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mises
Joined: 05 Nov 2007
Location: retired
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 Posted: Wed Apr 01, 2009 6:06 am Post subject: |
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I suppose that pushes the US solidly into 10% unemployment, making solid the change from recession to depression.
Kiss a recovery in 2009 goodbye. 2010 now is best-case. |
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mises
Joined: 05 Nov 2007
Location: retired
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bucheon bum
Joined: 16 Jan 2003
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| Posted: Wed Apr 01, 2009 8:45 am Post subject: |
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Obama's Ersatz Capitalism
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| THE Obama administration�s $500 billion or more proposal to deal with America�s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win � and taxpayers lose. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Wed Apr 01, 2009 12:11 pm Post subject: |
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http://blog.foreignpolicy.com/posts/2009/04/01/china_adds_some_bite_to_its_bark_on_the_dollar
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No one is betting on the health of Argentina's economy these days. Ever since the country defaulted on its international debt in 2001, confidence that its economic situation could turn around has been extremely low. Indeed, in February, when the Argentine government requested permission to once again enter its bonds into U.S. capital markets, The Wall Street Journal suggested this response:
The SEC should instead insist that Argentine securities bear a warning like cigarette packages: 'This issuer has a record of misrepresentation, debt defaults and debt repudiation, and therefore may be dangerous to your financial health. Do not consume this issuer's bonds unless you have a platoon of lawyers and a Navy to back them up, and you're prepared to use both.'"
Why, then, would China use this week's Inter-American Development Bank meeting in Medill�n to agree to a $10.24 billion currency swap with a country whose bonds could be worth next to nothing by the end of 2010? Two reasons seem apparent -- one is straightforward, the other is disturbing.
First, as Xinhua reports, the Argentines can essentially use the RMB as extra cash to pay for imports. But one might note that, since the Yuan is not a convertible currency, the money can only be used to purchase goods from -- you guessed it -- China, potentially giving a boost the Dragon's ailing export sector.
The other reason for the swap seems more strategic, especially in conjunction with other currency trades that China has very quietly signed with Malaysia, Hong Kong, South Korea, Belarus, and Indonesia over the past three months. As the Financial Times puts it:
Economists...see Beijing's currency swap deals as pieces in a jigsaw designed to promote wider international use of the renminbi, starting with making it more acceptable for trade and aiming at establishing it as a reserve currency in Asia, something that would also enhance China's political clout."
Combine these actions with China's recent call to replace the U.S. dollar as the international reserve unit, and it starts to look like this currency swap has nothing at all to do with Argentina. |
You can hold the Chinese currency, with 2trillion in reserves (though half in USD assets) or the US currency with 10 trillion in debt (plus off balance sheet debt of around 30-40trillion). Which would the rational person choose? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Apr 02, 2009 6:44 am Post subject: |
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Synthetic CDOs Becoming �Unmanageable,� Fitch Says
April 1 (Bloomberg) -- Managers of collateralized debt obligations are struggling to prevent losses in the funds because the cost of trading the underlying contracts has soared, according to a report by Fitch Ratings.
Some CDOs that package credit-default swaps are now �virtually unmanageable� because prices for the contracts have risen so high, Fitch said in a summary of the report today. The costs are preventing managers, who select contracts included in the so-called synthetic CDOs, from trading out of companies that may fail in order to preserve the funds� loss cushions, known as subordination.
�Corporate synthetic CDO managers have refrained from executing trades that would reduce the amount of available subordination for a given rating,� or would breach other requirements that can trigger downgrades, London-based Fitch analysts Manuel Arrive and Lars Jebjerg wrote in the report.
The situation has left many funds �largely static,� the analysts wrote, making them vulnerable to defaults by the underlying companies, the analysts said. Even in cases where managers hedged against losses by buying credit-default swaps on potentially failing companies, monetizing gains has become more difficult because of a widening gap between the prices dealers are willing to buy and sell protection.
Last years� seizure in credit markets prompted banks to start closing down or scaling back units that bought and sold CDOs, Fitch said. That�s increased the spread between bid and offer prices for credit-default swaps that banks left in the market can demand.
