A prominent Alaskan politician has sought tarp funds to sponsor a Banana plantation on the north slope , now that flow rates have been minimized.
Citing unnamed internet blogging experts that energy is fungible, the politician felt that since true, why not use the cheap energy to supply the north slope greenhouses. RThe state expects to compete, then crush the southern Banana republics.
While I agree it would be good to replace management, the question is who to replace them with? If you promote from within, it doesn't really solve anything. The promoted person will likely be a clone of the person being replaced.
The third point is the one no one in the government wants to get around. When we get to that point, then capitulation, and then reorganization can take place.
--bh
charlie,
I agree to a certain extent, but to take this point further, if the institution is systemically flawed, changing the management is so many deck-chairs. The institution itself must be re-organized itself, and this happens most efficiently in a receivorship where fdic chops up the carcass and determines which pieces have value and can be sold, and which must be composted...
If we don't get to bank-holidays, receivorships en masse for insolvent banks, quick pre-packaged bks for the big failing companies, across the board wipe-outs for equity holders holding junk, then the recession/depression remains prolonged, and unduly so, weakening us to the point that other external and internal events risk destabalizing us permenantly.
--bh
Charlie, even if a clone takes the place of management, at least it reduces moral hazard for next time!
Mayo Says Loan Losses Will Exceed Depression Levels
http://www.bloomberg.com/apps/news?pid=20601103&sid=aA1duSgTFJm4&refer=news
I wonder if common sense will somehow eventually bubble to the surface?
The stupid course now being followed - it it really is stupid - must end badly. That will be the proof, I suppose, in the end. Some people will have been right all along about this whole mess, but we will all be poorer.
The change at the top would cause a serious impediment to the expected cash flows being directed to shadow bank institutions.Can't Happen.
Good morning, all. Looking forward to getting everyone's take on this.
Given that many of us expected management changes to be part and parcel of any bailout efforts right from the get-go, this effort may be a little late but nonetheless welcome. No one is buying that "we need these guys" line anymore, if indeed anyone ever did.
note this as well from bloomberg:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aVv_W2P3ljNM&refer=home
Analysts are beginning to triangulate on the spectre of depression/severe recession at this point agreeing that those thousand tiny points of light ahead are forming a mushroom shaped...
--bh
This seems a little outside the usual watchdog role, but the comments are still interesting.
I think an argument could be made that Citi already changed management replacing Prince with Pandit. The same is true with AIG.
best to all.
Transcript: Meredith Whitney Interview
Steve Forbes, 04.06.09
So, the credit card version of a run on the bank?
I haven't thought about it, but that's exactly right. And when you get a pay cut, 90% of Americans use their credit card to--
Tide them over?
Tide them over and as a cash-flow management vehicle. So, when your credit card line gets cut, it's the equivalent of getting a pay cut.
And there's a regulation coming along from the Office of Thrift Supervision, can you explain that?
Sure.
http://www.forbes.com/2009/04/05/meredith-whitney-transcript-intelligent...
That's going to throw a real wrench into people's access to credit card capital.
Hmmm...
...follow Professor Warren's recommendation and remove Pandit, Lewis, et al.
-or-
...remove Professor Warren.
Gee, I wonder which way this administration will go...
Schaeffer, Mayo is holding a conference call at 11 AM ET.
"We are hosting a conference call to discuss US banks along with Eric Fishwick, CLSA's Head of Economics Research, and guest accounting expert Bob Willens, who will discuss mark-to-market accounting."
Here is the number:
800 423-9703
ID: 940 387 68
Best to all.
Congress and the administration required GM to develop comprehensive plans to restructure within specific time lines and then submit them for approval.
Did congress / the administration require Pandit et al. to provide restructuring plans?
wally,
I think the everyone will be poorer point is well put along with the realization that the US is reverting to the mean of second world status, or if all tides raise and lower all boats, we are poorer relative to our previous wealth, but wealthier than the rest.
The point perhaps from my perspective is the psychology of our now less rich, more poor citizenry, since quick relative poverty, or less affluence does seem to affect our psychology of well-being profoundly. This is where the political system can find itself most vulnerable if it cannot mitigate this change in psychology.
How prepared materially as well as cognitively are the masses to living on substantially less?
But, having found survival survivable on much less, isn't this second-classness still a state which can arise quietly, as long as the t.v. and cell phone are necessary, fundemental human rights along with itunes? Perhaps we can pass into quiet extermination blissfully, or if not blissfully, amused but slaughtered.
--bh
Forget about the firing of the CEOs. I want criminal indictments. These guys have been signing their SOX statements.
