Bank-Implode! Sun 2009-09-20 12:22 EDT

Bank-Implode! >> Blog Archive >> Exclusive -- Wells Fargo's Commercial Portfolio is a ticking time bomb

In order to sort through the disaster that is Wells Fargo's (quote: WFC) commercial loan portfolio, the bank has hired help from outside experts to pour over the books... and they are shocked with what they are seeing. Not only do the bank's outstanding commercial loans collectively exceed the property values to which they are attached, but derivative trades leftover from its acquisition of Wachovia are creating another set of problems for the already beleaguered San Francisco-based megabank...According to sources currently working out these loans at Wells Fargo, when selling tranches of commercial mortgage-backed securities below the super senior tranche, Wachovia promised to pay the buyer's risk premium by writing credit default swap contracts against these subordinate bonds...should the junior tranches eventually default, then the bank is on the hook.

bank implode; blogs Archive; exclusive; ticking time bomb; Wells Fargo's commercial portfolio.

Mish's Global Economic Trend Analysis Sun 2009-09-20 11:23 EDT

Yellen Calls For "U" Shaped Recession and Another Jobless Recovery

Michael Shedlock

...excerpts from Janet Yellen's Outlook for Recovery in the U.S. Economy: ...the complex topic of inflation. In my career, I have never witnessed a situation like the one that exists now, when views about inflation risks have coalesced into two diametrically opposed camps. On the one hand, one group worries about the long-term inflationary implications of a seemingly endless procession of massive federal budget deficits. At the same time, others fear that economic slack and downward wage pressure are pushing inflation below rates that are considered consistent with price stability and even raising the specter of outright deflation... My personal belief is that the more significant threat to price stability over the next several years stems from the disinflationary forces unleashed by the enormous slack in the economy.

Jobless Recovery; Mish's Global Economic Trend Analysis; Shaped Recession; U; Yellen called.

Minyanville Sun 2009-09-20 11:17 EDT

Our Marionette Economy

This morning in the Wall Street Journal Wells Fargo CEO John Stumpf is quoted saying ``If it's not a government program it's basically not getting done.'' While Stumpf's comment was targeted to the mortgage market and associated with a plea for Fannie Mae (FNM) and Freddie Mac (FRE) to raise their size limits so as to be able to pick up more jumbo mortgages I believe he nailed the current state of our economy: ``If it's not a government program it's basically not getting done.''...But to me, there's a fundamental flaw to the notion that the government can create a sustainable economic recovery...I kept coming back to a comment from Bennet Sedacca: ``They (the government) can make 'em bounce, but they can't make 'em fly.''

Marionette Economy; Minyanville.

Mish's Global Economic Trend Analysis Sun 2009-09-20 11:08 EDT

Bank of America, Citigroup, Credit Card Defaults Soar To New Highs

Michael Shedlock

Last month's improvements in credit card defaults appears to be an outlier. Credit card defaults have resumed their natural tendency to track rising unemployment...Unemployment is likely to rise for another year, then flatten out so it is likely that card defaults keep rising for quite some time.

America; bank; Citigroup; Credit Card Defaults Soar; Mish's Global Economic Trend Analysis; new highs.

Jesse's Café Américain Sun 2009-09-20 11:07 EDT

Stock Market Rally: Shenanigans Abounding

Jesse

...The US markets in general have every mark of a maturing Ponzi scheme...Bonds, stocks, metals, sugar, cocoa, and oil are all moving higher, while the dollar sinks. Is the dollar funding a new carry trade?...We remain guardedly 'optimistic' on the markets for next year ONLY because of the Fed's and Treasury's willingness to continue to debase the dollar to cover the massive unrealized losses in the banks' portfolios, even as they return to manipulating markets in business as usual. Inflation is good for financial assets, and we think another bubble is in the cards, at least for now given Obama's unwillingness to reform, unless some exogenous event or actor intervenes...

Jesse's Café Américain; Shenanigans Abounding; stock market rally.