�Major Hindrance�
�Those desks that remain in the correlation trading business have seen their allocated capital and risk appetite dramatically reduced, resulting in larger bid/ask spreads,� Arrive and Jebjerg wrote. The lack of market �liquidity� has become �a major hindrance� for managers of CDOs, they wrote.
The spread between bids and offers on credit swaps protecting against a default by General Electric Co.�s finance arm for five years has widened 22 basis points the past year to 27 basis points, according to prices from London-based CMA DataVision. The price at which dealers are willing to sell protection has soared to 747 basis points from 131 basis points during that period, CMA data show.
General Electric Capital Corp., the finance unit, is the company most often included in synthetic CDOs rated by Fitch, according to data provided by the ratings firm last month. Five- year credit swaps typically are the most actively traded maturity in the market.
Credit Swaps Rise
The cost of credit-default swaps on the benchmark Markit iTraxx Europe index of investment-grade bonds has risen to almost 180 basis points from about 20 in 2007, according to data compiled by Bloomberg. That means it costs 180,000 euros ($238,000) a year to protect 10 million euros of debt from default for five years compared with 20,000 euros before the credit crisis.
Credit-default swaps are used to speculate on corporate creditworthiness or to hedge against losses. An increase indicates a deterioration in investor confidence. CDOs pool bonds, loans or credit-default swaps, channeling their income to investors in layers of differing risk. |
http://www.bloomberg.com/apps/news?pid=20601087&sid=a08cXmkLaiow&refer=home
I suppose they'll all blow up at the same time, unless they can find a way for the US government to shift the downside to the taxpayer.
http://reason.org/blog/show/1007218.html
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Krugman: Japan Is Us
Anthony Randazzo
April 1, 2009, 5:43pm
Japanese economy expert Adam Posen said earlier this week that the Obama team is proposing actions "disconcertingly similar" to Japanese government during the Lost Decade era. Linking to the Posen article on his New York Times blog, economist/pundit Paul Krugman had this to say:
"To be fair: the Obama team really does face huge political obstacles in doing the right thing... But we shouldn't kid ourselves. Japan is us."
Spot on Mr. Krugman. Probably the more accurate way to put is that America is fast becoming Lost Decade-era Japan, but we aren't far off. The Japanese Lost Decade was preceded by an asset boom, an over-leveraged financial system, and excessively optimistic expectations of future economic growth. Sound familiar? Then their stock market crashed, asset values plummeted, and the economy rapidly dropped into a recession with heavy unemployment. To fight back the Japanese government spent years trying to spend and borrow their way back to economic health--all to dismal results.
Consider this:
"From 1992 to 1999, Japan spent over $500 billion (in today�s dollars) on public works projects. Despite this infrastructure spending, Japan�s unemployment rate more than doubled and the economy remained stagnant."
This stat comes from my recent study on the Japanese Lost Decade (with fellow Reason staff Mike Flynn and Adam Summers). We found that, despite 10 fiscal stimulus packages totaling more than $1.4 trillion (in today's dollars) and dropping their interest rates to virtually zero, all Japan got in return was debt that exceeds 200 percent of GDP.
Compare that to what we are doing today: total spending and loans targeted at fighting the recession is closing in on $12 trillion in taxpayer obligations stemming back to January 2009. Unemployment has steadily declined during that time and we are facing a bleak future at the current rates of spending and taxation. The answer is not to try and top Japanese spending or pass stimulus packages quicker than they did to fight the recession. The answer is to back down, decrease taxpayer obligations, and let the business cycle clear the market (at least, thats the one sentence generalization). |
The problem is debt, not spending. Throw the multiplier out the window, or just send in the keys.
http://www.voxeu.org/index.php?q=node/3385
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Bad debt is the root of the crisis. Fiscal stimulus may help economies for a couple of years but once the �painkilling� effect wears off, US and European economies will plunge back into crisis. The crisis won�t be over until the nonperforming assets are off the balance sheets of US and European banks.
