Wed 2010-08-04 20:48 EDT

Janet Tavakoli: Stranguflation: Deflation and Inflation Where it Hurts America Most

Janet Tavakoli

The U.S. is suffering from high unemployment combined with too much consumer debt in a weak economy...our bloated financial sector has been sucking the life-blood out of the U.S. economy for years, and recent decisions insure it will continue to feed off taxpayers, while the host economy struggles for life...The bailouts were a perversion of capitalism and the principles upon which The Republic was founded. This was the result of influential interested parties reaching into the U.S. Treasury with no accountability. Capitalism doesn't call for bailouts, instead investors take losses. Shareholders in failed financial institutions should have been wiped out, debt holders would have had to accept discounts combined with debt for equity swaps, and financial institutions would have then been recapitalized without taxpayers footing the bill. Instead banks lobbied for relaxed accounting and ineffective "financial reform." No one, including bank managers, can tell how much capital is truly needed, and taxpayers' ongoing heavy subsidies give these financial institutions the appearance of stability.

deflation; hurting America; Inflation; Janet Tavakoli; Stranguflation.

naked capitalism Sun 2010-07-25 16:28 EDT

The Irish mess

Richard Smith

The Irish banks got in a big mess with duff RE loans. The government swapped discounted bad loans for government-issued bonds...the whole thing is the usual dump onto taxpayers...loans to no more than ten or a dozen of these developers account for EUR 20Bn of the EUR70Bn face value of the debts exchanged...The extra national debt incurred (so far) equates to EUR25,000 per taxpayer. And EUR6,500 of that goes to repair damage inflicted by just a dozen well-placed spivs. Then go for some fairly brutal austerity to sort out the new debt/GDP ratio (Irish unemployment was 13.5% the last time I looked). You will have some pretty discontented citizens, and the debt/GDP ratio will stay the same, or get worse, so you cut again...

Irish mess; naked capitalism.

Sat 2010-07-24 16:13 EDT

Disequilibria: A Constant State Of Instability >> The Shadow Banking System

RueTheDay

What we saw from mid-2007 through early-2009 was a run on the shadow banking system. There were two primary channels by which the shadow banking system operated: the Money Market/Commercial Paper Channel and the Repo Channel...we have largely unregulated [money market funds (MMMFs)] taking deposits (largely withdrawable on demand and usually checkable) and making the equivalent of loans, in other words, acting as banks. Except that the MMMFs were not subject to much in the way of prudential regulation beyond some broad parameters that dictated what investments they could buy, did not have access to FDIC deposit insurance, and did not have lender of last resort access to the Fed's discount window. They were a disaster waiting to happen...Repos also became a very popular mechanism for raising funds in the pre-crisis days, with MMMFs becoming large buyers of repos (lenders) and the broker dealers becoming both buyers and sellers (borrowers and lenders)...during the crisis...the classic maturity mismatch situation...concerns about the quality of commercial paper...triggered by the collapse of Lehman...Without the traditional protection of deposit insurance and lender of last resort financing by the Fed, it turned into a full blown panic...Any meaningful financial reform must bring the shadow banking system out of the shadows. It must be treated as banking, and its institutions regulated as banks...

constant state; Disequilibria; instability; Shadow banks Systems.

naked capitalism Thu 2010-07-22 16:19 EDT

Decoding the NY Fed on Shadow Banking

Richard Smith

NY Fed: We document that the shadow banking system became severely strained during the financial crisis because, like traditional banks, shadow banks conduct credit, maturity, and liquidity transformation, but unlike traditional financial intermediaries, they lack access to public sources of liquidity, such as the Federal Reserve's discount window, or public sources of insurance, such as federal deposit insurance.

decoding; naked capitalism; NY Fed; Shadow banks.

China Financial Markets Tue 2010-04-20 09:17 EDT

Who will pay for China's bad loans?

Michael Pettis

...pessimists are starting to worry about excessive debt levels in China, about which they are very right to worry, and many are predicting a banking or financial collapse, which I think is much less likely. Optimists, on the other hand, are blithely discounting the problem of rising NPLs and insisting that they create little risk to Chinese growth. Their proof? A decade ago China had a huge surge in NPLs, the cleaning up of which was to cost China 40% of GDP and a possible banking collapse, and yet, they claim, nothing bad happened. The doomsayers were wrong, the last banking crisis was easily managed, and Chinese growth surged. But although I think the pessimists are wrong to expect a banking collapse, the optimists are nonetheless very mistaken, largely because they implicitly assumed away the cost of the bank recapitalization. In fact China paid a very high price for its banking crisis. The cost didn't come in the form of a banking collapse but rather in the form of a collapse in consumption growth as households were forced to pay for the enormous cleanup bill...

China Financial Markets; China's bad loans; pay.

