- Gaming TALF 2.0
- Simple Good Explanation of Geithner’s Plan
- Geithner’s Faustian bargain, the general interest, Jean-Jacques Rousseau and Uncle Sam’s lost inner compass
- Kroft to Obama: Are you punch-drunk? (Video on Page)
- Treasury’s toxic asset plan could cost $1 trillion
- Geithner to Announce "Toxic" Plan before 9:30 AM ET
- Moral and Ethic Morass…
- Sen. Gregg says Obama budget will bankrupt US
- I realize a lot of readers of the Daily Digest aren’t Martenson paid subscribers but….
- Banks Leaving Money on the Table "All Day Long" (Please don’t miss this video!)
- Orlando ‘Tea Party’ rally draws more than 4,000
- Repost: Financial
Sense News Hour, Hour 3 Part 1 (Audio, Qualitative Easing, Inflation,
U.S. In Debt Up to it’s Eyeball Commercial & Much More – A Super
Listen This Week! I’d be sure to catch this.)
- Safe? But of course!!! (H/TPineCarr)
Early examples of TALF have been dismal, but with the pending expansion of the facility to impaired and downgraded assets observant minds are turning over the many loopholes by which banks and hedge funds could game the TALF to transfer hundreds of billions in losses to the government at virtually no risk to themselves.
Zero hedge has been among many others a TALF critic from inception, and has one of the more compelling illustrations — literally — i’ve yet seen.
As a result of the TALF’s non-recourse nature, a hedge fund X can buy Bank X’s [$100mm face value] MBS Portfolio which is marked on the bank’s books at 80 cents on the dollar (but has a market price of 20 cents) for the marked price with a 3% equity check and TALF filling the balance. A day later, Bank X repurchases the portfolio from hedge fund X at the 20 cent market price, pays a $5 million fee for the "trouble" and waits for the portfolio to appreciate to 50 cents on the dollar by 2014. Hedge fund X takes a 75% loss on its nominal equity stake but more than makes up in transaction fees. The TALF portion takes a 75% loss with no recourse and no margin to fall back on.
As a result Bank X takes no writedown now, and in 5 years may book an equity profit of as much as $25 million (net of transaction fees paid to the Hedge Fund X), while Hedge Fund X books a profit of $3.2 million for one day’s work…
Lastly the U.S. taxpayer loses $54.3 million on a $77.6 million TALF Investment, or 70% (net of 5 years of interest income).
Nice work from the goldman sachs ciphers heading up treasury and the national economic council.
Latest WSJ article in Geithner’s own words below. I am inserting my comments in between paragraphs…
WSJ – Geithner – My Plan for Bad Assets…
The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.
My Comments: First of all, the FDIC is broke and has no money. All money must be printed in some form. The "private party" investors drive up the cost of clearing these assets. They do not share in proportion as do the taxpayers who I guarantee will not profit overall from this program. "Open to pension funds?!" You have got to be kidding me. That is in no way an appropriate investment for my retirement funds, thanks. That has a particularly foul aroma. I’ve also heard talk to open up a toxic waste ETF so that average Joes can participate. Gee, could it be that he couldn’t find enough hedgefunds?
Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.
My Comments: LOL, love that one. Yes, we will be overpaying. We are supplying money to a host of bidders to all bid against the same assets. That means that we are bidding AGAINST OURSELVES, of course we will overpay. He obviously is taking the American people for fools, and I can’t imagine why?
The new Public-Private Investment Program will initially provide financing for $500 billion with the potential to expand up to $1 trillion over time, which is a substantial share of real-estate related assets originated before the recession that are now clogging our financial system. Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets. The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.
Let me translate… We are taking your dollars and giving them to middle men who will bid up the value of the toxic waste held by the bankers. Thus we will drive up the value of the assets ensuring that the taxpayer overpays. The middle men will drive the cost up further by taking a cut, and will make it easier for the people who caused this problem to escape. We know, of course, that the banks won’t lend anymore to people who are already saturated with debt, but we don’t really care, that’s just our cover.