Section 802(a) of the SOX, 18 U.S.C. § 1519 states:
“ Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both. ”
They are guilty. We need about 500 of them frog marched.
Then we need RICO to kick in. In the case of the CDSs issued by AIG, in the case of CDOs issued by lots of companies, in the case of Hedge Funds manipulating the market, we need another 500 perps frog marched.
Then I will feel a little better.
"The equity investors are always wiped out." - Warren
That the equity investors have not been wiped out yet has caused far more harm than the actual precipitating banking failures.
That SOX comment was from me.
Now I can't even spell my name.
Rob Dawg,
On this point of the equity investors is the cruelest distortion of the market, and I agree, far more more harmful to investors in general, and the system, economic, political, social in specific.
--bh
On the other hand, to put this all in perspective, despite this refusal of reckoning from our government, I did manage to wake this morning and report to work without being selected, rounded up, and witness to every-third person being shot into a mass grave. So from my perspective, I can inject that little bit of optimism into my day.
That is all.
--bh
Amazing soccer goal by the AIG sponsored Manchester United
http://www.youtube.com/watch?v=WZH8Eab8614
blackhat wrote on Mon, 04/06/2009 - 6:32am.
I think the everyone will be poorer point is well put along with the realization that the US is reverting to the mean of second world status, or if all tides raise and lower all boats, we are poorer relative to our previous wealth, but wealthier than the rest.
I wouldn't go so far as "second world status." I think the population would willingly go European type mild socialist before accepting that much decline. Indeed I've no doubt that in the deepest halls of the administration there's a group arguing that general pain will make policy changes easier to implement.
"Banks committed the “seven deadly sins” of banking in trying to compensate for lower natural growth rates ...."
But this attempt to compensate for a lower growth rates is as inherent to the system as chlorophyll is to green plants.
"If we don't get to bank-holidays, receivorships en masse for insolvent banks, quick pre-packaged bks for the big failing companies, across the board wipe-outs for equity holders holding junk, then the recession/depression remains prolonged, and unduly so, weakening us to the point that other external and internal events risk destabalizing us permenantly."
En Masse? I doubt that. I think the majority (on a purely numerical basis) of banks are okay, even doing reasonably well considering the environment. The problem is the big guys, Citi, BAC, et cetera. My bank is doing just fine, as are many other smaller institutions, especially here in the NE, where many still remember the devastation of the S&L crisis. The problem is, for the most part, confined to the big guys who thought that they would be protected, and as it turns out, they were right. Unfortunately, the "relatively few" bad apples probably account for over 50% of the total banking traffic (assets, transactions, etc.), wherein lies the rub.
The rest I totally agree with....
Stupid is as stupid does......
blackhat wrote on Mon, 04/06/2009 - 6:38am.
On the other hand, to put this all in perspective, despite this refusal of reckoning from our government, I did manage to wake this morning and report to work without being selected, rounded up, and witness to every-third person being shot into a mass grave. So from my perspective, I can inject that little bit of optimism into my day.
"Day ain't over yet." - Curly
Simian, SOX 404 is not taken seriously anymore. I suppose we could Google and find someone who's been indicted or had a pay clawback on a violation, but I can't imagine there's more than a few cases.
Another thing; SOX testing has been scaled way, way back from the days of initial implementations in 2002-2004. One of my clients claimed that the use my SOX flow diagrams to train new hires on their internal procedures, so the output can actually be useful. I don't think it's still a genuine complaint that SOX is a burden. I have found that disfunctional companies/departments do not like SOX, which is not a surprise.
Cinco-X,
I'm not sure you are paying attention to the shear number of small mid-size banks that are over-exposed to commercial realestate. The big 5 banks are an issue given the size and concentration of assets, but the other-side is the large number of regional institutions that are just as vital for lending to businesses and consumers. It's those that are getting seized by FDIC, I believe at least 2 a week and accelerating. You could take the big 5 out of the picture and we'd still be making headlines because the problem is systemic not contained to a few bad apples. That's the point. This isn't one bad AIG, one bad Chrysler, and a Lehman and Bears thrown in. It's contagion within the system.
--bh
Then we need RICO to kick in.
A point I've been arguing for months. We've had AIG "money laundering payments to banks", including bannks outside the US, and fraud. That's all that justice needs for RICO. Sieze their assets and get going-
Bank management changes? How naive. The TARP is meant to keep these very B-school geniuses employed. Makes a nice evening news sound bite though.
"I think the population would willingly go European type mild socialist before accepting that much decline."
