer had to bail out AIG repeatedly in excess of a hundred and fifty billion dollars so that AIG could settle the Credit Default Swap (CDS) and other derivatives claims of the largest trans-national financial institutions in the world?
In the ATCA briefing, "The Invisible One Quadrillion Dollar Equation" published in September 2008 we discussed the main categories of the quadrillion dollar derivatives market as quoted by the Bank for International Settlements in Basel, Switzerland. Since then the quantum has grown significantly in certain crucial categories and the latest revised numbers follow:
1. Listed credit derivatives stood at USD 542 trillion, about the same as before; however
2. Over-The-Counter (OTC) derivatives stood in notional or face value at USD 863 trillion (UP +44%) and include:
a. Interest Rate Derivatives at about USD 458+ trillion (UP +16%);
b. Credit Default Swaps at about USD 57+ trillion (DOWN -1%);
c. Foreign Exchange Derivatives at about USD 62+ trillion (UP +10%);
d. Commodity Derivatives at about USD 13+ trillion (UP +44%);
e. Equity Linked Derivatives at about USD 10+ trillion (UP +17%); and
f. Unallocated Derivatives at about USD 81+ trillion (UP +14%).
The myth of the single bubble behind The Great Unwind — manifest as the global credit crunch — has essentially been dumped in the last few months and subprime mortgage default, a USD 1.5 trillion challenge within the USD 5 trillion mortgage based assets envelope, is seen as a component of a much larger overwhelming global crisis with unprecedented scale, speed, severity and synchronicity. The global crisis has wiped a staggering USD 50 trillion off the value of financial assets – currency, equity and bond markets worldwide – last year, according to the Asian Development Bank.
The truth that there are as many as "Eight Bubbles" [ATCA] at play and in the process of bursting together is understood to a greater extent now than in the past. We have gone from being able to "rescue the world" with less than USD 1 trillion in October 2008 to USD 11.6 trillion commitments in the US alone along with a further announcement of USD 1.2 trillion of quantitative easing by the US Fed in March 2009. There is a realisation worldwide including the G7 + BRIC + MISSAT that this is a USD 20 trillion problem and growing. As time goes by, the full extent of the collateral damage from the Quadrillion Play and 8 Bubbles burst is being revealed.
A former quantitative analyst at Harvard Management Company, the university’s once-vaunted endowment manager, tells the Harvard Crimson she was fired for voicing concern to then-university president Larry Summers’ chief of staff about the money manager’s risky use of derivatives the traders didn’t understand.
Behold, America: the taxman cometh.
Even as taxpayers are struggling to make ends meet in a crumbling, tumbling economy, your friendly neighborhood (and state and federal) government is having a hard time making do with the meager trillions you’re throwing its way, so it’s relying on an old maxim:
If it exists, it can be taxed.
Is Obama’s leaked view that a "quick and surgical bankruptcy" was a "likely option" for GM and Chrysler a form of bizarre brinksmanship? If not, Obama has just painted himself in a corner based on what looks to be some very bad advice.
In the first – and not likely to be the last – lengthy behind-the-scenes account from veterans of the Bush administration, Phillip Swagel, who was assistant Treasury secretary for economic policy from December 2006 until January 2009, offers his take in a 50-page essay to be presented later this week at the Brookings Panel on Economic Activity. Swagel, who has an economics Ph.D. from Harvard, will teach at Georgetown’s McDonough School of Business in the fall. Swagel says academic economists think the government has more power than it does. "A lesson for academics is any time the word ‘force’ is used as a verb (‘the policy should be to force banks to do X or Y’), the next sentence should set forward the section of the U.S. legal code that allows such… action." (Read the full paper.)
Top 10 Things the Letters "GM" Stands For
10. Got More?
9. Goals missed
8. Giant Mess
7. GO MARX
6. Government Mooch
5. Grossly Mismanaged
4. Got Mechanic?
3. Gasguzzlin’ Monsters
2. Goodbye Michigan!
And the number-one thing the letters"G" and "M" stands for:
1. Gambled & Missed