In proceeding with financial reform in response to the financial crisis, the US has been injecting public funds into banks and struggling companies with little success, sometimes forced to do so repeatedly. It appears that even President Barack Obama, a leader upon whom the expectations of the world await, has been unable to cut the Gordian knot.
The global financial crisis triggered by the collapse of the US housing bubble has been far more serious and fast moving than the crisis following the burst of the Japanese bubble. Yet, just as the two crises differ in their depth and urgency, they also vary in terms of the speed at which they have been dealt with. Indeed, US and European policymakers have responded to the ongoing crisis with much greater alacrity than did Japanese policymakers in the 1990s, or so it initially seemed.
However, as we move beyond the emergency response stage and face the challenge of correcting the fundamental problems that caused the financial crisis, things appear to be quite different. Watching how President Obama has had to continually struggle to work with Congress, I cannot help but realize, all things considered, that politicians in the US, or those in Europe for that matter, are not much different from their Japanese counterparts.
Particularly striking to me has been some of the remarks I have heard from US and British think-tank researchers at recent seminars and conferences. In essence, their remarks can be summarized as follows:
* Because we USs are extremely optimistic people, we will regain our confidence and begin to increase consumption in one year's time.
* By stimulating demand through fiscal measures, the prevailing pessimism can be dispelled and confidence in the economy will be restored.
D�j� vu of Japan in the 1990s
It was a bizarre experience. I felt as if I were hearing USs and British recite the same words Japanese politicians, bureaucrats, and bank officials had repeated so many times during the first half of the 1990s. When the finance ministers and central bank governors from the Group of Twenty (G20) major economies met in Horsham, England on March 13-14, they devoted much of their time to discussing fiscal measures. As evidenced by this fact, excessive expectations are being placed on fiscal policies. It is relatively easy to get the people's approval for using fiscal expenditures to finance public works projects, tax breaks, employment measures, and so forth.
I am afraid that today's US and European leaders might be adopting the same mentality as that of the Japanese leaders in the 1990s. That is, it seems to me that they are clinging to wishful thinking by hoping that all of the current global economic problems will solve themselves in due time. As this situation prolongs itself, leaders may buy time with pain-relieving fiscal measures, but by doing so they will continue to ignore the true nature of the problems before them.
Bad debt as the root of the problem
The root problem is an enormous mountain of nonperforming assets. Over the past 10 years the US has undergone two bubbles -- an IT bubble and the housing bubble -- in succession, and has fallen into the habit of borrowing to spend in the process. The aggregate amount of nonperforming assets left in the aftermath of these adjoining bubble periods encompassing the past 10 years is said to be two to three times larger than the amount that Japan had to deal with in the 1990s.
In Japan, two government-backed agencies -- the Resolution and Collection Corp. (RCC) and the Industrial Revitalization Corp. of Japan (IRCJ) -- were established to dispose of soured loans and restructure troubled corporate borrowers such as Daiei Inc. As we learned from Japan's experience, the disposition of nonperforming assets is a painful process that takes enormous time and energy. Given that understanding, it is all the more necessary for the US to develop a well-defined, fundamental policy portfolio to solve the problem of nonperforming assets.
However, the package of plans laid out by Treasury Secretary Timothy Geithner was too abstract and failed to provide a concrete road map. The market was disappointed with the package and the Dow Jones Industrial Average has lost more than 720 points in less than two months since President Obama took office.
How Japan finally turned around in the 1990s crisis
The greatest lesson from Japan's experience is not that bank recapitalization should take place quickly, but that market confidence can be restored only when progress is made on the painstaking process of disposing of nonperforming assets. In retrospect, the recapitalization of banks in 1998 and 1999 delivered only a temporary respite and did not guide the Japanese economy onto a true path of recovery.
Only after Resona Bank had been temporarily placed under government control, the IRCJ had been established, and Japanese banks had embarked on an all-out effort to dispose of bad loans, did stock prices finally pick up and people come to embrace the recovery. Up until then, whatever measures had been taken by the government -- whether bank recapitalization or pork-barrel fiscal spending -- did nothing but provide temporary pain relief.
