John Hussman Is Stating The Obvious......

I´ve promised to come back after QE 3.0 has started.... Well, it looks like Bernanke started at least the "campain" to hint QE 3.0..... Initially my comment that the break would take only a few weeks should sound ironic... With Bernanke in charge i should have known better...;-) Thank god he is 100 PERCENT! ( no typo ) certain ( his "brilliant" track record ,see Youtube : Bernanke in Denial, should insprice confidence.... ) he could stave off ( core LOL ) cpi inflation when and if it came to that... Probably no coincidence that the topic asset price inflation aka bubbles & the US$ didn´t made it into the interview .... ;-) ( Quote Mish : That was not really an "interview" on 60 minutes, it was an infomercial for Bernanke ) On the topic Bernanke & QE 2.0 i urge you to read the latest comment from Hugh Hendry, Jeremy Grantham & Mish.

Habe ja angekündigt spätestens nachdem QE 3.0 gestartet worden ist wieder etwas regelmäßiger zu bloggen.... Nach diesem Wochenende kann man sagen das Bernanke zumindest die Kampagne für QE 3.0 gestartet hat..... Eigentlich war mein Hinweis, das die Bloggerpause wahrscheinlich nur einige Wochen dauern wird, ironisch gemeint....Mit einem wie Bernanke an den Schalthebeln hätte ich es besser wissen müssen.... ;-) Nur gut das sich Bernanke zu 100 PPROZENT! sicher ist ( leider kein Übersetzungsfehler.... Nach Ansicht von Youtube : Bernanke in Denial sind Aussagen wie diese bestenfalls als bedenklich, bin halt ein höflicher Zeitgenosse, zu bezeichnen ) auf den eh schon massiv geschönten ( hedonisch, Kernrate, usw ) Warenpreiskorb auswirken .... Sicher kein Zufall das die Frage nach der Vermögenspreisinflation sprich BLASE sowie der US$ es nicht in das Interview, das Mish richtig als INFOMERCIAL für Bernanke bezeichnet, geschafft hat.... ;-) In diesem Zusammenhang empfehle ich einen Blick in den den letzten Kommentar von Hugh Hendry , Jeremy Grantham & Mishz u werfen...

John Hussman

It doesn't take much thought to recognize that, like Bernanke's actions, the actions of the ECB are ultimately likely to represent not monetary policy but fiscal policy.

When you buy the debt of countries that have a high likelihood of defaulting on this debt, or will avoid default only by the creation of currency that could have been issued to finance fiscal expenditures, it follows that you are engaging in fiscal policy without the authorization of elected governments.

We are allowing 99% of the world to accept budget cuts and austerity in order to defend bondholders from taking losses or having to accept debt restructuring. When bondholders lend money to a financial company or to a country, at a spread over the yield available safe debt, they are explicitly accepting the risk that the bet will not work out, and that they may lose money in the event of a restructuring.

When government policy at every level focuses on making bondholders whole, then government policy at every level focuses equivalently on protecting the inefficient and dangerous misallocation of capital.

Almost a miracle that so far the populist backlash & the social unrests against the "war on taypayers" are still minor... I fear that this will change rather sooner than later...... UPDATE: Video: Fire bombs, Stones Fly in Greek Riots; All Flights to/from Athens Cancelled

The daily headlines about trillions in black holes & the people in charge should be at least enough to give the Special Gold Report "In Gold We Trust" - Erste Group a shot..... In contrast to Hendry & Grantham i still think GOLD is not a bad long term hedge against the wisdom of the "Central Banksters" & politicians... ;-)

Bin überrascht das es bisher in Sachen Populismus und vereinztelten ( zu 99% glimpflich verlaufenden ) Demos vorwiegend in Südeuropa ( UPDATE: Video: Fire bombs, Stones Fly in Greek Riots; All Flights to/from Athens Cancelled bisher kein größerer Gegenwind für ständig wiederkehrende Rettungsaktionen einzig und allein zu Lasten der Steuerzahler gibt... Dank des bisher eingeschlagenen Weges befürchte ich allerdings das sich das demnächst ändern wird....Spätestens dann dürfte speziell Europa und der € irreparablen Schaden davon getragen haben....

Die inzwischen zur Gewohnheit gewordenen tagtäglichen ( und noch vor 12 Monaten für unmöglich gehaltenen) Schlagzeilen über gigantische Summen sowie die Historie der handelnden Personen sollten ausreichen zumindest mal einen Blick in den Special Gold Report "In Gold We Trust" der Ersten Group zu werfen... Obwohl ich damit anderer Meinung als Hendry & Grantham bin, denke ich das GOLD langfristig nicht die schlechteste Absicherung gegen die geballten Wesiheiten der weltweiten ( aber inbesonders der angelsächsich geprägten ) "Central Bankster" sowie der momentan handelnden Politiker ist....;-)

Without a good dose of humor the daily spin is almost impossible to withstand... So enjoy an almost instant classic.....

Da dies alles mit einer gehörige Portion Humor wesentlich leichter zu ertragen ist lege ich allen dringend den nachfolgenden Clip ans Herz....Dürfte bereits jetzt ( 4 Wochen nach Veröffentlichung ) als Klassiker durchgehen....

Update:

Did Bernanke Pull a Fast One Last Night? The Mess That Greenspan Made

Guest Post: Bernanke Is 100% Sure Jim Quinn of The Burning Platform via ZH

Lies, Half-Truths, and 100% Hubris on 60 Minutes Mish

Money Printing and 100% Confidence – Day 4 Pento & Baum via Tim

Helicopter Ben gets in a spin The Economist

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
The Big Bank Theory
http://www.thedailyshow.com/
Daily Show Full Episodes Political Humor The Daily Show on Facebook

Jeremy Grantham "Night of the Living Fed’

After this post i will continue with my temporary "time out"...Image was just too spot on to pass and is topping even the "They Won´t Stay Dead" version".....

Werde nun meine wohlverdiente Pause fortsetzen....Konnte bei dieser wohl treffensten Illustration seit langem einfach nicht wiederstehen.....Toppt sogar noch die "They Won´t Stay Dead" Version...

Grantham October

Unlike Grantham i think this is a not a bad long term hedge against the wisdom of the "Central Banksters"... ;-)

Selbst wenn einer wie Grantham es etwas anders sieht denke ich das dies langfristig nicht die schlechteste Absicherung gegen die geballten Wesiheiten der weltweiten ( aber inbesonders der angelsächsich geprägten ) "Central Bankster" ist....;-)

Meridth Whithney "I Havn´t Been This Bearish In A Year"

So do i...... But at least from this point of view the market looks "rationale";-)

Genau wie ich ... Immerhin stimmt die Martbewertung wenn man diesen Maßstab ansetzt..;-)

Unlike Bernanke ( H/T Maxgreen) she at least managed to influence the $ longer than 30 minutes......No Surprise ;-) UPDATE : Bernanke vs. Meredith Whitney Mish

Im Gegensatzu zu Bernanke ( H/T Maxgreen ) hat Sie es zumindest geschafft des Verlauf des $ länger als 30 Minuten zu beeinflussen.... Keine Überraschung ;-) UPDATE :Bernanke vs. Meredith Whitney Mish

Wall Street Vs Main Street..........

Thanks Ben, Timmy etc....... Yes we can´t........ I think the guy from Main Street ( see Chart of the day, underemployment edition & Still on the Job, but Making Only Half as Much ) will be pleased when he reads this kind of news....... Make sure you watch the Bird & Fortune, FT video: Banking, bonuses, boom and bust :-) & Bank-Favoring Censorship by Congress :-( !

Besten Dank an Ben, Timmy usw........ Yes We Can´t........ Solche "dollen" Nachrichten dürften bei dem Durchschnittsbürger ( siehe Chart of the day, underemployment edition & Still on the Job, but Making Only Half as Much ) besonders gut ankommen..... Die satirische Betrachtung von Bird & Fortune, FT video: Banking, bonuses, boom and bust ist sehenswert und leider recht nahe an der Realität :-)! Wer immer noch Zweifel hat das sich nichts ändern wird sollte dringend Bank-Favoring Censorship by Congress lesen..... DEPRIMIEREND!



Wall Street On Track To Award Record Pay WSJ

Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year -- a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street's pay culture.

Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal.

Total compensation and benefits at the publicly traded firms analyzed by the Journal are on track to increase 20% from last year's $117 billion -- and to top 2007's $130 billion payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost almost $2,000 from 2007 levels.

H/T Rolfe Winkler

Here is a link to the raw data, below a list of the top 10.

