Wall Street cannot see that a regime change has come to the markets, one in which corporations will be increasingly on the defensive, hounded by governments everywhere looking to raise tax revenue, and assaulted by a permanent buyers strike from consumers adjusting to their own drop in living standards. Image
The financial press likes to talk up those occasions when the Dow presses on above 10,000. Such talk lately has become desultory, since it seems every other week the Dow lurches below 10,000 and then manages to climb its way back up. The market has been in this funk since February of this year, when the Dow began its most recent push from below 10,000, all the way to a peak around 11,200, only to fall three times below the 10,000 level since and recover with less and less conviction. Make the jump»
Only from the land of the Icelandic sagas could such a story unfold. Homer would be proud to claim this epic tale as his own. Alas, while Greece will have its day, this one belongs to the Vikings.
Yesterday morning, Iceland released its long awaited report on just what happened with its banks. It now turns out the banks’ assets were overstated by ISK 7,400 billion before the collapse (approx US $59 Billion dollars). Iceland's annual GDP is - give or take - roughly US $19 billion.
The report is widely believed to be opening the door for criminal prosecution - but current cynicism in Iceland believes the billionaires are going to get away, making the fishermen pay for the mess. Several sections of the actual report are in English including an English language summary:
Report of the Special Investigation Commission (SIC) - English Skýrsla rannsóknarnefndar Alþingis - Icelandic
Former Prime Minister (1991-2004) Davíð Oddsson, largely responsible for the privatisation of Iceland's banks and the abolishment of the National Economic Institute, fled the country just three days before the report was released. Icelanders don't think that was coincidence. Make the jump»
The financial industry meltdown, and the need for reform as well as improved oversight & regulation, was laid out in even more stark contrast as the investigation in the collapse of Lehman Brothers brought more information to light with regard to their short-term lending practices.
From The New York Times, in an article by Michael J. de la Merced:
Now government regulators have what some lawyers call a road map for further inquiry into former Lehman executives like Richard S. Fuld Jr. and the auditing firm Ernst & Young.
Whether the Justice Department and the Securities and Exchange Commission will actually pursue their own legal actions is unclear. But legal experts said on Friday that the examiner, Anton R. Valukas, had provided plenty of material for civil regulatory action at the least with his findings of “materially misleading” accounting and “actionable balance sheet manipulation.”
The article goes on to describe an accounting practice referred to as Repo 105 that "helped the investment bank mask the true depths of its financial woes."
Repo? Shades of "Repo Man" re-cut with "Wall Street" with Tracey Walters & Emilio Estevez working for Michael Douglas in some weird Twilight-Zone like section of suburbia...and perhaps incorporating some elements from the new "Repo Men" movie starring Jude Law and Forest Whitaker. But these types of Repo Men -- the folks utilizing the Repo 105 tactic in order to create a façade of financial stability -- actually exist in the real world, and actually engaged in a practice that played a crucial role in masking the meltdown of a major financial institution.
From a WSJ article by Susanne Craig and Mike Spector (subscription req'd, but this bit is the intro):
Six weeks before it went bankrupt, Lehman Brothers Holdings Inc. was effectively out of securities that could be used as collateral to back the short-term loans it needed to survive. The bank's subsequent scramble to stay alive exposed the murky but crucial role that short-term lending, done in a corner of Wall Street known as the repo market, plays in the financial world.
If the repo market keeps getting associated with shady practices like this, it's gonna give the entire industry a bad name.
So, it's Saturday -- what's going on in your little corner of the market? This is an Open Thread.
(March 10) Wall Streets is headed toward international pariah status thanks to two recent actions by the European Union (EU).
On Tuesday, the EU announced that it was banning Wall Street banks from the lucrative government bond business in Europe. They didn't express official concern or fire off a warning shot. They simply banned Wall Street from financing government bond deals like the one Goldman Sachs sold to Greece. The Guardian pointed out that Wall Street bond business from European governments has gone down over the last two years. Now the business is gone period. In effect, the EU has labeled Wall Streets business tactics as too dangerous for their governments to handle.