That's what the Dems are counting on-
Is it possible Warren was given the go ahead to offer this trial balloon? Hope so.
Mel - My speculation is that this is actually an attempt to stake out the "extreme" position, so that anyone suggesting what actually needs to be done (which is to not only wipe out equity, but give bondholders a haircut) can be painted as hopelessly out of touch. Unless we get on with writing down some of this debt, nothing constructive is going to happen.
BH,
Perhaps it's regional. We're just not seeing that up here, but then again, we aren't seeing tent cities either. My recollection is that there were literally 1000s of S&L that went down in the early '90s, but what do we have so far in this crisis; 50 or a hundred? I still think the big guys will turn out to be the most damaging to the economy.
But I've been wrong before, and not much has changed in that regards;)
Cinco-x,
That's also what the republicans are counting, orderly, agreed upon decline, because their heads will be on sticks alongside their partisan colleagues if it is not orderly.
--bh
"Debt bomb" is ticking loudly on campuses
http://chronicle.com/weekly/v55/i31/31a00101.htm
Colleges borrowed tens of billions of dollars over the past decade to improve facilities, in some cases stretching themselves to the limit and beyond. Now the financial crisis threatens to turn that debt into a ticking bomb.
...The willingness of college leaders to assume higher-than-recommended levels of debt over the years may now come back to haunt some. Evidence of that willingness can be found in a database linked to an online tool that the Council of Independent Colleges and others use to help institutions calculate their financial health. Participants include many institutions that lack the wherewithal to get a credit rating. It is not open to public view.
The tool uses several calculations, including one that measures assets relative to long-term debt. According to people who work with the tool, only 43 percent of the 585 colleges in the database carrying long-term debt are at or above a level considered healthy.
Not sure if it's behind a subscription wall, but I think this is worth noting.
Will we even learn:
http://www.rasmussenreports.com/public_content/politics/current_events/g...
That's my woman! I don't think she's long for the Obama Circus, but a breath of fresh air for as long as they keep the duct tape from her mouth.
BH,
The Republicans don't have much of a say now, and if they did, it wouldn't be to advocate socialism. Republicans aren't as hated in flyover country as they are on the coasts, so I doubt they're in much danger.
"I think the population would willingly go European type mild socialist before accepting that much decline."
Probably, but I don't think our economy would, so IMO it's probably a moot point.
It is kind of funny how we're still talking about wiping out equity holders rather than talking about our desperate need to wipe out creditors by making them take a hold of the devalued underlying collateral. It boggles the mind, but that's human nature for you. Rest assured, haircuts for bondholders are coming along with a world of pain- it simply can not be avoided. We'll keep on kicking the can down the road by using the govt's balance sheet, but by early next year we will all finally realize what a mess we've created and how foolish our polices have been.
Myr,
Yeah, we're simply transferring bond risk to the government where we can default on it all at once.
God knows there's enough blame to tar both parties twice over but the Republicans are, in my opinion, doing us and themselves a favor by forcing the Democrats to take sole ownership of these schemes. By refusing their half of the "bipartisan" shit sandwich the Repubs have given pause to the Dems grandiose plans. "Do we want to eat this whole thing ourselves?"
It will be interesting to see if they decide ride the growing wave of populism.
Anybody have a clue what's pushing up the casinos today? There's reports of MGM hiring MS to sell off pieces, but that's it. How MGM can be at 6 1/2 and WYNN at 33 is beyond me.
.....I'm waiting for some Republicans to start voting "Present".......(sound familiar?)
Warren comes through (or will hopefully). I liked her book "The Two Income Trap" which includes a discussion of credit card trickery and such. It was a good sign when she was put in charge of the watchgroup, and she apparently has brought herself up to speed quite well.
That's my woman! I don't think she's long for the Obama Circus, but a breath of fresh air for as long as they keep the duct tape from her mouth.
She works for the Congressional oversight committee, not Obama.
TJ,
I'm not sure how the end game plays out, but it will be chaotic and extremely painful. We are just starting to understand that our credit based economy has morphed into one giant ponzi scheme. The answer to too much spending and too much debt is not more of both. The notion that we can escape this disaster without widespread misery is pure folly. Everyone will feel the pain even if they haven't become destitute themselves because their friends and/or family will be. That said, I do think we're in for a nice break from the gloom and doom that may last until the end of the summer...try to enjoy it. All those people who rushed into gold/silver we're a tad early...I've been short but there will be a time when it's very important to be long. Before hyperinflation can come, there must be persistent global deflation.