NOTE: This includes only public companies

Blackstone: $4.04 million per employee
Och-Ziff: $878k
Goldman Sachs: $743k
Jeffries: $514k
Lazard: $473k
BlackRock: $318k
Legg Mason: $291k
Eaton Vance: $280k
IntercontinentalExchange: $279k
Morgan Stanley: $263k

Felix Salmon on Goldman

But just because we need these banks to exist does not mean that we want these banks to make enormous profits.....

So the answer to the question Sorkin poses in the question is, essentially, “yes”: we don’t want Goldman to fail, and neither do we want Goldman to reward success in the way it has of late. What we do want is less excess and less systemic risk.

Allowing a super-sized Goldman to pay out untold billions in bonuses every year — even if they’re cleverly structured in the form of slowly-vesting stock — achieves neither of those aims.

Havn´t heard the word "moral hazard" for a long long time.....Unfortunately i think the following excellent cartoon from Gary Varvel is spot on.....

Was ist eigentlich aus dem Wort "Moral Hazard" geworden....... Leider ist der Wahrheitsgehalt des folgenden Cartoons von Gary Varvel erschreckend hoch......

Geithner Aides Reaped Millions Working for Banks, Hedge Funds

Speaking to financial executives last month, Obama said: “We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.”

At the same time, the president has promised to change Washington by keeping lobbyists for special interests at a distance and by making decisions in the open.

I´ll finish with a good "advice" from Jesse Gold: Until the Banks Are Restrained and Balance Is Restored ... ;-) & a nice rant from Black ( see The financial sector harms the real economy. )

Denke der folgenden Ratschlag Gold: Until the Banks Are Restrained and Balance Is Restored von Jesse & der Standpunkt von Black ( The financial sector harms the real economy. )sind ideal um dieses Posting zu beenden..... ;-)

Update:

JPM Sets Aside $471,779 Run-Rated Compensation For 2009 ZH

Lobbyists Mass to Try to Shape Financial Reform NYT

The financial services industry has poured more than $220 million into lobbying in 2009, much of it in anticipation of this Congressional effort now beginning

Bank Lobbyists Are Not Only Trying to Kill NEW Legislation, They Are Trying to Weaken EXISTING Regulations Washington´s Blog

WALL STREET IS WINNING! Elizabeth Warren "Speechless" About Record Bonuses Blodget

We're Speaking Japanese Without Knowing It - John Hussman

Good reminder from Hussman that we still havn´t make any meaningful progress with the main issue of all the toxic debt & the impaired bank balance sheets ( click here & here for just a few example )..... He is spot on that it is a scandal that so far the bondholders have been "protected"at the expense of the taxpayer ( rip off still expanding on a daily basis / see The Talf that keeps on taking (CMBS) ,Let’s say RIP to PPIP , Spain to approve EUR 64bln of guarantees for bank debt sales & "Today I Think Of Myself As A Government Contractor......" etc.) ...... The Great "Cover-Up" is still in full force without significant consequences for the "participants"........" Where is the debt to equity swap ?"

Schön zu sehen das es zumindest noch einzelne Rufer in der Wüste wie Hussman gibt die sich erlauben darauf hinzuweisen das der wichtigste Punkt der Krise, die sich unter Wasser befindlichen Bankenbilanzen, noch immer nicht mal ansatzweise gelöst worden ist ( Hier & hier nur einige Beispiele ). Unglücklicherweise ist die Lage in Deutschland ebenfalls nach wie vor "instabil" siehe Oppenheim verpfändet Aktien & Neues Milliardenloch bei LBBW ) ........ Es ist gelinde gesagt ein Skandal das praktisch weltweit die Politik in Verbindung mit den Notenbanken entschieden hat die Anleiheinvestoren zu schützen und stattdessen den Steuerzahler in Risiko gehen zu lassen ( verweise stellvertretend auf The Talf that keeps on taking (CMBS) , Let’s say RIP to PPIP, Spain to approve EUR 64bln of guarantees for bank debt sales & "Today I Think Of Myself As A Government Contractor......" usw.)..... Es sieht ganz so aus als wenn bis auf weiteres The Great "Cover-Up" ohne größere Konsequenzen für die "Beteiligten" auszugehen scheint..... Habe zu diesem Thema unter dem Label "Where Is The Debt To Equity Swap" bereits öfter meinem "Unverständnis" Luft gemacht.....

H/T Option ARMageddon / R. Winkler

We're Speaking Japanese Without Knowing It Hussman

If one seeks analysis about the recent financial crisis, and what most probably lies ahead, it would be wise to place particular weight on the views of economists who saw it coming (and ideally those who provided careful analysis rather than hyperbole

.....At a speech at the Princeton Club last week, economist Carmen Reinhart eiterated that by propping up unhealthy banks, the U.S. is unwittingly committing the same mistakes as the Japanese did in their decade-long stagnation, saying, “These are not zombie loans. They're just non-performing. We're speaking Japanese without knowing it.”

Historically and across countries, according to the IMF, 86% of systemic banking crises have ultimately required government restructuring plans that included closing, nationalizing and merging banks.

Yet the policy response of the U.S. has been akin to putting a band-aid on an untreated infection. Worse, not only has the underlying infection been overlooked, but thanks to the easing of FASB mark-to-market rules early this year, we have at least temporarily stopped reporting on the status of that infection.

After the bubble burst in Japan in 1990, Japanese banks were not compelled to properly disclose their losses either. The predictable result is that the problems resurfaced later, but worse, because they had not been addressed.

This sort of “regulatory forbearance” – setting aside requirements for large loan loss reserves and timely loss disclosure - was helpful during the Latin American debt crisis of the 1980's, but largely because it allowed time for negotiations with countries to restructure debt, first by rescheduling payments, and then ultimately through debt-equity swaps, exit bonds, and other major debt restructuring under the Brady Plan.

Forbearance only works, however, if you're buying time to do something to restructure debt. Instead, we've celebrated bailouts and the easing of reporting requirements as if they are a substitute for restructuring. In my view, this is a mistake that will haunt us.

Our response to the recent crisis has thus far repeated the mistakes made during the Japanese and S&L debacles.

The continued urgency of debt restructuring

With the financial markets cheerily celebrating the end of the recession, credit spreads back to 2007 levels, and analysts referring to the mortgage crisis as largely a thing of the past, it is natural to ask why I would start pounding the tables again about debt restructuring. Old news. Problem solved. Why even bring it up?

The simple answer is that we have not solved the mortgage mess. We have temporarily buried it under a pile of public money, bailing out bank bondholders at public expense. As I've noted before, the best time to panic, in the financial markets, is before everyone else does

Similarly, the best time to consider responses to credit strains is before they surface.

My sincere hope is that if, and I believe when, financial trouble resurfaces, we will be wise enough as a nation to prevent policy makers like Geithner and Bernanke from making the same bailout mistakes twice, protecting irresponsible lenders, and further burdening the nation with debt in the process.

With regard to the banking system, we still have no mechanism by which large undercapitalized banks would be able to absorb large losses with their own balance sheets, in lieu of going into receivership or default. The problem is that there is too much on the balance sheets in the form of debt, and not enough in terms of equity. Citigroup, with about $2 trillion in assets, continues to fund about $600 billion of that through debt to its own bondholders. Customers would never be at risk of loss in the event that Citigroup was to “fail.” The bondholders would.

But we have chosen to defend the bondholders. A cushion on the balance sheet that can't be touched is no cushion at all.

The proper solution is not to bail out the banks, but to create a regulatory structure that allows losses to be absorbed from the capital of bondholders.

UPDATE:

Andy Xie: Why One Bubble Burst Deserves Another Caijing

The lesson from the Lehman collapse seems to be, "Take whatever you can and, when it crashes, you get to keep it." How governments and central banks have dealt with this bubble will encourage more people to join bubble making in the future.

Chris Whalen: The Global Carry Trade And The Crimes Of Patriots via ZH

Since the October 1987 financial crisis, the Federal Reserve System has not denied the Street either liquidity or collateral. The objective goal of policy, it seems, has been to keep the ability of Congress to issue debt intact all the while keeping the casino part of the banking system operating at full steam regardless of the impact on inflation and, more important, investor behavior.....

The EU also has killed any entrepreneurial activity in private banking as well. There is virtually no private capital inflows into the EU banking sector and, in many markets, private and public sector EU banks mostly are insolvent. The EU member states now are the last redoubt for entire nations when it comes to credit.

One wonders how the EU will participate in the stated intention of the G-20 to raise bank capital for riskier activities when many EU banks cannot meet current capital requirements and are facing losses that are equally as large as those unrealized losses facing US banks.