Then on Wednesday, the President of the European Commission said that the EU was considering a ban on government debt speculation through Credit Default Swaps (CDS) President José Manuel Barroso announced that, "the Commission will examine closely the relevance of banning purely speculative naked sales on Credit Default Swaps of sovereign debt." While not an outright ban, the threat of banning CDS on national debt would be a major loss for the world's financial speculators, particularly those in the United States and Great Britain.Make the jump»
The number of foreclosure filings hit a record high in the 3rd quarter: "Despite signs of broader economic recovery,
number of foreclosure filings hit a record high in the third quarter -
a sign the plague is still spreading."
JUAN GONZALEZ: And William Black, where is the outrage? It
seems to me, at this stage, with the—as the foreclosures continue to
escalate in numbers, and yet we’re seeing these enormous profits less
than a year after the financial crisis. There doesn’t seem to be the
kind of outrage, even in Congress, that there was six months or eight
WILLIAM BLACK: There’s no palpable outrage, certainly not
in Congress. The reform efforts on derivatives, for example, are a
scandal. They exempt virtually all of the problem derivatives, and
they’re designed to exempt it. And that’s the bill that’s introduced,
and of course it’s likely to get worse with additional lobbying from
the special interests.
Link the things that you’ve just been talking about. You talked
about foreclosures reaching record highs. But in fact, foreclosures,
relative to delinquencies, are quite low compared to historical ratios.
In other words, banks have tons of folks who are not paying their
mortgages on time, and they’re not foreclosing. And the reason they’re
not foreclosing is, once you foreclose, you have to recognize losses
under the accounting rules. And the banks gimmicked the accounting
rules. They put pressure on Congress, and Congress put pressure on the
accounting profession to gimmick the accounting rules now about a year
ago. Now, these bonuses, of course, are paid compared to alleged
profits. What happens if you understate your losses dramatically? You
report much higher profits and much higher bonuses. So this is a web of
fraud, in which they are getting as much as they can before the place
goes to hell in a handbasket again.
Here we are neck deep in debt to pay off the gambling debts of the bankers and now they are completely ignoring their very real losses that are piling up at a record rate simply so they can keep the bonus money flowing into their own pockets:
So here we have another bankster scam being waged on the consuming public. The scam is to create another "too big to fail" scenario as they make record profits and pay out record bonuses by rigging their books.
But the good news is the Dow is up.
So you or someone you care about is likely without a job or looking for more work. But the elite are rigging the system again, and you are going to fix things next time by voting for a Republican.
And what are these bankers with their Enron style accounting doing to help the homeowners that are on the verge of losing their homes? You can be certain that they are still out there offering ARMs to unsuspecting victims of their financial rape of the world.
A very interesting post: by Karl Denninger, More Banking Fraud (Foreclosure Stats).
When does the willful blindness in terms of bank fraud taking place daily in the so-called "marks" on housing-related loans stop?
A big tip o' the hat to disrael on DailyKos, who caught the latest from economist Thomas Palley, America’s Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession.
Palley's introduction sets the hook quite well:
Most commentary has therefore focused on market failure in the housing and credit markets. But what if the house price bubble developed because the economy needed a bubble to ensure continued growth? In that case the real cause of the crisis would be the economy’s underlying macroeconomic structure. A focus on the housing and credit markets would miss that.
LQD = Lazy Quote Diary
Matt Taibbi has been wading through the objections to his Rolling Stone article a few weeks ago detailing how Goldman Sachs has profited obscenely by using its political influence to help create, then prick, a series of financial bubbles over the past century. Taibbi's reply is very much worth reading, to see the depths to which defenders of the financial status quo will stoop, such as hurling the "anti-semitic" charge. But, here is the conclusion, which I consider the best part: Make the jump»
I've posted this chart because provides a useful point of reference to an interesting debate between two progressive economists, Paul Krugman and William Greider.