How to address today�s problem
Continuing to give "adrenaline shots" of fiscal expenditures would not cure a patient suffering from the "cancerous" effects of nonperforming assets unless the cancer tumour was removed by surgery. However, surgery this time around -- the removal of nonperforming assets from US and European banks -- is going to be far more difficult than the previous procedure that relieved Japanese banks of their bad loans.
First, the nonperforming assets from the latest crisis have been chopped up and embedded in various forms of different types of securities that have been spread among investors and financial institutions across the world. The disposition of nonperforming assets involves identifying the holders of these securities, determining the amount of losses the creditors have incurred on such securities, and then persuading them to take their share of the losses. Altogether, this process would require an enormous amount of time and effort. Negotiations on burden-sharing are, by definition, a troublesome task that no one wants to deal with. That task is even more challenging this time around because the disposition of nonperforming assets will have to proceed multilaterally with affected parties scattered around the world.
However, due to strong public opposition and/or the intertwining of interests, most countries are far from being ready to coordinate and work together to clean up nonperforming assets. At the present time the US and European countries are most likely in a state of paralysis in terms of addressing the problem of nonperforming assets.
Just 10 years ago in 1999, I had an opportunity to discuss with a leading financial economist what policy measures should be implemented to revive the Japanese economy. After providing clear analysis and pointing to the necessity of disposing of a massive amount of bad loans as a prerequisite to achieving an economic recovery, he self-mockingly added, "but the fact is that all of us are utterly stricken and standing transfixed by the sheer scale of the problem before us, isn't it?"
Wishful thinking on fiscal stimulus
This might be the state in which the Americans and British find themselves today. A counter-reaction to this state of paralysis might be manifesting itself in the form of excessively wishful thinking about the effects of fiscal policies. Many decision makers want to force themselves to believe that fiscal measures will cure the problem because there is nothing else they can do at the moment. However, as we learned in Japan in the 1990s, people in the US and Britain will soon realize that fiscal measures alone cannot provide an ultimate cure.
What happens next? One probable future scenario would have the US and global economies temporarily regaining strength over the next two to three years with the support of fiscal measures, but the problem of nonperforming assets, the root cause of the ongoing economic turmoil, would remain unsolved because of various political difficulties such as strong public opposition to bailing out banks. Consequently, once the painkilling effect of fiscal measures wears off, the US and global economies would once again plunge into another serious crisis.
Only after going through this ordeal and realizing that fiscal measures alone cannot solve the problem would people recognize the need for ultimately disposing of nonperforming assets. And only then could a global policy scheme for addressing the core problem of financial instability be formulated. But until this happens, the US government will most likely continue to run a fiscal deficit, further snow-balling its already huge federal debt.
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AIG was a criminal organization:
http://www.ritholtz.com/blog/2009/04/aig-before-cds-there-was-reinsurance/#more-22986
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AIG was a Ponzi scheme plain and simple, yet the Obama Administration still thinks of AIG as a real company that simply took excessive risks. No, to us what the fraud Bernard Madoff is to individual investors, AIG is to the global financial community.
As with the phony reinsurance contracts that AIG and other insurers wrote for decades, when AIG wrote hundreds of billions of dollars in CDS contracts, neither AIG nor the counterparties believed that the CDS would ever be paid. Indeed, one source with personal knowledge of the matter suggests that there may be emails and actual side letters between AIG and its counterparties that could prove conclusively that AIG never intended to pay out on any of its CDS contracts.
There are two basic problems with side letters. First, they are a criminal act, a fraud that usually carries the full weight of an �A� felony in many jurisdictions. Second, once the side letter is discovered by a persistent auditor or regulator examining the buyer of protection, the transaction becomes worthless. You paid $6 million to AIG to shift risk via the reinsurance, but the side letter makes clear that the transaction is a fraud and you lose any benefit that the apparent risk shifting might have provided. |
http://www.businessweek.com/magazine/content/09_15/b4126020226641.htm?campaign_id=rss_daily
Geithner's Plan: Loopholes Galore
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| Here are five ways hedge funds and investment banks may exploit Treasury's toxic-assets plan |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Apr 02, 2009 6:51 am Post subject: |
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Good lord, it just won't end:
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FASB Eases Fair-Value Rules Amid Lawmaker Pressure (Update1)
April 2 (Bloomberg) -- The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies, voted to relax fair-value rules that Citigroup Inc. and Wells Fargo & Co. say don�t work when markets are inactive.