Janet Tavakoli : Wall Street's Fraud Solutions For Systemic Peril ZH

Massive fraud damaged the U.S. economy. (Housing prices didn’t just fall; they plummeted as the fraud unraveled.) U.S. taxpayers became unwilling unsophisticated investors funding Wall Street’s bailout. The Fed uses tax dollars to keep some of our largest banks—weakened by reverse‐Glass‐Steagall mergers with troubled entities—from collapsing under heavy loan losses.

Wall Street’s huge bonus payments were based on suspect accounting. Failure should not result in fortune. Yet, Wall Street once again proposes to pay out exorbitant bonuses.

Many banks’ current illusion of profitability is only made possible by taxpayers’ enormous subsidies including low cost borrowing, higher interest payments on bank capital deposits, a credit line for the FDIC (to be repaid with banks’ subsidized profits), and continued government debt guarantees on bank debt. A large share of certain banks’ tax‐subsidized profits is due as reparation to unsophisticated investors, the U.S. taxpayers.

Troubled financial entities should be put into receivership and restructured. Old shareholders will be wiped out. Debt‐holders will take a haircut (discount) along with a debt for new equity swap to recapitalize the entity.

But the job won’t be complete until we separate high risk activities from traditional banking in a return to a Glass‐Steagall like structure with regulators that indict fraudsters, snuff out systemic fraud, and allow honest bankers to prosper.

Volcker to Banks: Stop Trading with Taxpayer Money WSJ

....the fact that commercial banks that have taken billions in government assistance and whose deposits are now insured by the federal government, continue to take trading risks that Volcker finds unacceptable.

Commercial banks “lend money to businesses, and that’s still a very important function….And that’s why we protect them. I don’t want to see those banks, however, taking a lot of unnecessary risk. It’s risky enough lending money. They don’t have to do a lot of trading on speculative reasons,’’ Volcker says in an interview on “Charlie Rose,”

In other words, Volcker said banks should not be allowed to act like hedge funds trading everything from commodities to debt instruments

The problem is that proprietary trading is a major revenue generator for many commercial banks today. On some levels this could be good for taxpayers because the banks can use their trading profits to help pay back government bail out funds.

Not surprisingly, Volcker admitted during the interview with journalist Charlie Rose, which will be rebroadcast by Bloomberg TV, that he hasn’t found any takers in the Obama administration for his call to separate commercial banking from trading.

In Harsh Reports on S.E.C.’s Fraud Failures, a Watchdog Urges Sweeping Changes

Many on Wall Street and in Washington were surprised that some of Mr. Kotz’s proposals, like recording interviews with witnesses and creating a database for tips and complaints, were not already part of the S.E.C.’s standard practice.

Too Big To Jail :-)

Bernanke Sees A Recovery - How Would He Know? Hussman

Just in time for the reappointment of Bernanke.......I´ve put some updates to the original Hussman piece..... "Yes, We Can´t".....

Paßt hervorragend zur Wiederernennung von Bernanke.....Habe ein paar Updates zum ursprünglichen Hussman Artikel hinzugefügt...."Yes, We Can´t...."



Bernanke Sees A Recovery - How Would He Know? Hussman

“Our forecast is for moderate but positive growth going into next year. We think that by the spring, early next year, that as these credit problems resolve and, as we hope, the housing market begins to find a bottom, that the broader resiliency of the economy, which we are seeing in other areas outside of housing, will take control and will help the economy recover to a more reasonable growth pace.”

Ben Bernanke, Federal Reserve Chairman

On Friday, investors took great cheer in an optimistic statement by Ben Bernanke suggesting good prospects for economic growth ahead.

We might be inclined to place a sliver of credibility in Chairman Bernanke's assessment – if not for the fact that the quote above wasn't from last week at all, but rather, hails back to November 8, 2007, just before the recent recession began.

> I have also found this ( see What? Did Bernanke Really Say This ? ) from Nov 2007..... UPDATE: OECD June 2007 Outlook via Mish...... Suddenly Bernanke is looking less "dumb"......

> Habe im "Blogarchiv" noch dieses Sahnestück ( siehe What? Did Bernanke Really Say This ? ) von Bernanke gefunden..... UPDATE: Verhlichen mit dem OECD June 2007 Outlook könnte man sogar behaupten das Bernanke unter den Einäugigen König ist......

You might recall that the S&P 500 was pushing 1500 at the time. The implosion of the global credit markets was still just a slight rumble

Solving economic problems, to our Fed Chairman, is as easy as throwing money out of helicopters. Not surprisingly, throwing money out of helicopters has been the basic core of his strategy during this crisis.

This does not involve complex thought about debt restructuring, moral hazard, incentives, equitable distribution of resources, or other factors.

All it requires is the three second tape playing in Bernanke's head - "We let the banks fail in the Great Depression, and look what happened." And then the tape repeats.

Never mind that the cause of the upheaval was not the failure of banks per se, but the disorganized Lehman-style failure of banks. The tape isn't long enough to encompass such nuances.

Ben Bernanke (like Tim Geithner and his predecessor Hank Paulson), shows no hesitation in diverting the real resources of the American public to defend and compensate the bondholders of mismanaged financial companies who made reckless loans and who should have (and equally important, could have) been expected to write down principal or swap debt for equity as an alternative to receivership.

This is not decisiveness. It is timidity and poor stewardship. Worse, the underlying problems are not healed - only band-aided temporarily by a flood of public money.

Unfortunately, the resources used in the recent bailout were not just free money tossed out of a helicopter. Only a partial-equilibrium economist thinks that way.

No, this was an allocation of trillions of dollars of real resources that could be spent improving access of poor families to health care, finding cures for life-changing diseases, providing better education, and reversing the crowding-out of productive private investment.

A public servant willing to act this carelessly with the resources entrusted to him, and so strongly in defense of fellow bankers, frankly does not deserve the job. Most likely, we will face the same credit issues a few quarters from now, given that the lull in the adjustable-rate reset schedule is near its end. We continue to expect a fresh acceleration of credit losses as we enter 2010. It would be best if we faced these challenges with more thoughtful leadership.

> Another Bernanke quote via Rosenberg

Then again, he told us in June 2008 that “although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased.”

Nice call. Those supporting Mr. B's reappointment should take this forecast into consideration. It's not quite like Chamberlain's “peace in our time”, but it's not that far off either.

> I have never heard the usually calm Farrel ranting...... I like it......

> Habe den ansonsten besonnene Farrel bisher nicht mal im Ansatz so "explodieren hören"......

Dismantle Bernanke's 'Happy Conspiracy' ... now! Paul B. Farrell

(MarketWatch) -- At last week's annual Jackson Hole meeting of Fed execs, Boss Ben Bernanke's braggadocio about saving the world from another Great Depression had the feel of an egomaniacal dictator trying to cement his legacy in history.

Any good behaviorist would tell you Bernanke's got some dangerous biases isolating him from reality (remember two years ago when he was denying the meltdown). His brash claims and radical, secretive policies present a grave danger to American capitalism and democracy.

The Case Against Ben Bernanke Stephen Roach via Kedrosky

He argues three points about the pre-Lehman incarnation of Bernanke:

He was deeply wedded to the philosophical conviction that central banks should be agnostic when it comes to asset bubbles.

He was the intellectual champion of the “global saving glut” defence that exonerated the US from its bubble-prone tendencies and pinned the blame on surplus savers in Asia.

He is cut from the same market libertarian cloth that got the Fed into this mess.

Finally, and this is a broader point, Roach argues that it is too soon to grant Bernankeas having saved the day: “It would be the height of folly to reward Mr Bernanke for the recovery that never stuck. “

6 Bad Calls By Ben Bernanke Clusterstock Slideshow

Dean Baker via Tim

"Reappointing Ben Bernanke because of how he has dealt with the crisis is like giving another command to the captain of the Titanic, based on how effectively he got people into the life boats".

Rolfe Winkler

That said, I think Fed policy under Bernanke has been terrible. The Greenspan interventions he supported inflated the largest credit bubble in 80 years; the de-leveraging that needs to happen to correct the damage has been delayed indefinitely by Bernanke’s own interventions.

His supporters say he averted a second Great Depression. I disagree. He’s merely delayed it.

The liabilities of the financial and consumer sectors haven’t gone away, they’ve merely been absorbed by the public balance sheet. This is as much Hank Paulson’s and Tim Geithner’s fault as it is Bernanke’s. I’m not thrilled with their leadership either.

> I agree....

> Hätte es besser nicht sagen können......

Joke Of The Day "Well Capitalized......”

Stories like this explain my "GOLD addiction"........This Cartoon from Jesse ( see "The Emporer Has No Clothes, But Who Dares To Say It" ) nails it.....

U.a. dank solcher Geschichten bin ich ein großer Anhänger von GOLD...... Dieser Cartoon von Jesse ( siehe "The Emporer Has No Clothes, But Who Dares To Say It" ) ist spot on......