Submitted by Swedish Lex, who helped unwind Sweden’s imploded banks in the 1990s:
The U.S. Secretary of the Treasury appears to be close to proposing a Faustian bargain that, seemingly, will involve considerable Government subsidies towards a limited number of economic operators. In return for the sacrifice – the creation of massive moral hazard – Geithner would be able to sustain the mirage of the financial system’s strength.
This guest post will provide a few, brief, observations on the present situation and, in particular, on some of the underlying differences between Europe and the U.S. that are shaping the respective responses to the crisis.
Congress’s financial watchdog, the Congressional Oversight Panel, on 19 March organised a hearing "Learning from the Past – Lessons from the Banking Crises of the 20th Century" (video soon available). Tim Geithner declined the COP’s invitation but if he had attended, he would have had an opportunity to listen to Bo Lundgren, Director General of the Swedish National Debt Office and Former Swedish Minister of Financial and Fiscal Affairs, laying out his conclusions from the Swedish bank bailout in the early 90s.
One is tempted to think that the U.S. could have been spared a lot if only Geithner had found a slot in his agenda to attend the COP hearing. From Lundgren’s testimony:
The other main conclusions that I believe you can draw from my experiences of the Swedish banking crisis are that:
Government intervention is unavoidable if you are facing a systemic crisis.
Prompt action is important. A comprehensive approach is better than a piecemeal strategy.
Transparency enhances confidence and promotes the public legitimacy of the measures that have to be taken.
Broad political consensus and resolute political actions taken by the political system are probably more important than any of the technical aspects on how to deal with the crisis. This also enhances confidence, not least internationally, in our ability to deal with the crisis.
In order to limit moral hazard and get public support, it is important to have a stronger approach and deal with the banks firmly, enforcing the principle that losses are to be covered in the first place by the capital provided by the shareholders. If that means that banks must be nationalised, then so be it. They can be privatised again at a later stage.
President Barack Obama said he believes the global financial system remains at risk of implosion with the failure of Citigroup or AIG, touching off "an even more destructive recession and potentially depression."
His remarks came in a "60 Minutes" interview in which he was pressed by an incredulous Steve Kroft for laughing and chuckling several times while discussing the perilous state of the world’s economy.
"You’re sitting here. And you’re- you are laughing. You are laughing about some of these problems. Are people going to look at this and say, ‘I mean, he’s sitting there just making jokes about money-‘ How do you deal with- I mean: explain. . ." Kroft asks at one point.
"Are you punch-drunk?" Kroft says.
"No, no. There’s gotta be a little gallows humor to get you through the day," Obama says, with a laugh.
The interview is Obama’s most detailed explanation yet of his view of the world economic crisis, and he makes clear that he’s afraid the nation hasn’t seen the worst of it – even invoking the possibility of a "depression" if a series of financial institutions collapse all at once.
He is quick to add that he’s "optimistic about that not happening. Because I think we did learn lessons from the Great Depression."
But Obama also makes clear in the interview that he believes Wall Street’s high-risk, high-reward culture was a main cause of the economic meltdown. He takes aim at traders and executives in extremely personal terms – calling them ironically at one point "the best and the brightest" – and says that even today, those same executives don’t get just how much their recklessness contributed to a recession that he says deteriorated more quickly than he expected.
"I mean there were a whole bunch of folks who, on paper, if you looked at quarterly reports, were wildly successful, selling derivatives that turned out to be. . .completely worthless," Obama says, with a chuckle.
"Gosh, I don’t think it’s me being anti-Wall Street just to point out that the best and the brightest- didn’t do too well on that front, and that- you know, maybe the incentive structures that have been set up- have not produced the kinds of long term growth that- that I think everybody’s looking for."
He also said he doesn’t think Wall Street has gotten his message yet, and that he must do a better job conveying it to them:
"One of the things that I have to do is to communicate to Wall Street that, given the current crisis that we’re in, they can’t expect help from taxpayers but they enjoy all the benefits that they enjoyed before the crisis happened," Obama said. "You get a sense that, in some institutions that has not sunk in. That you can’t go back to the old way of doing business, certainly not on the taxpayers’ dime."
Yet he stops short of endorsing legislation moving through Congress to tax nearly all the bonuses of executives at AIG – and clearly signaled his desire for changes in the legislation.