Geithner Wrong, Crap Assets Correctly Priced, Say Harvard And Princeton Profs
"The analysis of this paper suggests that recent credit market prices are actually highly consistent with fundamentals. A structural framework confirms that bonds and credit derivatives should have experienced a significant repricing in 2008 as the economic outlook darkened and volatility increased. The analysis also confirms that severe mispricing existed in the structured credit tranches prior to the crisis and that a large part of the dramatic rise in spreads has been the elimination of this mispricing."
* Many banks are now insolvent. "...many major US banks are now legitimately insolvent. This insolvency can no longer be viewed as an artifact of bank assets being marked to artificially depressed prices coming out of an illiquid market. It means that bank assets are being fairly priced at valuations that sum to less than bank liabilities."
* Supporting markets in toxic assets has no purpose other than transfering money from taxpayers to banks. "...any taxpayer dollars allocated to supporting these markets will simply transfer wealth to the current owners of these securities."
* We're making it worse. "...policies that attempt to prevent a widespread mark-down in the value of credit-sensitive assets are likely to only delay – and perhaps even worsen – the day of reckoning."
New Post: Mayo on Bank Sector
I've posted the 11 AM ET conference call info in the comments to the new post.
best to all.
With Timmeh G also chirping about firing CEO's, I smell a coordinated effort at distraction here.
Just as the hullabaloo about $165M in AIG bonuses was coordinated to distract taxpayers from the REAL issue, that is the $170B no strings attached payouts to GS, BAC, etc, my guess is this latest coordinated action, this push to make it seem like the Feds will actually extract a price form the banksters, is just a distraction to throw the taxpayers off them getting ready to refill the trough.
Mark my words, another few hundred billion$$$$$$ are headed the banksters way.
With the blessings of Obama, Timmeh G, Helicopter Ben and all their bitches in Congress no doubt.....
Lest we all forget, there is no plan B:
http://www.youtube.com/watch?v=9GK9Rg9M6-g
""She works for the Congressional oversight committee, not Obama. "
You're right - I stand corrected. Congress will definitely keep her [Warren] around bad-mouthing Democratic policy - what was I thinking - Sorry.
"If you promote from within, it doesn't really solve anything."
It shows that if you run your bank in to the ground, you lose your job, reducing moral hazard, just a little bit. The key will be to make sure the replacement, does not get a Billion dollar golden parachute, reducing moral hazard even more.
"...and all their bitches in Congress no doubt..... "
I don't know... these guys have an election coming up, and the peeps are pissed. It would be a pretty big gamble to risk your cushy position of power on wishful thinking. Last weeks Newsweek may have lit a fire under some congress-critters asses. Or the Moyers interview of Black. (D) movers and shakers, read Newsweek and watch PBS.
The math on "this plan will work," is pretty bad, and though congress moves slowly, the do move. The admin may be able to fudge the unemployment numbers, but when the phones back home start ringing, the police of giving good money to bad banks starts looking worse and worse.
This is probably a trial balloon by congress to see how pissed the bankers get.
[With Timmeh G also chirping about firing CEO's, I smell a coordinated effort at distraction here]
I agree. Another game of misdirection where officals conspire to wiggle the ball of yarn in a bright corner while the real action of funneling vast amounts of taxpayer $$$ into the banks occurs in a distant dark corner away from the focus of MSM.
Obama's claims of transparency is an insult.
"Then I will feel a little better. "
Oh, yes please. Me too.
"Republicans aren't as hated in flyover country as they are on the coasts, so I doubt they're in much danger. "
The USA became the world's largest issuer of mortgages and world's largest insurer under a Republican administration and Senate. I still think they are in the lead, with regard to nationalization.
Really, FDICing the banks is the right thing to do. Perhaps banning interstate banking as well, forcing the banks to break into state entities, as too big to fail, is just too big.
They're Their There....Fungible?
watched that goal live... it was later explained what made it so fantastic! seeing those bright AIG jerseys made me sort of gag!
Typo in first line of post: you wrote "Obersver" instead of Observer.
Actually, the Observer belongs to the same stable as the Guardian, which because of its well known propensity for typos has always been affectionately known as the Grauniad - so I thought CR deliberately wrote Obersver.
-K
I totally agree with Warren. There are plenty of good bank executive teams out there who did not place bad bet with their deposits...
Banks teams who put together great deposit insurance...
http://mast-economy.blogspot.com/2009/01/banks-with-muscle.html
Banks teams who say "TARP, no thanks!"
http://mast-economy.blogspot.com/2009/01/regional-banks-on-tarp-funding-...