Next Bubble to Burst Is Banks’ Big Loan Values: Jonathan Weil
Aug. 13 (Bloomberg) -- It’s amazing what a little sunshine can accomplish.

Check out the footnotes to Regions Financial Corp.’s latest quarterly report, and you’ll see a remarkable disclosure. There, in an easy-to-read chart, the company divulged that the loans on its books as of June 30 were worth $22.8 billion less than what its balance sheet said. ( see Regions Form 10-K via Zero Hedge)

The Birmingham, Alabama-based bank’s shareholder equity, by comparison, was just $18.7 billion.

So, if it weren’t for the inflated loan values, Regions’ equity would be less than zero. Meanwhile, the government continues to classify Regions as “well capitalized.”

> I must admit that i´m somewhat surprised to see that John Paulson purchased 35 million shares of Regions Financial Corp. He is one of the best Hedge Fund mangers out there...

> Ich muß gestehen das ich doch sehr "überrascht" bin das ausgerechnet einer der besten Hedgefondmanger überhaupt sich ausgerechnet in diese Aktie eingekauft hat ( siehe John Paulson purchased 35 million shares of Regions Financial Corp )

While disclosures of this sort aren’t new, their frequency is. This summer’s round of interim financial reports marked the first time U.S. companies had to publish the fair market values of all their financial instruments on a quarterly basis. Before, such disclosures had been required only annually under the Financial Accounting Standards Board’s rules.

The timing of the revelations is uncanny. Last month, in a move that has the banking lobby fuming, the FASB said it would proceed with a plan to expand the use of fair-value accounting for financial instruments. In short, all financial assets and most financial liabilities would have to be recorded at market values on the balance sheet each quarter, although not all fluctuations in their values would count in net income. A formal proposal could be released by year’s end.

Recognizing Loan Losses

The biggest change would be to the treatment of loans. The FASB’s current rules let lenders carry most of the loans on their books at historical cost, by labeling them as held-to- maturity or held-for-investment. Generally, this means loan losses get recognized only when management deems them probable, which may be long after they are foreseeable. Using fair-value accounting would speed up the recognition of loan losses, resulting in lower earnings and reduced book values.

While Regions may be an extreme example of inflated loan values, it’s not unique. Bank of America Corp. said its loans as of June 30 were worth $64.4 billion less than its balance sheet said. The difference represented 58 percent of the company’s Tier 1 common equity, a measure of capital used by regulators that excludes preferred stock and many intangible assets, such as goodwill accumulated through acquisitions of other companies.

Wells Fargo & Co. said the fair value of its loans was $34.3 billion less than their book value as of June 30. The bank’s Tier 1 common equity, by comparison, was $47.1 billion.

Widening Gaps

The disparities in those banks’ loan values grew as the year progressed. Bank of America said the fair-value gap in its loans was $44.6 billion as of Dec. 31. Wells Fargo’s was just $14.2 billion at the end of 2008, less than half what it was six months later. At Regions, it had been $13.2 billion.

Other lenders with large divergences in their loan values included SunTrust Banks Inc. It showed a $13.6 billion gap as of June 30, which exceeded its $11.1 billion of Tier 1 common equity. KeyCorp said its loans were worth $8.6 billion less than their book value; its Tier 1 common was just $7.1 billion.

When a loan’s market value falls, it might be that the lender would charge higher borrowing costs for the same loan today. It also could be that outsiders perceive a greater chance of default than management is assuming. Perhaps the underlying collateral has collapsed in value, even if the borrower hasn’t missed a payment.

The trend in banks’ loan values is not uniform. Twelve of the 24 companies in the KBW Bank Index, including Citigroup Inc., said their loans’ fair values were within 1 percent of their carrying amounts, more or less. Citigroup said the fair value of its loans was $601.3 billion, just $1.3 billion less than their book value. The gap had been $18.2 billion at the end of 2008.

> Unfortunately the same cannot be said about Citi’s dirty pool of assets .....

> Dummerweise gilt das bei City nicht wenn man sich die anderen Papiere ansieht ( siehe Citi’s dirty pool of assets .....

Arbitrary Accounting

If nothing else, today’s fair-value gaps highlight the arbitrariness of book values and regulatory capital. Banks already have the option to carry loans at fair value under the accounting rules. For the vast majority of loans, most banks elect not to, on the grounds that they intend to keep them until maturity and hope the cash rolls in.

Consequently, the difference between being well capitalized and woefully undercapitalized may come down to nothing more than some highly paid chief executive’s state of mind.

Fair-value estimates in the short-term can be a poor indicator of an asset’s eventual worth, especially when markets aren’t functioning smoothly.

The problem with relying on management’s intentions is that they may be even less reliable.

At least now we’re getting some real numbers, even if you have to dig through the footnotes to get them.

> REGIONS FINANCIAL CORPORATION / Shareholder Information

UPDATE:

Elizabeth Warren "We Have A Real Problem Coming" via Zero Hedge

William Black goes in depth on the biggest theft in world history

Fun commercial real estate figures and charts Agnes Crane/Reuters

Toxic Loans Topping 5% May Push 150 Banks to Point of No Return Bloomberg

Bad, Bad Assets Floyd Norris / NYT

America’s Japanese banks Rolfe Winkler

The Day After The Bond Marked Tanked....Must Read Report From Mr. Mortgage / Field Check Group

I have said a few weeks ago Ben, You Have A Problem......".... The problem has not gotten smaller......Get ready for QE 2.0......... Version 1.0 worked wonders for at least two weeks.....No wonder Gold has a chance for a breakout ( via Zero Hedge ). I highly recommend to read the entire piece and visit Mark Hanson & his Field Check Group site on a regular basis. Excellent stuff!

Vor einigen Wochen habe ich bereits getitels Ben, You Have A Problem....... Sieht so aus als wenn aus dem großen ein wirklich großes Problem geworden ist.....Wenn man weiß wie beschränkt Bernanke in seinem Denken ist gilt es als abgemachte Sache das wir uns auf eine massive Ausweitung des Quantitve Easing ( Notenpresse ) gefasst machen können. Macht ja auch Sinn wenn man sieht wie "toll" der erste Versuch funktioniert hat...... Da verwundert es wenig das Gold kurz davor ist "auszubrechen" ( via Zero Hedge ). Empfehle den kompletten Report zu lesen und den regelmäßigen Besuch von Mark Hanson und seiner Field Check Group Seite. Hier gibt es ungelfilterte "Bodenberichte" von der Hypotheken und Immobilienfront.


bigger / größer Thanks to Karl Denninger

5-28 - Potential Consequences of 5.5% Mortgage Rates Mr. Mortgage / Field Check Group

Mortgage Rates - It Could be as Bad as You Can Imagine

With respect to yesterday’s in the mortgage market — yes, it is as bad as you can imagine. No call can be made on the near-term, however, until we see where this settles out over the next week of so. If rates do stay in the mid 5%’s, the mortgage and housing market will encounter a sizable stumble. The following is not speculation. This is what happens when rates surge up in a short period of time - I lived this nightmare many times.

Yesterday, the mortgage market was so volatile that banks and mortgage bankers across the nation issued multiple midday price changes for the worse, leading many to ultimately shut down the ability to lock loans around 1pm PST. This is not uncommon over the past five months, but not that common either. Lenders that maintained the ability to lock loans had rates UP as much as 75bps in a single day.

Jumbo GSE money — $417k - $729,750 — has been blown out completely with some lender’s at 8%.

I have seen it all in the mortgage world — well, I thought I had.

A good friend in the center of all of the mortgage capital markets turmoil said to me yesterday “feels like they [the Fed] have lost the battle…pretty obvious from the start but kind of scary to live through it … today felt like LTCM with respect to liquidity.”

The consequences of 5.5% rates are enormous. Because of capacity issues and the long time line to actually fund a loan in this market, very few borrowers ever got the 4.25% to 4.75% perceived to be the prevailing rate range for everyone.

A significant percentage of loan applications (refis particularly) in the pipeline are submitted to the lenders without a rate lock.

This is because consumers are incented by much better pricing to lock for a short period of time…12-30 day rate locks carry the best rates by a long shot. But to get this short-term rate lock, the loan has to be complete enough to draw loan documents, which has been taking 45-75 days over the past several months depending upon the lender’s time line.

Therefore, millions of refi applications presently in the pipeline, on which lenders already spent a considerably amount of time and money processing, will never fund.

Furthermore, many of these ‘applicants’ with loans in process were awaiting the magical 4.5% rate before they lock — a large percentage of these suddenly died yesterday. From the lows of a month ago to today, rates are up 20%.