He says it’s important not to "govern out of anger." And asked if the measure was constitutional, the former law professor said: "Well, I think that- as a general proposition, you don’t want to be passing laws that are just targeting a handful of individuals…And as a general proposition, I think you certainly don’t want to use the tax code-is to punish people."
WASHINGTON (AP) – The Obama administration’s latest attempt to tackle the banking crisis and get loans flowing to families and businesses will create a new government entity, the Public-Private Investment Program, to help purchase as much as $1 trillion in toxic assets on banks’ books.
The new effort, to be unveiled Monday, will be followed the next day with release of the administration’s broad framework for overhauling the financial system to ensure that the current crisis – the worst in seven decades – is not repeated.
A key part of that regulatory framework will give the government new resolution authority to take over troubled institutions that would pose a threat to the entire financial system if they failed.
Administration officials believe this new power will save taxpayers money and avoid the type of controversy that erupted last week when insurance giant American International Group paid employees of its troubled financial products unit $165 million in bonuses even though the company had received more than $170 billion in support from the federal government.
From Kevin Hall at McClatchy Newspapers: Treasury to deliver details of "toxic asset" treatment plan
Treasury Secretary Timothy Geithner will meet with reporters shortly before the 9:30 a.m. opening bell for trading on the New York Stock Exchange. …
Geithner is expected to announce a plan in which Treasury will use $75-100 billion from last year’s $700 billion Wall Street bailout. …
Mark Zandi supports the plan, although I’m not sure what he means by "fair price" since the price will be above market prices (because of the low interest rate, non-recourse loans):
"This plan has a good chance of success; certainly much better than the plan Treasury put forward six weeks ago," said Mark Zandi, chief economist at Moody’s Economy.com, a forecaster in West Chester, Pa. "This plan relies much less on private investors and much more on direct government purchases of banks’ troubled assets. Only a handful or so of private investors need to participate in this plan to establish workable auctions for the assets and thus determine a fair price for the assets."
Moral and Ethic Morass…
New comers to my site may see me and the others here as a "gloom & doomers." Primarily the news and information found on this site is mostly negative, no doubt.
For years, however, the roses, rainbows, and sunshine painted by the mainstream media on the boob tube by our media and also by our government has created a FALSE sense of wellbeing. A FALSE sense of REALITY.
What is real?
Math is real. The numbers associated with the debt that underlies our economy is real. It can be twisted to sound as if it’s all under control even if it’s not, but it is real. To untwist it, simply compare all debts to all income and you will see reality. It does not work.
As a collective society we have been living a mass psychosis – we’ve been fooling ourselves. We say and think ridiculous things when it comes to the economy. Things like 2% inflation every year, year after year is good. Things like we are protecting our freedom by spending more on our "defense" than the rest of the world combined. Things like its okay to spend trillions and trillions now because we can grow our way out in the future.
That’s all FANTASY.
We’ve been fooling ourselves, or someone’s been fooling us.
I think it’s both.
I’m a naturally happy and optimistic person by nature. Don’t laugh, it’s true! How do you think I can wade into this market cesspool and maintain a good attitude, and still be happy? During the bubble years, I played the bubble games. I owned many rental homes and played in the stock market – LONG. Leverage was the thing to do. And if that was still the thing to do, that’s what I’d recommend. But that was then.
My life experiences have taught me how the world really works. At least the way I see reality…
The first real eye opener to me was when I was flying in the Air Force and saw how much of what we were doing was just wasteful. The budgets are "use it, or lose it." Thus, even if you didn’t need it, you still loaded up the plane and bored holes through the sky, pouring JP-4 out the back and taxpayer dollars with it. The rule was to ask for a bigger budget each year, and they were almost never denied.
That’s how government works. It grows bigger over time, each little fiefdom growing into a little empire. The little empires expand and turn into big empires. Eventually the entire thing implodes under its own weight – that’s what has happened to all empires throughout history, and it’s happening to us now.
You would think that if I could see this happening that our "mature" leaders would be bright enough to see it coming and to create a sustainable system for the long term. Not so.
I learned right away that you cannot buck that system. If you do, you and your career go nowhere – that was obvious from watching others, so you just go along. And it was comedy central watching the people transition from the lower officer ranks to the upper. They would always say, "When I get to be a General, I’ll be able to make a difference!" Ha, ha… what a joke, the Peter Principle in action. For the most part those who rose where the ones who couldn’t see how the world really works. Not to say there were not exceptions, there were, and there are some very fine commanders. But most do not see reality for what it is.