Jesse's Café Américain Fri 2010-01-29 16:27 EST

Morgan Paying Out 62% of Revenues in Bonuses and Pay While Average Families Face 'Years of Pain'

Jesse

One has to wonder how much of that 'revenue' is merely the result of artificial mark to market accounting and prop desk speculation, and not real cash flow from commercial banking operations.That is not the pay method for a bank. That's a hedge fund. And that would be all very well and good if they were a hedge fund and responsible for their own failures and successes, but they are obtaining the discount window and federal guarantees and subsidies from the taxpayers as though they were a commercial bank...if the bankers keep taking 50+% of all the cash that touches their hands from the public subsidy, then what trickles down to the people won't accomplish anything. Years of zombie-like stagflation look to be the prognosis...The economic hitmen and the corrupt politicians are taking their pay, and the people and their children and most likely grandchildren will be stuck with unpayable debts. Just like a third world nation, which is what the US will look like when they get done cutting health, infrastructure, education, and basic services to pay for this.

62; Average Families Face; bonus; Jesse's Café Américain; Morgan pay; pain; pay; Revenues; years.

Jesse's Café Américain Thu 2009-12-17 09:56 EST

Treasury Cancels Plans to Sell Citi Stake After Failed Equity Offering Stings Shareholders

Jesse

The shareholders of Citigroup should be furious at the greedy and reckless actions of Citi's management in diluting their shares in order to obtain a freer hand in granting themselves fat bonuses. Tonight's equity offering failed to bring in a sufficient price, serving up a significant 20% discount to existing holders of the stock...Technically, Citi can pay back the TARP money from the proceeds. I wonder if they have the gall to do that and pay themselves bonuses this year to boot, which is the basis for this exercise in dilution in the first place. This shows the farce that the Obama financial reforms really are. Nothing has changed except that big bank losses were transferred to the public debt.

Failed Equity Offering Stings Shareholders; Jesse's Café Américain; Sell Citi Stake; Treasury cancels plans.

naked capitalism Thu 2009-11-19 10:41 EST

Fed Authorized 100% Payout by AIG on CDS

It had generally been assumed that the AIG payouts of 100% on credit swaps (when the insurer was under water and bankrupt companies do not satisfy their obligations in full) was the result of some gap in oversight plus traders at AIG exercising discretion (they were unhappy about bonus rows and had reason to curry favor with dealers, who were potential employers). The article makes clear that AIG had been negotiating to settle on the swaps prior to getting aid from the government, and was seeking a 40% discount. The Fed might not have gotten that much of a discount, but there was clearly no need to pay out at par. This massive backdoor subsidy to the likes of Goldman, DeutscheBank was authorized by Geithner while he was at the New York Fed.

AIG; CDS; Fed Authorized 100; naked capitalism; payout.

naked capitalism Sun 2009-09-13 15:59 EDT

Another Lehman Mess: No One Can Run the Software

Lehman's global derivatives book included contracts with a notional face value of $39,000bn and deals with 8,000 different counterparties when it went bust. The derivatives business was actually split into multiple strands, backed up by between 20 and 30 different systems. Once it went bankrupt, the staff who supported these systems "evaporated"...The more time goes by, the less insight remains in terms of the people who staffed those systems...Many previously hidden costs of running a derivatives business, including technology support of multiple disjointed systems, can no longer be discounted.

Lehman Mess; naked capitalism; running; software.

Fri 2008-12-12 00:00 EST

Jesse's Café Américain: Money Supply, Paul Krugman, and the Great Depression

Jesse's Café Américain: Money Supply, Paul Krugman, and the Great Depression; ``Fed made a significant policy error in raising the discount rate in early 1931''; ``we can imagine an outcome in which misbegotten monetary policy results in an oligopoly of corporate interests and an economy that is permanently frozen in a series of de facto monopolies based on central planning, not all that dissimilar to the experience of the Soviet Union prior to its dissolution and some countries in which a hundred or so powerful families control the government and its economy in a state of permanent corruption and malaise.''

Great Depression; Jesse's Café Américain; money supply; Paul Krugman.

Tue 2008-06-17 00:00 EDT

naked capitalism: Goldman Sells Dutch Buyout Loan at 27.5% Discount

27; 5; discount; Goldman Sells Dutch Buyout Loan; naked capitalism.

Thu 2008-04-10 00:00 EDT

Mish's Global Economic Trend Analysis: Ponzi Financing At Citigroup

Citi selling 12 billion leverage loans at big discount

Citigroup; Mish's Global Economic Trend Analysis; Ponzi Financing.

Mon 2008-03-17 00:00 EDT

naked capitalism: Fed Opens Discount Window to Broker Dealers

broker dealers; Fed Opens Discount Window; naked capitalism.

Thu 2007-12-13 00:00 EST

Minyanville -

The Fed's Magic Tricks, by Mr Practical, Minyanville; watching discount rate; "banking system is seized up"

Minyanville.

Tue 2007-12-04 00:00 EST

DealBreaker.com

The Citadel Discount: Armageddon Scenario For Three Banks; E*trade/Citadel CDO pricing at 27 cents blows up Morgan Stanley, Goldman Sachs, and Bear Stearns

com; Dealbreaker.