To make matters worse, after 90-days much of the paperwork (much taken at the date of application) within the file becomes stale-dated and has to be re-done with new dates — if rates don’t come down quickly many will have to be canceled out of the lender’s system.

To add insult to near-mortal injury, unless this spike in rates corrects quickly, a large percentage of unlocked purchases and refis will have to be denied because at the higher interest rate level, borrowers do not qualify any longer. For the final groin kicker, a 5.5% rate just does not benefit nearly as many people as a 4.5%-5% rate does. Millions already have 5.25% to 5.75% fixed rates left over from 2002-2006. .....

With respect to banks, mortgage banks, servicers etc, under-hedging a potential sell-off with the Fed supposedly having everybody’s back was a common theme. Banks could lose their entire Q2 mortgage banking earnings and middle market mortgage banker may never recover or immediately have to close shop

Lastly, consider sentiment — this is a real killer. This massive rate spike may have invalidated hundreds of billions spent to control the mortgage market literally overnight.

This leaves the mortgage and housing market very vulnerable.

Mortgage loan officers around the country are having a very very bad day today explaining to their clients why their rate was not locked and how rates are going to come right back down. They are also taking calls from borrowers with locked loans to confirm that the loan is indeed locked, inquiring as to when it will be approved or fund, and to rush the process in order to fund the loan by end of the lock-in term. This creates a customer service log-jam that chews through lender capacity quickly making the loan process even longer. Loans with second mortgages that need to be subordinated, are in a world of their own. Essentially, everything becomes a rush. Subsequently, loan officers will not feel like getting too aggressive taking new loan applications at least for the next month unless this corrects quickly.

Press surrounding this event will be the talk of Main Street immediately and cast a serious doubt over the housing recovery story that has been the common theme for months. An overnight housing market sentiment killer wildcard is something that nobody was factoring in.

We have to see where all this settles over the next few days before making a near to mid-term call on the outright damage because at this point, Fed or Treasury shock and awe is almost certain — another common theme has been ‘if it doesn’t work throw much more money at it’.

Obviously they have been following this closely for the past few weeks, as conditions began to deteriorate, and have likely been waiting to see where the upper range was before shocking in order to get maximum benefit…that would be a humongous short squeeze in Bonds driving rates lower. The problem is…if they do shock her and it is sold into with the same fury that we have been seeing, there may not be an act two.

The bond and mortgage market got complacent with the ultimate in moral hazard’s — the Fed’s got my back. Complacency is a killer.

Where we stand in two weeks in unknowable......

No Kidding..... S&P Is Acting Responsible & Threatens To Blow Up Fed´s CRE Bailout Stunt Via TALF

Pobably the most underreported news from yesterday... The timing of the move ( a tsunami is not an overstatement ) makes it even more remarkable..... To put this in context lets remember that last week the Fed has continued with the "war on taxpayers" and has decided to bail out large parts of the commercial real estate complex ( see Fed Bends Over Backward For CMSA, Will Feed Inflation Capacitor With More Toxic Garbage via Zero Hedge ). The only precondition was....

Kaum zu fassen das gerade die Ratingagentur S&P verantwortungsvoll ( wenn auch einige Quartale zu spät ) reagiert und das Offensichtliche ausspricht. Praktisch alle in den letzten Jahren vergebenen Kredite die durch gewerblich genutzte Immobilien abgedeckt sind drohen analog dem privaten Wohnungsmarkt zu implodieren. Das besondere ist der Zeitpunkt der Ankündigung..... In der letzten Woche hat die Fed in der gewohnt verantwortungslosen Art und Weise beschlossen einen Großteil der gewerblichen Immofinanzierung mit Steuergeldern zu einem Bailout zu verhelfen der aufgrund der schieren Größe des Sektors leicht & locker die 100 Mrd $ übersteigen könnte ( siehe Fed Bends Over Backward For CMSA, Will Feed Inflation Capacitor With More Toxic Garbage via Zero Hedge ). Wenn man nun noch den heutigen Treasury Crash hinzunimmt dürfte das nachfolgende Bild nicht wirklich übertrieben sein........ :-)

An "AAA" rating.....

Die einzige Voraussetzung zur Teilnahme an der Party war ein AAA geratetes Papier....

Current Ratings: As of the TALF loan closing date, the CMBS must have a credit rating in the highest long-term investment-grade rating category from at least two TALF CMBS-eligible rating agencies

Should be no surprise to see that the Fed is deperate to get this kind of crappy collateral with exploding delinquencies onto their balance sheet......Just in time........ Make sure you see more "encouraging" CRE charts via Realpoint / Zero Hedge. Interesting to see that Realpoint is also a "TALF CMBS-eligible rating agency". Judging from their charts & comments it is unlikely that they will "help" the Fed...... Add todays Treasury Crashand i think the picture from Bernanke is even more spot on....... :-)

Inzwischen sollte es keinen mehr überraschen das die Fed eine der am schnellsten implodierenden Anlageklassen auf Teufel komm raus in Ihre Bilanz holen möchte..... Wie dramatisch schnell sich die Lage im gewerblichen Bereich verschlechtert verdeutlichen diese Charts via Realpoint zeigen. Diese Charts sind umso aussagekräftiger wenn man bedenkt das Realpoint ebenfalls zum ausgewählten Kreis der 5 Ratingagenturen gehört denen es erlaubt ist die CMBS zu raten. Nach allem was ich bisher von denen gelesen habe dürften die Kopfschmerzen der Fed eher noch zunehmen.........

bigger/größer

S&P To Downgrade Most Of 2005-2008 CMBS Classes, Derails TALF For CMBS

It is likely that the proposed changes, which represent a significant change to the criteria for rating high investment-grade classes, will prompt a considerable amount of downgrades in recently issued (2005-2008 vintage) CMBS.

Classes up through the most senior tranches of outstanding deals (so-called "A4s," "dupers," or "super-duper seniors") are likely to be affected. Our preliminary findings indicate that approximately 25%, 60%, and 90% of the most senior tranches (by count) within the 2005, 2006, and 2007 vintages, respectively, may be downgraded

Once more i have to quote Tyler ( the man who needs obvioulsly no sleep ) from Zero Hedge.....

Einmal mehr muß ich Tyler ( der Mann braucht anscheinend keinen Schlaf ) von Zero Hedge....

"And all this just days after the government had finally drafted what it hoped was the last and final version of its TALF term sheet. Lets rewind: in the May 19th version of TALF, in order the be eligible, CMBS "must not have a rating below the highest investment-grade rating category from any TALF CMBS-Eligibile Rating Agency." Throw in a downgrade of 90% of the 2007 vintage and it's time to go back to the drawing board.....

Basically, the impending downgrade would make Super Duper CMBS ineligible for TALF

It is a safe bet that the Fed will come back as soon as a week from today and announce TALF 364.7, in which the requirement for a current AAA rating is eliminated altogether.

In fact, as I speculated (jokingly), anything rated Default or higher will soon be perfectly eligible collateral for taxpayer funding. Because that's just how good a fiduciary of taxpayer money the Federal Reserve is."

> I think he is right..... Another stunt could be that the other agencies ( TALF CMBS-eligible rating agencies are DBRS, Inc., Fitch Ratings, Moody’s Investors Service, Realpoint LLC and Standard & Poor’s ) with Realpoint the exception ( see earlier link ) are as "helpful" as always and won´t issue any downgrade until the TALF is working and the most toxic stuff is already on the Fed´s balance sheet......

> Nach meinen Erfahrungswerten was die Fed angeht dürfte Tyler recht haben..... Eine weitere Möglichkeit wäre allerdings auch das die anderen zugelassenen Ratingagenturen(TALF CMBS-eligible rating agencies are DBRS, Inc., Fitch Ratings, Moody’s Investors Service, Realpoint LLC and Standard & Poor’s ) wie bisher beide Augen verschliessen und mit Ihren Downgrades "hilfreich" warten bis TALF implementiert und die "giftigsten" Papiere bereits in der Fedbilanz gelandet sind..... Möchte Realpoint ( siehe vorherigen Link ) von meiner Kritik ausdrücklich ausschließen

What happens if an ABS that was eligible for TALF financing is downgraded by an NRSRO?

Nothing happens to existing TALF loans secured by that ABS. However, the ABS may not be used as collateral for any new TALF loans until it regains its status as eligible collateral.