The changes to so-called mark-to-market accounting allow companies to use �significant� judgment when gauging the price of some investments on their books, including mortgage-backed securities. Analysts say the measure may reduce banks� writedowns and boost their first-quarter net income by 20 percent or more. FASB voted on the rules at a meeting today in Norwalk, Connecticut. |
Don't you wish you could use "significant judgment" when valuing your assets? Try that sometime when applying for a loan from a bank.
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| "Blaming mark-to-market accounting for the banking sector's woes is like blaming a polar bear stranded on an ice flow for global warming. The stranded bear points to the problem; though he didn't cause it. The AIG debacle demonstrates the risk of ignoring market values. Congress is balking at being asked to approve yet another heap of money for AIG. There's a growing sense that if we knew in September how big the hole was in this bucket was, we might not have started filling it in. But we did know in September. Or at least somebody knew. ... Consider the fact pattern: the Treasury Secretary convinces Congress to spend $150 billion to bail out one of the largest trading partners of his former firm. If something similar happened in a third world plutocracy, we'd shrug. ... What Congress did not know in September was that the collateral calls were based on marking-to-market the assets guaranteed by AIG FP. Those who claim these assets are impossible to value are either ignorant or deceptive. At least 20 firms would soon be calling AIG for margin based on the market value of these toxic assets and AIG's impending downgrade. AIG was not disputing the valuation. It simply did not have the cash. ... If any taxpayer money needed to be spent, it would have been better spent making sure that the insurance subsidiaries of AIG were unaffected by the travails of the holding company. Astonishingly, the initial reaction by regulators was the reverse" |
,
http://www.realclearmarkets.com/articles/2009/03/aigs_demise_speaks_to_marktoma.html.
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"Talk about misplaced investigations: what needs to be investigated is why Congress listens so well to bankers and their lobby. Consider the bill sponsored by Representative Ed Perlmutter of Colorado--the 'Federal Accounting Oversight Board [FAOB] Act of 2009.' It fairly bristles with the kind of rewards the banking industry would love: better than bonuses, it could give them the kind of regulation they want. The bill would transfer the SEC's oversight of the FASB to the new [FAOB]. ... It's downright Orwellian: to protect the public, this 'oversight body' would blind them from the mistakes made by financial institutions by making accounting less transparent. ... The link between financial accounting and regulatory accounting needs to be broken for good" |
http://seekingalpha.com/article/126744-next-round-of-bank-based-appeasement.
This is largely the product of Barney Frank. I wonder how much money he took from the financial services industry.
http://www.opensecrets.org/politicians/contrib.php?cycle=2008&cid=N00000275
Contributor Total
Brown Brothers Harriman & Co $36,200
Manulife Financial $15,000
Royal Bank of Scotland $13,800
Deloitte Touche Tohmatsu $13,000
Bank of America $12,750
American Bankers Assn $12,050
CME Group $12,000
National Assn of Realtors $12,000
American Society of Appraisers $11,000
JPMorgan Chase & Co $11,000
Morgan Stanley $11,000
Securities Industry & Financial Mkt Assn $11,000
Bernstein, Litowitz et al $10,900
Ernst & Young $10,900
UBS AG $10,500
PricewaterhouseCoopers $10,250
ACA International $10,000
AFLAC Inc $10,000
American Assn for Justice $10,000
American Institute of CPAs $10,000
Chicago Board Options Exchange $10,000
Credit Suisse Group $10,000
Credit Union National Assn $10,000
Equifax Inc $10,000
FMR Corp $10,000
Goldman Sachs $10,000
Grant Thornton LLP $10,000
GUS plc $10,000
Hartford Financial Services $10,000
Human Rights Campaign $10,000
Independent Community Bankers of America $10,000
Intl Brotherhood of Electrical Workers $10,000
Investment Co Institute $10,000
KPMG LLP $10,000
Laborers Union $10,000
Massachusetts Mutual Life Insurance $10,000
Mortgage Bankers Assn $10,000
National Assn of Home Builders $10,000
National Multi Housing Council $10,000
Natl Assn/Insurance & Financial Advisors $10,000
New York Life Insurance $10,000
Property Casualty Insurers Assn/America $10,000
Service Employees International Union $10,000
Trans Union Corp $10,000 |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Apr 02, 2009 7:20 am Post subject: |
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The new guidance, which is expected to boost bank operating profits when they report first quarter results later this month, alters so called mark-to-market rules, which require banks and other corporations to assign a value to an asset, such as mortgage securities, credit-card debt or student-loan investments based on the current market price for either the security or a similar asset.