The Guardian World News Sun 2009-09-20 10:57 EDT

Sarkozy refuses to fret over GDP

Nicolas Sarkozy called for a "great revolution" in the way national wealth is measured today, throwing his weight behind a report which criticises "GDP fetishism" and prioritises quality of life over financial growth. Speaking days before the G20 summit in Pittsburgh, France's president urged the rest of the world to follow his example as he ordered a shake-up in research methods aimed at providing a more balanced reading of countries' performance. Endorsing the recommendations of a report given to him by Nobel prize winners Joseph Stiglitz and Amartya Sen, he said governments should do away with the "religion of statistics" in which financial prowess was the sole indicator of a country's state of health.

fret; GDP; Guardian World News; Sarkozy refuses.

naked capitalism Sun 2009-09-20 10:17 EDT

Guest Post: Ambrose Evans-Pritchard & the City's hard EU choices

Swedish Lex

The City's political clout in Brussels is waning as the UK's financial industry model has gone from being the envy of the European peers to being a liability. Meanwhile, the EU will in the future probably be proposing new banking and financial services legislation that may be superficially marketed by decision-makers as striving to provide a clear cut with the existing Anglo-Saxon casino model. This guest post will discuss some of the fundamental choices that the City is facing, the most significant being whether or not to be advocating a UK withdrawal from the EU altogether.

Ambrose Evans Pritchard; City's hard EU choices; Guest Post; naked capitalism.

Taibblog Sun 2009-09-20 09:51 EDT

Will Obama listen to ex-Fed chief Paul Volcker's warnings?

Matt Taibbi

So former Fed chief Paul Volcker yesterday was spouting off about how nuts it is that certain ``too big to fail'' commercial banks that receive mountains of public money are allowed to run around acting like high-risk hedge funds...This would be meaningful if the Economic Recovery Board that Volcker runs for Obama were actually a chief policymaking center for the president. But the reality is that the Volcker group is a kind of show-pony the Obama administration kept on as a way to give consolation jobs to the more progressive economic advisers who led them through the campaign season, people like University of Chicago professor Austan Goolsbee...Obama did a bit of a bait-and-switch, hiring progressives to run his campaign and jettisoning them once he got into office. I hear about this phenomenon from different corners of the policymaking universe, from health care to defense and intelligence spending. But my sense is that the switch was most violent in the realm of economic policy...

ex-Fed chief Paul Volcker's warnings; Obama listen; Taibblog.

Jesse's Café Américain Sat 2009-09-19 16:53 EDT

US Dollar Long Term Chart and a Scenario for Dollar Devaluation

Jesse

We have been trying to calculate a new lower bound for the dollar decline from the charts. Reason tells us that at some point the dollar decline and economic imbalances may lead to a devaluation of the dollar.

Dollar devaluation; Dollar Long Term Chart; Jesse's Café Américain; Scenarios.

Blog entry Sat 2009-09-19 13:28 EDT

The Angelides Commission: Tell America What Happened

Robert L. Borosage

Today the new Financial Crisis Inquiry Commission, modeled after the New Deal-era Pecora Commission, begins its investigation into possible misconduct by the financial sector causing last year's market meltdown...We are pleased that the Financial Crisis Commission is coming together, under the leadership of chair Phil Angelides...the Commission should aspire to be the modern day version of the Senate Banking Hearings in the 1930s that came to be named after the chief counsel, Ferdinand Pecora...The Angelides Commission -- if it fearlessly lays out the facts, exposes the excesses, the deformed incentives, the frauds and crimes, that are at the root of the current crisis has the potential of playing a similar role to that of Pecora.

Angelides Commission; blog entry; happened; tell America.