I highly recommend the blog Zero Hedge ( soon on my blogroll ). Here is much more from Tyler on the CMBS topic. UPDATE: Report: $75 billion of CMBS Market Capitalization Lost in Two Days

Ihr merkt schon das ich den Blog Zero Hedge für extrem lesenswert halte ( findet sich demnächst sicher auch auf meiner Blogroll wieder ). Empfehle zudem die gesammelten Werke von Tyler zu diesem Thema. UPDATE: Report: $75 billion of CMBS Market Capitalization Lost in Two Days

The Destructive Implications of the Bailout - Understanding Equilibrium - Hussman

Nothing really new on the "War On Taxpayers" but when Hussman is almost ranting ( by his standarts ) it should be worth a few minutes of your time... If you want to hear his comments on the “cash on the sidelines” myth go and read the entire link .....

Nichts wirklich neues in dem von mir bezeichneten "War On Taxpayers" aber wenn einer wie Hussman einen für seine Verhältnisse fast schon bemerkenswerten "Gefühlsausbruch" zeigt ist das allemal einen zweiten Blick wert..... Empfehle zudem den kompletten Link. Der beinhaltet u.a. noch den ein oder anderen Kommentar zu dem täglich neu verbreiteten Mythos das es haufenweise “cash on the sidelines” gibt.......


The Destructive Implications of the Bailout - Understanding Equilibrium
One of the features that has enabled the bureaucratic abuse of the public during the past year has been the frantic, if temporary, flight-to-safety by investors. The Treasury has issued an enormous volume of debt into the frightened hands of investors seeking default-free securities. This has allowed the Treasury to finance a massive and largely needless transfer of wealth to bank bondholders so easily over the short-term that the longer-term cost has been almost completely obscured.

But by transferring wealth from those who did not finance reckless loans to those who did – providing monetary compensation without economic production – the bureaucrats at the Treasury and Federal Reserve have crowded out more than a trillion dollars of gross investment that would have otherwise have been made by responsible people in the coming years, shifted those assets to those who have proven themselves to be irresponsible destroyers of capital, and have planted the seeds of inflation that will cut short any emerging recovery.

The Fed has turned its balance sheet into a garbage dump, in order to accommodate all of the additional Treasury issuance required to finance the rescue of bank bondholders. UPDATE: SPEAKING OF GARBAGE....... Fed to Add Older CMBS to TALF in July, Allow More Ratings Firms



The bottom line is that the attempt to save bank bondholders from losses – to provide monetary compensation without economic production – is not sound economic policy but is instead a grand monetary experiment that has never been tried in the developed world except in Germany circa 1921.

This policy can only have one of two effects: either it will crowd out over $1 trillion of gross domestic investment that would otherwise have occurred if the appropriate losses had been wiped off the ledger (instead of making bank bondholders whole), or it will result in a stunning and durable increase in the quantity of base money, which will ultimately be accompanied not by a year or two of 5-6% inflation, but most probably by a near-doubling of the U.S. price level over the next decade

As I've noted previously, the growth rate of government spending is better correlated with subsequent inflation than even growth in money supply itself, particularly at 4-year intervals.

Regardless of near-term deflation pressures from a continued mortgage crisis, our present course is consistent with double digit inflation once any incipient recovery emerges.

> Thanks to the commercial real estate, credit card & corporate debt crisis & massive overcapacity etc i think the recovery leading to rampant (CPI ) inflation is still at least 24-36 months away.... As long as the US $ is not weakening significantly.......

> Dank der zusätzlichen Krisen in allen Lagen der Kreditvergabe ( gewerbliche Immobilien, Kreditkarten, Unternehmen, massivste Überkapazitäten usw ) denke ich das trotz der verantwortungslosen Bailouts die Phase extremer Konsumentenpreisinflation noch mindestens 24-36 Monate entfernt ist..... Bin mir bei den Amis allerdings nicht ganz so sicher..... Ein schnell fallender US$ könnte allerdings den Zeitplan gewaltig durcheinanderwirbeln....

The Chuzpah Is Staggering.......

But not unexpected and somehow admirable.....As predicted earlier the Fed & Treasury have "decided" that converting preferred to common equity is equal to "adding" capital.... Read "Redefinition Accomplished" Spin Continues....."Preferred To Common Equity Edition" with straight talk from Barry, Kasriel & Winkler why this is "bogus"...... Let´s hope that the banks that have passed the test are able to attract as much "smart money" as fast ( window of opportunity probably short lived ) as possible...The taxpayer needs a break..... Update: Wells Fargo, Morgan Stanley Boost Capital After Stress Test

Die Dreistigkeit der Fed und des Finanzministeriums ist schon fast wieder bewundernswert..... Wie bereits früher prognostiziert wird ein Großteil der Mrdlücken die der eh schon realtiv stressfreie Stresstest zu Tage führen wird lediglich durch eine Form der Bilanzakrobatik "bereinigt"..... Empfehle den nachfolgenden Link "Redefinition Accomplished" Spin Continues....."Preferred To Common Equity Edition" der für jedem mit gesundem Menschenverstand aufzeigt das diese Art der Rekapitalisierung nicht gerade "vertrauenserweckend" ist.....Bleibt zu hoffen das zumindest die Banken die den Test bestanden haben in der Lage sind genügend "Smart Money" schnell genug ( befürchte das die Bedingungen nicht dauerhaft so gut sein werden ) einszusammeln.... Der Steuerzahler kann dringend etwas Hilfe gebrauchen..... Update: Wells Fargo, Morgan Stanley Boost Capital After Stress Test


Bank of America Said to Need About $34 Billion in New Capital
May 6 (Bloomberg) -- Regulators have determined that Bank of America Corp. requires about $34 billion in new capital, the largest need among the 19 biggest U.S. banks subjected to stress tests, according to a person familiar with the matter.

Citigroup Inc.’s shortfall is more limited because the company already plans to convert government preferred shares to common stock

, people familiar with the results said. JPMorgan Chase & Co. doesn’t need a deeper reserve against losses, according to people familiar with that company’s result.

The banks may outline their strategies to add capital, or in other cases buy out government stakes, after the Federal Reserve publishes the stress tests results tomorrow.

Firms requiring more capital could raise all the funds through conversions of preferred shares

if they choose, according to people familiar with the matter.

“To the extent that there are banks that need capital, our hope is that many of them will be able to raise that capital through either private equity offers or through conversions and exchanges of existing liabilities,” Federal Reserve Chairman Ben S. Bernanke

told lawmakers at a hearing in Washington yesterday. “The data we have are accurate reflections of the financial conditions of those banks.”

Banks that want to return money injected by the Treasury since October must show they can borrow from private investors without a Federal Deposit Insurance Corp. guarantee,according to people familiar with the matter.

> This will be the real stress test for Goldman ( Goldman Sachs has sold $18.6 billion of debt under the TLGP program, the sixth-highest amount among banks ) & Co ...... This would be a real sign of confidence when they are able to fund themselves completely without FDIC backed funding..... The latest bond yielded 410 basis point higher than Treasuries ( Goldman Sachs Sells $2 Billion of Notes Without FDIC Guarantee .... No wonder when you take a closer look at the "quality" of earnings ( see A Few Goldman Highlights........)

> Denke das wird der echte Stresstest aus Sicht der Banken und insbesondere Goldman Sachs ( haben momentan 18,6 Mrd an besicherter Anleihen ausstehen ).... Sollte Goldman in der Lage sein zukünftig darauf zu verzichtn wäre dies in der Tat auch ein von mir anerkanntes Signal der Stärke. Die letzte Anleihe ohne Garantie würde mit einem Spread von 410 Basispunkten gegenüber Staatsanleihen gepreist. Keine wirkliche Überraschung wenn man sich die Zusammensetzung der letzten Ergebnisse mal etwas genauer ansieht ( siehe A Few Goldman Highlights........)

> I´ll close with this comment......

> Verasbschiede mich mit dieser Bemerkung......

U.S. Banks' Not-So-Stressful Test WSJ

Finally, the government has effectively said it wants banks to have Tier 1 common stock equivalent to 4% of risk-weighted assets. First, investors have to decide whether they have confidence in the risk weightings.

Then they must decide whether 4% -- which still translates into 25-to-1 leverage -- is safe for the unpredictable environment we are in.

Ben, You Have A Problem......

So far the QE hasn´t worked.....Must be due to all the "Green Shoots..... :-) Enjoy the following images...... I wish everybody a nice weekend.....