Columbia Business School Accounting Professor Robert Willens said new audit guidance, which would give banks the ability to use internal models and analysis to value their illiquid assets, could hike their earnings on average by 20%. However, he added that large banks such as Citigroup Inc. would get "the lions share" of the revaluation profits because they are stuck with a disproportionately large amount of the illiquid mortgage and other securities. |
http://www.marketwatch.com/news/story/fasb-poised-move-more-mark-to-market/story.aspx?guid={33F70684-4207-4EDD-B7C3-1B82B7A7F6B6}&dist=msr_1&print=true&dist=printMidSection
So, expect a rally in the financials.
Who of you would invest in a company that values assets using voodoo? |
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caniff
Joined: 03 Feb 2004
Location: All over the map
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| Posted: Thu Apr 02, 2009 7:49 am Post subject: |
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Mises, I for one find your posts and links on this thread very informative. Just wanted to say a quick thanks for digging up all this commentary and the related information. I wouldn't have the time or the know-how to find all this stuff on my own.
I feel a little more 'edumacated' after reading this stuff (whichever way the wind eventually blows in terms of the global economic situation). |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Apr 02, 2009 7:57 am Post subject: |
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| We live in interesting times... I do look forwards to the day when I change this thread to "the recovery thread". But that might be a ways away. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Thu Apr 02, 2009 9:47 am Post subject: |
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| Yes, this thread is gold. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Apr 02, 2009 11:35 am Post subject: |
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http://news.yahoo.com/s/nm/20090402/us_nm/us_hunger_usa
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One in 10 Americans receiving food stamps
WASHINGTON (Reuters) � A record 32.2 million people -- one in every 10 Americans -- received food stamps at latest count, the government said on Thursday, a reflection of the recession now in its 16th month.
Food stamps are the major U.S. antihunger program and help poor people buy groceries. The average benefit was $112.82 per person in January.
The January figure marks the third time in five months that enrollment set a record.
"A weakened economy means that many more individuals are turning to SNAP/Food Stamps," said the Food Research and Action Center, an antihunger group, using the acronym for the renamed food stamp program, Supplemental Nutrition Assistance Program.
The U.S. unemployment rate was 8.1 percent in February, the highest in 25 years. Weekly claims for jobless benefits totaled 669,000 last week, the highest in 26 years, the government said on Thursday.
Food stamp enrollment rose in all but four of the 50 states during January, said Agriculture Department figures. Vermont, Alaska and South Dakota had increases of more than 5 percent. Texas had the largest enrollment, 2.984 million, down 65,000, followed by California at 2.545 million, up 43,000, and New York with 2.211 million, up 37,000.
Food stamp benefits get a temporary 13 percent increase, beginning with this month, under the economic stimulus law signed by President Barack Obama. The increase equals $80 a month for a household of four. |
What witticism shall I add to this? Something about the cost of Iraq, Afghanistan, empire? Maybe AIG? So much to choose from. |
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bucheon bum
Joined: 16 Jan 2003
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| Posted: Thu Apr 02, 2009 3:03 pm Post subject: |
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| mises wrote: |
Good lord, it just won't end:
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FASB Eases Fair-Value Rules Amid Lawmaker Pressure (Update1)
April 2 (Bloomberg) -- The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies, voted to relax fair-value rules that Citigroup Inc. and Wells Fargo & Co. say don�t work when markets are inactive.
