The Long Crisis

What a week or two for the Banksters on Wall Street as Goldman Sachs, Wells Fargo and Citigroup reported better than expected earnings.

Goldman surprised investors by issuing its first-quarter earnings report on Monday, ahead of Tuesday’s scheduled release. The bank reported profits of $3.39 a share, well ahead of the $1.64 consensus estimate, and said it is planning a $5.0 billion public offering of common stock.

The Goldman report followed the stunning early announcement April 9 by Wells Fargo of $3.0 billion in first-quarter earnings. Traders so far have taken the bait and are reconsidering their gloomy 2009 projections for the financial sector. For those investors who like cooked books the banksters stocks should look just swell.

Thanks to strong fixed-income trading activity and favorable tax and other one-time items, CitiGroup reported that the bank had profits of $1.6 billion. But it didn’t include the effect of a dividend payment on preferred stock held by the government.

Adding in that cost, the first-quarter loss was $966 million, or 18 cents a share, which is not good, but not as bad as everyone expected. That doesn’t dissipate the dark clouds, though. “It’s the triumph of hope over fundamentals,” says Dan Alpert of Westwood Capital regarding a rise in the Citi shares this morning, which later faded away.

What is it with the Banksters earnings and abrupt return to profitability? Have they suddenly gone honest and are being rewarded for their efforts or is it that they have been staying up late at night and studying how Enron ran it books and then creatively using their new found expertise?

Let’s first consider some data points recently released by our “honest Abe Obama government”.

From 3/31/09: The prices of U.S. single-family homes in January plunged a record 19.0 percent from a year earlier, indicative of a U.S. housing market that is still in the throes of a deep recession. No kidding. This is according to the Standard & Poor’s/Case-Shiller Home Price Indices.

From 4/16/09: Initial jobless claims decreased by 53,000 to 610,000 in the week ended April 11, the fewest since January, the Labor Department said today in Washington. Builders broke ground on 358,000 single-family homes at an annual rate, unchanged from the prior month. So the bad news is a little better than expected, however, it is still bad news for the economy if not viewed that way for the moment by Wall Street.

From Bloomberg 4/16/09: The economy has lost about 5.1 million jobs since the recession began in December 2007, making it the biggest employment slump of the post World War II era. Payrolls fell by 663,000 in March and the jobless rate climbed to 8.5 percent, the highest level since 1983.

And oh yes, General Growth, one of the nation’s largest shopping mall management and investment companies filed the largest real estate related chapter 11 bankruptcy in the history of America. Commercial real estate is starting to crumble. As if that weren’t enough credit card delinquencies are soaring along with personal bankruptcies.

So have the banks really turned the corner? I seriously doubt it. With TARP and all the other bailout schemes, the banksters have had access to virtually free money, that’s your money as a taxpayer, so it’s not surprising that that fact along with some gaming of the system have lead to higher reported profits. It is obvious that the big banksters, like Goldman, are eager to return to the run and gun days of 2006 and 2007. Their risk appetite was definitely increased by the billions they raked in by the AIG government sponsored backdoor payoff.

IMHO returning to the old glory days is an impossibility. Who in their right mind can trust the same guys who sold the entire world crap as AAA investments? A glorified salesman from Goldman Sachs pushing a load of repacked toxic waste as AAA investments may be tarred and feathered in most parts of the civilized world. Or perhaps hung if he is foolish enough to call on the investors he ripped off the first time around. That game is over.

The banksters are on life support from the federal government and that life support will be turned off by the America people as they realize that they are being once again being played for suckers. The new Geithner Public – Private partnership scam is sure to create an uproar of outrage once people figure out how big a ripoff that program truly is. If the unholy alliance between the banksters and the Feds continues the recent tea parties are merely a warm up to more violent pitchfork protests.

In any event the run up of the financial sector is probably about over. Now that the foreclosure moratorium has been lifted a flood of pent up foreclosures will sourer the financial news. The banksters will come crashing back to earth and to their special place in hell as investors begin to see just how hopelessly insolvent they are. There is not enough money in the world to fill the void in their balance sheets that a true accounting of the worth of their largely worthless toxic assets will eventually reveal.

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