Reality struck me when the military initiated its AVIP program. That’s the one that mandates the Anthrax Vaccine for ALL military personnel. Long story short, this program was all about money, not force protection as they claimed.
At the time things were heating up with Iraq and that was used as an excuse. No member of any military of any country throughout the history of mankind had ever been exposed to anthrax, yet it was suddenly a priority to spend millions upon millions to vaccinate every member of the military, even the 110 pound pregnant clerk sitting behind the desk at McChord A.F.B., WA.
Former Chairman of the Joint Chiefs of Staff, Admiral Crowe (now deceased), was given a sizable equity stake in Bioport, Inc., a Lansing Michigan company to lobby the Pentagon to make the vaccine mandatory. Bioport was owned by a European man of Middle Eastern descent with a last name you may recognize – Bin Laden. Yes, a relative of Osama.
The money flowed and the Pentagon agreed.
"If only you knew what we know, then you will willingly take this series of vaccines," They said.
The lies and manipulation flowed like an open fire hydrant. Many people who took the shots were injured and their injuries were not acknowledged as coming from the vaccine. People’s voices were suppressed – I saw that first hand. Over a quarter of my reserve unit (officer pilots) refused the vaccine and resigned – myself included. They were told not to state the AVIP program as the reason why on their resignation paperwork. They were "gagged" yet I did not comply, that is not in my nature.
This is a long and complex story, I could write a novel about it, but the bottom line is that it was all about the money.
Why am I telling the short version of this story? Because it speaks to the root cause of our economy and what is going to happen to it moving forward. But let me connect some more of the dots…
When I worked for an airline I found many of the same types of inefficiencies. Being the well intentioned employee, of course did my best to help my organization/ corporation just like most do. But then some ugly events unfold… an airplane crashes into the ocean because a part was not replaced on a decision to save money. Flight rules are "bent" and manipulated and "interpreted" in ways that save money. And those who dare to question are "gagged." This can be very subtle, and most people cave easily under pressure, especially where their paycheck is concerned, but if you are identified as a leader for change, even if it may benefit the organization, you will be especially prone to being silenced.
I think we all just witnessed an example of that with Rick Santelli at CNBC. I guarantee you that he was "gagged" after his tea party comments and he has since been biting his lip while tip toeing around the issue of bond market manipulation, insider information, and quantitative easing.
I know how that works. While he may not have been DIRECTLY told not to do it, he was probably subtly "counseled." But the hint was there that if Rick continues to make waves then his job, his paycheck, and his ability to service his DEBTS might be in jeopardy. He is frustrated because he sees the truth and others around him choose to ignore it or do not see it for what it is. This puts Mr. Santelli in a moral and ethical bind.
My prediction? Look for Rick to no longer be working at CNBC within a year – it will be of his own accord. Then look for a book from him within a year following that. They are cleansing to principled people, I know.
Here’s another little story that I ran across that demonstrates how the real world works:
WASHINGTON – The top Republican on the Senate Budget Committee says the Obama administration is on the right course to save the nation’s financial system.
But Sen. Judd Gregg of New Hampshire also says President Barack Obama’s massive budget proposal will bankrupt the country.
Gregg says he has no regrets in withdrawing his nomination to become commerce secretary. He pulled out after deciding he could not fully back the administration’s economic policies.
The senator said Obama’s spending plan in the midst of a prolonged recession would leave the next generation with a country too expensive to live in.
"They need to shove that bum out," he said, referring to President Obama. "I hate seeing them spend my grandchildren’s money."
Glenn Austin, 52, and his wife, Frankie, 43, of Oviedo, also said they were anxious about the economy. They chose to express their worries, however, in a rather novel way: They wrapped banners calling for the end of the Federal Reserve around the tiny waists of their Chihuahua, Pepper, and miniature pinscher-Chihuahua mix, Peanut.
"Everything’s gone to the dogs," Frankie Austin said.