The issue is whether the economic crisis we are facing right now should be laid at the doorstep of Ronald Regan who signed into law the deregulation of the Thrifts (ie the Savings & Loanl banks) as Krugman says, or whether in fact deregulation has been a bi-partisan policy beginning when Jimmy Carter was president and continuing under Bill Clinton.
It is not a moot point of merely historical interest. We can lay Barack Obama's failure so far, to take on the banks and major financial institutions effectively is traceable to his reliance on the same team of advisors whom Bill Clinton relied upon, a team put into place by Rubin.Make the jump»
hat tip Naked Capitalism and the rockcookie bottom.
The New York Post reports on how Citigroups and Bank of America are still playing the derivatives markets, and financing their speculations with TARP funds.
As Treasury Secretary Tim Geithner orchestrated a plan to help the nation's largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post.
Both Citi and BofA each have received $45 billion in federal rescue cash meant to help prop up the economy and jumpstart the housing market. \
But the banks' purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.
One Wall Street trader told The Post that what's been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay. Make the jump»
From March 20, 2008 -- an excerpt from a piece posted here by wade norris:
OK let's review. Last Spring, Bush said their was no recession. This summer, 'a few bumps in the road' - this fall, "Stormy weather", now, well their might be a depression, but my tax break will fix it. My opinion of these changes reflect that there is indeed a serious recession and possible depression occurring, but our news media doesn't cover the issues. At least BBC has covered the newest element of our spiraling economy - Bush's own 'Hoovervilles' are here.
A "few bumps in the road" appears to have turned into a highway to (or at least skirting) Hell. Even the magickally prosperous and ever-growing Dubai isn't immune:
With Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). Some are said to have maxed-out credit cards inside and notes of apology taped to the windshield.
The government says the real number is much lower. But the stories contain at least a grain of truth: jobless people here lose their work visas and then must leave the country within a month. That in turn reduces spending, creates housing vacancies and lowers real estate prices, in a downward spiral that has left parts of Dubai — once hailed as the economic superpower of the Middle East — looking like a ghost town.
No talking? No facts or feedback if it'll hurt the government or reputation? Mmmm...maybe that's why Dick Cheney's former company, Halliburton, finds it a great place to retreat to. Of course, the voices of reality sometimes have a habit of catching back up with people -- and governments.
It may not be a voice in the back of your head, but you can bet on the likelihood that someone is talking, somewhere. In this day and age, it's difficult to hide anything completely successfully.
No one knows how bad things have become, though it is clear that tens of thousands have left, real estate prices have crashed and scores of Dubai’s major construction projects have been suspended or canceled. But with the government unwilling to provide data, rumors are bound to flourish, damaging confidence and further undermining the economy.
Instead of moving toward greater transparency, the emirates seem to be moving in the other direction. A new draft media law would make it a crime to damage the country’s reputation or economy, punishable by fines of up to 1 million dirhams (about $272,000). Some say it is already having a chilling effect on reporting about the crisis.
Last month, local newspapers reported that Dubai was canceling 1,500 work visas every day, citing unnamed government officials. Asked about the number, Humaid bin Dimas, a spokesman for Dubai’s Labor Ministry, said he would not confirm or deny it and refused to comment further. Some say the true figure is much higher.
It's beginning to look like Dubai's little microcosm is also going to serve as a small-scale simulation of events that will play out if we don't get a viable handle on the current runaway economy.
This is an Open Thread.
For more information about past ePluribus Media stories, check out these taxonomy / "tag" / terms:
Note: there is a little overlap. Make the jump»
Roger Stone is the longtime dirty-trickster who knocked the socks off of Eliot Spitzer in a scandal of high-priced trysts that forced resignation of the NY Governor earlier this year. With a Republican pedigree stretching to Watergate, Stone needed little inducement more than Spitzer's capital "D" affiliation.
But, as the nation's taxpayers await the terms of our extortion by the Bush Administration's 'exempt from oversight' bankers' club under a plan -- including full immunity -- led by Henry Paulson, it's time to consider the political assassination of another White House enemy for the SOP it was. Make the jump»