Bisher hat das sogenannte Quantitive Easing ( also der Kauf von u.a. Staatsanleihen durch die Notenpresse ) keine Wirkung gezeigt. Böse Zungen könnten gar behaupten das das Gegenteil der Fall ist. Könnte natürlich auch an den täglich bejubelten "Green Shoots" liegen ( Meine Meinung hierzu dürfte bekannt sein....) Ich kann eine gewisse Schadenfreude nicht verhehlen. War aber auch wirklich irrwitzig zu glauben das man mit schlappen 300 Mrd. bei der gleizeichtigen Lawine von Billionen an neuen Anleihen nachhaltig Einfluß nehmen kann. Da auf Ben aber Verlaß ist können wir uns jetzt schon mal gedanklich darauf vorbereiten das die nächste Ankündigung des QE um einiges größer ausfallen wird. Bleibt zu hoffen das die Ausländer diese einmalige Gelegenheit nutzen um sich Ihrer Papiere zu entledigen.... Lasse die nachfolgen Bilder und Charts mal ohne weiteren Kommentar stehen und wünsche ein schönes Wochenende.....

Karl Denninger

Contrary Investor

"Redefinition Accomplished" Spin Continues....."Preferred To Common Equity Edition"

Really an excellent way to boost confidence ( will probably work for CNBC :-)...... After news that Stress test pass rate is 68% ( still hyperinflated & from a almost "stress free test" ) and no chance that private capital will cover the capital shortfall the spin attempt from the Geithner & Bernanke is that the convertion from preferred to common equity will do the trick ........

Wirklich ein fantastischer Weg um das immer noch nicht vorhandene Vertrauen zurückzugewinnen..... Nach der Neuigkeit das immerhin beachtliche 68% der Institute den Strest Test bestanden haben ( unter realen Bedingugen läge die Quote wohl unter 10% ) und unter der realistischen Annahme das sich kein privater Invetor finden wird der in die durchgefallen Institute investieren würde haben sich Geithner und Bernanke einen neuen Taschenpielertrick ausgedacht. Man nehme einfach die mit Tarpmitteln erworbenen Vorzugsaktien und tausche diese in normale Aktien um..... Schon ist der Kapitalbedarf gedeckt...... Hört sich unlogisch an und erinnert eher an Enron & Co ......... Herzlichen Glückwunsch: Der gesunde Menschenverstand ist bei Euch noch nicht abhanden gekommen....


April 29 (Bloomberg ) —

At least six of the 19 largest U.S. banks require additional capital, according to preliminary results of government stress tests, people briefed on the matter said.

While some of the lenders may need extra cash injections from the government, most of the capital is likely to come from converting preferred shares to common equity, the people said.

The Federal Reserve is now hearing appeals from banks, including Citigroup Inc. and Bank of America Corp., that regulators have determined need more of a cushion against losses, they added.

By pushing conversions, rather than federal assistance, the government would allow banks to shore themselves up without the political taint that has soured both Wall Street and Congress on the bailouts. The risk is that, along with diluting existing shareholders, the government action won’t seem strong enough.

Now on to the common sense view.....

Nachfolgend ein paar Meinungen die aus der Abteilung "gesunder Menschenverstand" kommen.....

Option Armageddon

As for converting preferred to common, yeah that will boost TCE, but it doesn’t actually ADD any capital to banks’ balance sheets. 67¢ cents of preferred equity + 33¢ of common equity = $1 of total shareholder equity. Convert all the preferred to common and you still have only a $1 of total equity. There’s no extra capital on the balance sheet to absorb losses.

Barry Ritholtz

And, now that some of the results are coming in, the cure for inadequate capital is not more capital, but an accounting trick — converting preferred stock to common

US banks are suffering a solvency problem, and what they need is more capital, not an accounting sleight of hand. Yet that is precisely what they are getting — the same clever financial engineering that led to the crisis in the first place.

Paul Kasriel including some simple example that even Geithner & Bernanke should understand...... :-)

Treasury will just convert $5 of the preferred shares it owns in Gotham to $5 of common equity. This is shown in Balance Sheet Two. Now Gotham is well capitalized, right? Wrong. The depositors and the bond holders always were in line in front of the preferred shareholders in case Gotham had to be liquidated. So, moving $5 from the preferred equity category to the common equity category does not make the depositors and bond holders any better off.

In sum, Treasury's plan to enhance the capitalization of some financial institutions by beating preferred equity shares into common equity shares is accounting alchemy.

I´ll finish with a rant on "Paulson, Timothy “turbo tax override deductions” Geithner & “Helicopter” Ben Bernanke" from Pigpen via The Barricade :-)

Denke der gelungene Abschluß für dieses Posting ist ein "netter" Kommentar über "Paulson, Timothy “turbo tax override deductions” Geithner & “Helicopter” Ben Bernanke" von Pigpen via The Barricade :-)

"The Emporer Has No Clothes, But Who Dares To Say It"

Jesse´s Cafe Americain is once more spot on... Thanks :-)

Jesse´s Cafe Americain trifft mal wieder den Nagel auf den Kopf.... Besten Dank :-)

larger/größer

Is There Anybody Out There Believing That There Will Be A "Transparant" Bad Bank........?

If the recent handling from the Fed & Treasury ( and their western counterparts ) is offering any guide i think the chances that we will see much transparancy is not looking very promising ( same has hapened in Germany with the IKB bailout ) . That Obama has choosen Geithner ( just a younger version of Paulson ) isn´t quite helpful and was a big disappointment ( see also the "rant" from Barry Ritholtz The Moral Hazard of the “Bad Bank” ). Read the following articles and it should be clear that there is no way the Bad Bank will pay nowhere near market prices and make the process of how they "model" their inflated "market price" transparent..... Just another attempt to rip off the taxpayer and to avoid the long overdue punishment of equity and especially debt investors......

Wenn die bisherige Handhabung der Bailouts von Seiten der Fed und des Finanzministeriums ( gleiches gilt auch für Steinbrück in Sachen IKB/KFW!) irgendwelche Anhaltspunkte geben wie es bei der kommenden Bad Bank um die Transparenz bestellt sein wird sieht es, wie nicht anders zu erwarten, zappenduster aus...... Trotz aller großen Reden Obamahs das in allen Bereichen vollkommene Transparenz obersterstes Gebot seiner Regierung sein wird. Das Obama ausgerechnet Geithner nominiert, hat der schon zu Zeiten als Fed Verantwortlicher eine einzige Katastrophe gewesen ist und mir eher wie ne jüngere Version von Paulson vorkommt, spricht Bände ( siehe auch die wenig schmeichelhaften Kommentare zu Geithner via Barry Ritholtz The Moral Hazard of the “Bad Bank” )...... Lest bitte die folgenden Artikel und es dürfte kristallklar sein das die Bad Bank nicht mal ansatzweise aktuelle Marktpreise zahlen wird. Zudem dürfte es keinerlei schlüssige Erklärung geben wie die Bad Bank die deutliche Überbezahlung der Anlagen rechtferigen kann...... Alles in allem ein weiterer Versuch den Steuerzahler ohne entsprechenden Gegenwert die Last der geballten Inkompetenz der Bänker und Aufseher zu schultern..... WICHTIG: Unbedingt diesen Link "Bad Bank - Bad System" von "Querschüsse" lesen um am Beispiel der Wets LB mit offenem Mund zu bestaunen was für Lasten kommen werden.....

> I think it´s safe to say that you can add central bankers to this list......

> Ich denke man kann getrost auch die Zentralbänker dieser Welt dieser Liste (Cartoon) zuordnen.....

Obama Records Pledge Tested By Citigroup Guarantees Jan. 29 (Bloomberg) -- U.S. government guarantees on securities totaling $419 billion for bank bailouts provide an early test of President Barack Obama’s pledge to be open with taxpayers about what they have at risk in the credit crisis.

Bloomberg News asked the Treasury Department Jan. 26 to disclose what securities it backed over the past two months in a second round of actions to prop up Bank of America Corp. and Citigroup Inc. Department spokeswoman Stephanie Cutter said Jan. 27 she would seek an answer. None had been provided by the close of business yesterday.

As Congress debates an $875 billion economic stimulus bill, the guarantees represent a less publicized commitment. The public’s stake has grown along with assurances tying the Treasury to the fate of corporate loans and securities backed by home mortgages, car loans and credit card debt.

Obama promised a new era of government openness as he took office last week, issuing a statement telling agencies “to adopt a presumption in favor of disclosure” in responding to requests under the Freedom of Information Act. Treasury Secretary Timothy Geithner and Lawrence Summers, head of the National Economic Council, said they would emphasize accountability and transparency in using the second half of a $700 billion bank bailout fund.

New Disclosures

Late yesterday, Geithner’s office put hundreds of pages about the fund on the department’s Web site. They did not include documents describing the guaranteed assets.

Members of Congress from both parties have complained about the Bush administration’s lack of disclosure about the spending of the first $350 billion from the fund.

“We have requested information in the past three months and have been rebuffed by the administration,” said Representative Scott Garrett, a New Jersey Republican and member of the House Financial Services Committee. “President Obama comes down the pike now, and maybe, in a week or a month, we’ll know.”