You will be happy to know that we have nothing to fear from the Chinese, as they are as stupid as the rest of us, as I learned from a Bloomberg.com report that China’s Premier Wen Jiabao says that China is "the US government’s largest creditor" in terms of Treasury bonds, and he is "worried" that something might happen to the buying power of all of that American money, and he "wants assurances that the investment is "safe" and that he "requests" that the US "maintain its good credit, to honor its promises and to guarantee the safety of China’s assets". Which makes me laugh that anyone would even bother saying such a thing! Hahaha! Moron!
Of course, being The Mogambo like I am, it is my duty to enlighten world leaders about economics, and in that regard I say to them, "Of course those dollar-denominated assets are safe, Chinese dude! If they ever get lost or destroyed, the United States
will merely give you more paper promises! That’s the beauty of a fiat currency, you morons: We can give you more and more dollars until you are freaking drowning in them!"
I don’t expect the Chinese to hear me and suddenly say, "Thanks, Mogambo!" or even something that sounds like "Wong choi how wong!" which I interpret to mean, "That Mogambo fellow is one sharp economic cookie, and maybe we ought to be following his Strong Mogambo Suggestion (SMS) to buy gold, silver and oil against the terrifying inflationary conflagration that will inevitably result from such insane monetary and fiscal irresponsibility by the Federal Reserve and the Congress, respectively, which is about the only time you can ever use the word ‘respect’ in relation to either one of those lying, corrupt institutions, which does not even mention the sheer corruption of their state and local governments, and governments and central banks around the world who are doing the exact same thing, which is enough to give you the Horrified Mogambo Screamies (HMS)."
But perhaps such gracious social niceties are foreign to Chinese culture, or maybe they are still miffed that I have been calling them "morons" for years since they ignore me when I tell them that they, of all the countries on the earth, need the stability of a gold standard so that they can grow their economy with cheap imports and low cost of capital, which is what you get from a gold-backed currency, and that is why they should be exchanging their excess dollars for gold bullion.
But whatever the reason, they have plenty to worry about, as the US Congress and the Barack Obama administration have already announced, crafted and passed legislation authorizing multi-trillion dollar federal budget deficits!
And these unbelievably massive federal budget deficits will continue for as far as anyone can see, meaning that the US Federal Reserve will create more money and credit to pay for it all, thus vastly expanding the money supply some more, which makes prices go up some more, which devalues all the other existing dollars, which makes prices go up some more, which makes people more angry and rebellious, but which – in this case – makes me laugh and laugh and laugh; and I say to Wen Jaibao, tears of laughter running down my face and ruining my mascara (which is another sad story of heartbreak and betrayal best left for another time), "Hey, Chinese dude! Don’t worry about your stinking dollars losing value! Hahaha! We’ll take real good care of your money, you moron!"
Or, if the Chinese are not interested in the Valuable Advice Of The Mogambo (VAOTM) just because I am widely considered to be an idiot with no redeeming qualities, then they could instead just read in the respected Economist magazine where the "budget balance as a percentage of GDP 2009" for the US is now a negative 11.1%, which is one of those "I never thought I would live to see it" kind of things, sort of like my family waiting for me to live up to my responsibilities and act like a normal human being, which are (as I gather from the way they ask me about it), not too much to ask, although I politely remind tell that I am too old and hateful to give a crap about what they think about anything, including this.
And if they want something more immediate, In fact, all they would have to do is keep reading, as this is where I cite Doug Noland (see Credit Bubble Bulletin, Asia Times Online, March 17, 2008), who reports, "M2 (narrow) ‘money’ supply jumped $29.5bn to a record $8.304 TN (week of 3/2)".
Also, I realize a lot of readers of the Daily Digest aren’t Martenson paid subscribers. If your not a member I would seriously recommend you do a paid subscription (even if for just one month) and read Chris’s"Massive Federal Deficits Announced – Time to Prepare." It is without a doubt the single best article that I have read year – EVER. I myself am very well read and NOT one source I have explains the severity of our deficits like Chris does here. I’d consider this report critical.
Repost But Important:
Financial Sense News Hour, Hour 3 Part 1 (Audio, Quantatitive Easing, Inflation, U.S. In Debt Up to it’s Eyeball Commercial & Much More – A Super Listen This Week! I’d be sure to catch this.)