The changes to so-called mark-to-market accounting allow companies to use �significant� judgment when gauging the price of some investments on their books, including mortgage-backed securities. Analysts say the measure may reduce banks� writedowns and boost their first-quarter net income by 20 percent or more. FASB voted on the rules at a meeting today in Norwalk, Connecticut. |
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Yeah, I couldn't believe it when I read that in the news yesterday. Its like HELLO PEOPLE, isn't it that type of law that put us where we are now? |
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Pluto
Joined: 19 Dec 2006
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| Posted: Thu Apr 02, 2009 4:24 pm Post subject: |
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Now, Lee Raymond�s long lost brother and chairman of the Financial Accounting Standards Board (FASB), Robert Herz, has been ganged up on by Congress and lobbyists, who threatened him with wedgies, swirlies and the removal of all of the FASB�s power, and mark-to-market is basically no more.
What does this mean? Check out Bloomberg�s headline:Mark-to-Market Lobby Buoys Bank Profits 20% as FASB May Say Yes. Check out who benefits:
Citigroup had $1.6 billion of losses last year for so- called Alt-A mortgages, according to the company�s annual report. That loss would be erased with the new FASB rules, Dietrich said. Bank of America Corp., in Charlotte, North Carolina, reported �income before income taxes� last year of $4.4 billion. The FASB proposal on impaired securities would increase that figure by about $3.5 billion, or the amount of �other- than-temporary� losses that the company recognized, Dietrich said. The new rule would mean the loss would be stripped out of net income, boosting earnings, though it would still be reported in financial statements.
Oh, glorious day! Now, instead of valuing the banks� assets at market price, we can trust them to value the items at a price that will assuredly be higher, because that�s what they feel it�s worth. Um, these are the same guys who bought these assets over the last few years. Did they suddenly buy a clue as to what the assets are worth? They obviously didn�t have one before.
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Well, whaddyaknow! The office of the POTUS does have a magical wand after all. And for those of you who believe in magic, now has never been a better time to invest in the good ol' DJIA. Those of you who don't should know that investors, or I should say the market, isn't stupid. As LOLFed continues to explain:
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| Mark to model makes sense if you trust the person creating the model, and it�s an asset that the owner plans to hang on to for a while. But these days, the trust is completely missing from the equation. It�s good for a nice rally right now, but it begs a few questions: Will it dissuade investors from buying equities, now that they know these asset valuations will be subject to inflation and manipulation? Will it actually get this crap off the banks� books or will it just drag our housing problems out? |
Another correction is right around the corner and it really isn't looking pretty. The eventual nadir, for whatever reason, keeps getting revised downward.
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| I don�t know. But for now, hug a lobbyist and thank them profusely for the rally! Unless, you were short banks today, in which case you probably want to punch one. |
Yeah, in retrospect it probably was a bad day to short Citi or BoA because if you did short you may soon be getting a margin call from your broker rather soon. However, this doesn't mean you should go long either. In fact, I would just avoid financial stocks like the plague.
LINK |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Apr 02, 2009 5:47 pm Post subject: |
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| When Citi released their "profit" figures a few weeks back, on a Friday, I thought long and hard about piling into it from opening until 2pm or so. I should have done it.. Would have made money. But I just don't trust anything out of the banks, even when it looks like a sure thing. |
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Fri Apr 03, 2009 12:35 am Post subject: |
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| mises wrote: |
I suppose that pushes the US solidly into 10% unemployment, making solid the change from recession to depression.
Kiss a recovery in 2009 goodbye. 2010 now is best-case. |
You'll be happy to know that the Depression is over, although the recession isn't. See it here:
http://www.msnbc.msn.com/id/3036697#30018200
Given the source, it's official.  |
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