Last fall, the Federal Reserve declined to identify the recipients of about $2 trillion in emergency loans from U.S. taxpayers or the assets the central bank is accepting as collateral.

Fed Is Sued
Bloomberg News asked for details of the lending on May 21 and filed a federal lawsuit against the Fed Nov. 7 seeking to force disclosure. The loans were made under the terms of what became 11 programs in the midst of the biggest financial crisis since the Great Depression. Arguments in the suit may be heard by a judge as soon as next month, according to the court docket.

Bloomberg filed a FOIA request yesterday for the list of what was covered by the Citigroup and Bank of America guarantees. Bloomberg asked for records on the fees paid by banks to the government, which securities were rejected for guarantees, as well as any contracts for data services and experts to assess the value of the securities.

Under the information law, passed by Congress in 1966, Treasury has 20 working days to respond to Bloomberg’s request. The measure allows nine exemptions, such as trade secrets or national security, for blocking disclosure.

During his confirmation, Geithner, the former president of the Federal Reserve Bank of New York, didn’t directly answer a senator’s request for more information about Maiden Lane LLC, a special-purpose entity that holds assets from the takeover of Bear Stearns Cos. by JPMorgan Chase & Co.

$301 Billion Guarantee

Citigroup’s guarantee package, completed Jan. 16, totals $301 billion. It kicks in after the bank goes through its $9.5 billion in current loan loss reserves and the first $29 billion of losses. The government also gets $1 billion of the bank’s benefit from hedging contracts. The Treasury, the Federal Deposit Insurance Corp. and the Fed then assume 90 percent of losses from those assets.

Citigroup’s guarantees include $191 billion of consumer loans, with $55.2 billion of them second mortgages, according to a Jan. 16 news release from the bank. Securities backed by commercial real estate total $12.4 billion and corporate loans add $13.4 billion.

> Unfortunately the US is not alone in this kind of behavior ( see ING Gets Massive Dutch Bailout.... Dumping € 27.7 Billion Alt-A RMBS On The Dutch Taxpayer........ ) On top of this our rumored German version of the Bad Bank is structured in a similar way.......

> Unglücklicherweise macht dieses Beispiel Schule..... ( siehe ING Gets Massive Dutch Bailout.... Dumping € 27.7 Billion Alt-A RMBS On The Dutch Taxpayer........ ) Nach allem was man von Steinbrück hört droht uns in Deutschland eine ähnlich skandalöse Konstruktion......

Citigroup has received $45 billion in cash from selling preferred securities to the government under the Troubled Asset Relief Program.

$118 Billion
Bank of America’s agreement, announced the same day, is similar: $20 billion in cash aid, bringing the total to $45 billion,

and $118 billion in asset guarantees. The government said the assets included securities backed by residential and commercial real estate loans and corporate debt and associated derivatives and hedges

. Scott Silvestri, a spokesman for the Charlotte, North Carolina-based bank, declined comment.

Merrill Lynch & Co., which was bought by Bank of America, was the underwriter for $49.4 billion in defaulted collateralized debt obligations, the most of any bank, since October 2007, according to data compiled by Standard & Poor’s and Bloomberg.

Merrill was the biggest CDO underwriter from 2005 to 2007, with more than $102 billion, said Sanford C. Bernstein & Co. research analyst Brad Hintz.

Since October 2007, Bank of America underwrote under its name $15.1 billion in failed CDOs, according to S&P and Bloomberg. Banks have so far understated losses on such securities, and “the tsunami is on the horizon,” Hintz said.

‘Going to Be Huge’

Past sales of CDOs valued them at pennies on the dollar. In July, New York-based Merrill sold $30.6 billion of the securities to an affiliate of the Dallas-based investment firm Lone Star Funds for $6.7 billion. Merrill provided financing for about 75 percent of the purchase price, and the sale valued the CDOs at 22 cents on the dollar.

“By June, it’ll become clear that these guarantees are being drawn and they’re going to be huge,” said Christopher Whalen, managing director of Institutional Risk Analytics, a financial-services research company in Torrance, California. “Every day that goes by, Congress figures it out just a little more.”

High Dive Into the Toxic Pool WSJ

Goldman Sachs Group estimates that troubled assets could exceed $5 trillion, if defined as assets that could show a loss rate close to, or above, 10%. To put that in context, $5 trillion is just over 40% of the $12.3 trillion in total assets of U.S. commercial banks.

> Some of the estimated loss rates ( Commercial, Alt-A, Second Lien) seems overly "optimistic...... Will be (no) fun to watch how big the haircut will be and what kind of "magic" formula they will use to defend their "value estimate" when the Bad Bank will take over the toxic paper..... Here is another view via Naked Capitalsim Goldman: Bank Rescue May Reach $4 Trillion (and "Bad Bank" Issues)

> Nach allem was ich so mitbekomme sind einige der Annahmen zu den kommenden Verlusten ( gewerbliche Immobilien, Alt-A, Home Equity Loans) reichlich "optimistisch......Wird sicher (k)ein Spaß zu sehen sein zu welchen Werten diese Positionen in die Bad Bank gehen werden und mit welch "magischer" Formel der Wertansatz gerechtfertigt wird..... Eine weitere Meinung kommt von Naked Capitalism Goldman: Bank Rescue May Reach $4 Trillion (and "Bad Bank" Issues)

Option ARMs See Rising Defaults WSJ

Nearly $750 billion of option adjustable-rate mortgages, or option ARMs, were issued from 2004 to 2007, according to Inside Mortgage Finance, an industry publication. Rising delinquencies are creating fresh challenges for companies such as Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co. that acquired troubled option-ARM lenders.

..... more than 55% of borrowers with option ARMs owe more than their homes are valued at, according to J.P. Morgan Securities Inc.

As of December, 28% of option ARMs were delinquent or in foreclosure, according to LPS Applied Analytics, a data firm that analyzes mortgage performance. That compares with 23% in September. An additional 7% involve properties that have already been taken back by the lenders. By comparison, 6% of prime loans have problems.

Problems with subprime are still the worst. Just over half of subprime loans were delinquent, in foreclosure, or related to bank-owned properties as of December. The nearly $750 billion of option ARMs issued from 2004 to 2007 compares with roughly $1.9 trillion each of subprime and jumbo mortgages in that period.

Nearly 61% of option ARMs originated in 2007 will eventually default, according to a recent analysis by Goldman Sachs

, which assumed a further 10% decline in home prices. That compares with a 63% default rate for subprime loans originated in 2007. Goldman estimates more than half of all option ARMs outstanding will default.

In a recent conference call, Bank of America said it had added $750 million to its impaired portfolio reserves to offset higher-than-expected losses related to its acquisition of Countrywide Financial Corp. The company said the increase "was focused principally in the pay option ARM product." This week, Wells Fargo said $59.8 billion of its "Pick A Payment" option ARM mortgage portfolio was "credit impaired," including $24.3 billion in loans on which the company has taken a credit write-down.

> Mhhhhh, i wonder how much of this paper will end at the Bad Bank......

> Tippe mal das wir einen gewaltigen Teil aus den unten aufgeführten Bilanzpositionen demnächst in der Bad Bank wiederfinden werden.....

Why Meredith Whitney thinks a “bad bank” is a bad idea FT Alphaville


> Here comes a reminder on how "honest" you should take the estimates for taypayer losses when they come from the Fed, Treasury or 90% of politicians......

> Nur zur Erinnerung wie glaubhaft Aussagen zu möglichen Verlusten für den Steuerzahler sind die von Seiten der Notenbänker, Finanzminister oder von 90% der Politiker kommen verweise ich auf das Beispiel Fannie Mae und Freddie Mac......

Fan and Fred's Lunch Tab WSJ

It seems a lifetime ago, but it's only been six months since the Congressional Budget Office put a $25 billion price tag on the legislation to bail out Fannie Mae and Freddie Mac. At the time, then CBO Director Peter Orszag told Congress that there was a "probably better than 50%" chance that the government would never have to spend a dime to shore up the two government-sponsored mortgage giants.

A spokeswoman for Fannie promoter Barney Frank said then, "we especially like that there is less than a 50% chance that it will be used." The CBO had figured that there was a 5% chance that losses would reach the $100 billion cap on the credit line created by the July law. Now CBO's best guess is more than double that.

The bigger picture here is that politicians like Mr. Frank have been telling us for years that Fannie and Freddie's federal subsidy was a free lunch. We are now slowly, and painfully, learning the price of Mr. Frank's famous desire to "roll the dice" with Fan and Fred. Keep that in mind the next time you hear a politician propose a taxpayer guarantee. The only sure thing is that the taxpayers will pay.

A quarter-trillion dollars later, and rising.............