Thu 2009-09-17 10:36 EDT

Milton Friedman and the Economics of Empire

Greg Grandin

Excerpt from Greg Grandin's Empire's Workshop. (Milton Friedman, Chile, Arnold Harberger, General Augusto Pinochet's military government, shock treatment) Not only had Nixon, the CIA, and ITT, along with other companies, plotted to destabilize Allende's "democratic road to socialism," but now a renowned University of Chicago economist, whose promotion of the wonders of the free market was heavily subsidized by corporations such as Bechtel, Pepsico, Getty, Pfizer, General Motors, W.R. Grace, and Firestone, was advising the dictator who overthrew him on how to complete the counterrevolution -- at the cost of skyrocketing unemployment among Chile's poor. The New York Times identified Friedman as the "guiding light of the junta's economic policy," while columnist Anthony Lewis asked: if "pure Chicago economic theory can be carried out in Chile only at the price of repression, should its authors feel some responsibility?"

economic; Empire; Milton Friedman.

Thu 2009-09-17 10:31 EDT

China, Bernanke, and the price of gold - Telegraph Blogs

Ambrose Evans-Pritchard

China has issued what amounts to the ``Beijing Put'' on gold. Former Vice-Chairman of the Communist Party's Standing Committee Cheng Siwei: China has fundamentally lost confidence in the US dollar and is going to shift to a partial gold standard through reserve accumulation. [dollar losing reserve status]

Bernanke; China; gold; Price; Telegraph Blogs.

Credit Writedowns Thu 2009-09-17 09:49 EDT

China issues bonds to ``promote the RMB in neighbouring countries''

In the latest move toward China's long-term strategy of internationalising its currency, the Chinese Ministry of Finance announced today it will issue government bonds valued at 6 billion yuan in Hong Kong. [dollar losing reserve status]

China issues bonds; credit writedowns; Neighbouring Countries; promote; RMB.

Mish's Global Economic Trend Analysis Thu 2009-09-17 09:47 EDT

Consumer Credit Contracts Record $21.6 Billion

Michael Shedlock

U.S. Consumer Credit Falls by a Record $21.6 Billion. U.S. consumer credit plunged more than five times as much as forecast in July as banks restricted lending terms and job losses made Americans reluctant to borrow. Consumer credit fell by a record $21.6 billion, or 10 percent at an annual rate, to $2.5 trillion, according to a Federal Reserve report released today in Washington. Credit dropped by $15.5 billion in June, more than previously estimated. Credit fell for a sixth month, the longest series of declines since 1991.

21; 6; Consumer Credit Contracts Record; Mish's Global Economic Trend Analysis.

Jesse's Café Américain Thu 2009-09-17 09:39 EDT

"It has now become clear that this was no ordinary crash."

Jesse

Here is an informative piece on the banking crisis in Iceland...in all banking collapses of this sort, fraud and duplicity are always at the heart of it, as larceny is in most great fortunes through history. Investigating Icelandic banking collapse, Icelandic economist Jon Danielsson believes the root of Iceland's problems that have now decimated its economy appear to have started when the government decided to privatize the banks in the early 1990s...the government had no understanding of the dangers of banks or how to supervise them. They got into the hands of people who took risks to the highest possible degree...Central banking IS an old boy's network. It is the best and biggest network of all. In this one, you actually get to print money...

becomes clear; Jesse's Café Américain; ordinary crash.

Thu 2009-09-17 09:31 EDT

Why capitalism fails - The Boston Globe

Stephen Mihm

Mainstream economics rediscovers Hyman Minsky; ``Instability,'' he wrote, ``is an inherent and inescapable flaw of capitalism.''...Minsky drew his own, far darker, lessons from Keynes's landmark writings, which dealt not only with the problem of unemployment, but with money and banking...Minsky argued that Keynes's collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff...Minsky spent the last years of his life, in the early 1990s, warning of the dangers of securitization and other forms of financial innovation, but few economists listened. Nor did they pay attention to consumers' and companies' growing dependence on debt, and the growing use of leverage within the financial system... Minsky...argued for a ``bubble-up'' approach, sending money to the poor and unskilled first. The government - or what he liked to call ``Big Government'' - should become the ``employer of last resort,'' he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else's wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

Boston Globe; Capitalism Failed.