The Long Crisis

Posts Tagged ‘TARP’

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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Tim Geithner, Obama’s wheeling, dealing Secretary of the Treasury, seems to be right in the pocket of the Wall Street Banksters. Of course, like his predecessor, Hammering Hank Paulson, Geithner probably counts on being well rewarded by his bankster friends once he leaves public service.

The whole TARP/TALF scheme will put billions of dollars into the banksters hands, taxpayers dollars at that, even while the banksters game the system. Read Justice Litle’s account of how it will work and be prepared to weep. Over the next few years the long crisis will make the typical American’s standard of living drop by up to 50% while enriching the financial gangsters who created the mess.

Only in America, or what’s left of it.

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Taipan Daily: The Banksters Take a Page From Enron
by Justice Litle, Editorial Director, Taipan Publishing Group

No matter how cynical you get, it’s impossible to keep up.
- Lily Tomlin

Somewhere along the continuum, there is a point at which tragedy turns into farce. I’m starting to think we may have passed that point with this whole TARP/TALF fiasco.

From a comedy perspective, Turbo Timmy and his madcap schemes are the gift that keeps on giving. We’re scaling the heights of utter absurdity now… it’s like a Kurt Vonnegut novel come to life.

Just take this recent snippet from The Wall Street Journal, for instance:

The Treasury Department, facing criticism over its bank-rescue program, said it may allow a broader group of private investors to purchase toxic securities…

Last month, the Treasury said it would select fund managers based on certain criteria, including an ability to raise private capital and a minimum of $10 billion of eligible assets under management.

On Monday, the Treasury said a proposal won’t necessarily be disqualified if firms don’t meet all the criteria. The Treasury added that it is particularly interested in program participation by small, minority- or woman-owned businesses.

Hmm. Okay, so let me get this straight. First they start out with an eligibility hurdle so ridiculous, it sounds like a leftover Dr. Evil catchphrase from the Austin Powers movie. “You must have ten BILLION dollars…”

Uncharted profit territory – with the potential for at least 18,375% gains

The biggest energy discovery in the history of the world lies at 16ºN latitude and 8ºE longitude…

It’s so enormous that typical comparisons to the gains of past energy developments may be small in comparison… and some of those were for as much as 18,375%. We’ve discovered a way you could possibly earn twice that…

Then it hits them that gosh, ya know, that might have been a dumb idea.

So in a stroke of belated genius, they decide to 1) disregard their own proposal criteria – not change it, but just ignore it, mind you – and 2) turn the bank rescue program into some kind of warm and fuzzy feel-good “help the little guy” exercise, like an SBA loan program writ large.

Read the following in John Lovitz “liar” voice: We want to take all your money and give it to the banksters. No, wait. That sounds bad. We want to help the, ah, the billionaires. The poor, poor billionaires. No, wait – crap. That’s bad too. Here it is: We want to help minorities. Minorities and women. Yeah! Yeah, that’s the ticket…

An American Classic

The REALLY funny news, though, is that the PPIP (as it has been so christened) rescue plan now seems to be taking a page from one of the all-time greats of fraud and deceit.

I have to take this opportunity to share one of my favorite nuggets, a little story that was making its way around trading desks circa 2002:

Once there was a country bumpkin named Kenny – Kenny boy to his friends – and Kenny boy found himself in need of some money. Trouble was, he didn’t have a job and didn’t own a thing except a recently deceased pet goat. But Kenny boy was smart, and it didn’t take long for him to hatch a plan. Kenny boy called up all the farmers in the county and arranged a raffle for a blue-ribbon Holstein milking cow. On the day of the raffle, 100 farmers showed up and paid $50 per ticket, giving Kenny boy $5,000 to put in his pocket. Kenny boy drew the winning ticket and everybody went home. The next day, the raffle winner came by Kenny boy’s place to collect his prize. Kenny trotted out his expired pet. The farmer scratched his head and said “Son, that’s not a prize milking cow. That’s a dead goat.” So Kenny boy gave the farmer his fifty dollars back.

And as you might have guessed, Kenny boy’s last name was Lay and he grew up to found Enron.

Ah, Enron. Remember those guys? The giant tilted “E,” the ridiculous hubris, the bizarre commercials with the computerized “Why” voice… Classic stuff.

Enron worked hard to rip off rubes like the public officials of the state of California, who didn’t realize that deregulating electricity markets without knowing how the game was played was the rough equivalent of dumping a bucket of chum into a shark tank.

Enron also did all kinds of neat innovative things with “side pockets” and “special investment vehicles” and “off-balance-sheet partnerships,” even going so far as to use really cool Star-Wars-themed names like “Death Star” and “Chewco.”

In retrospect, who could have known that even as Enron was going down the tubes, our current crop of banksters were busy taking notes?

Move Over Darth Vader

I bring up Enron in light of new revelations that propel this whole rescue plan debacle to new heights of criminality and avarice. Feast your eyes on this tidbit from a recent Financial Times piece, “Bail-out banks eye toxic asset buys”:

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals [emphasis mine] under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

Spencer Bachus, the top Republican on the House financial services committee, vowed after being told of the plans by the FT to introduce legislation to stop financial institutions ”gaming the system to reap taxpayer-subsidised windfalls.”

Mr. Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.”

“Death Star” my foot… If this true, it makes the Enron chicanery of days past look positively Ewok-scaled in comparison.

And most likely it is true… a few weeks prior to the FT exclusive, the New York Post reported that Citigroup and Bank of America had already begun using TARP funds – billions given to them by the government that they were supposed to use to make loans – to instead “aggressively scoop up” more of the very toxic assets that blew them up in the first place.

The very idea that these banks could be buying up each other’s garbage – that they are even considering it – well, it just hurts my head, it’s so mind boggling. To understand why, let’s walk through a quick analogy.

Lawn Mowers and Government Loans

Imagine, for a moment, that I have a beat-up old mini-fridge in the back of my garage. It has a coolant leak, it’s a little moldy, and it smells like stale beer, but I’m pretty sure it still works.

Meanwhile, you happen to be in possession of a rusty old lawn mower. The blade is caked beyond recognition with fossilized grass clippings, the gunk that passes for oil has never been changed, and the thing takes twenty or thirty pulls to start… but you, too, are fairly certain your lawn mower “works.”

Now imagine that you and I make a deal. I will sell you my disgusting mini-fridge for the princely sum of a hundred thousand dollars. You, in turn, will sell me your ancient lawn mower for a hundred thousand dollars. I write a six-figure check out to you, and you write a six-figure check out to me.

Nothing’s really happened, right? All we’ve done is swap two crap assets, neither one worth fifteen bucks in the real world, and furthermore swapped an identical large chunk of change ($100,000) between our respective bank accounts.

But hold on! Did I mention that we both employ highly creative accountants?

Here’s the good news about our little swap. Thanks to our exchange, I can record a massive profit on my books… to the tune of $99,900, or whatever sum is left over above and beyond the book-entry carrying cost for my fridge. And you can do the same with your lawn mower.
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For the balance of this tale of woe for the American taxpayer go to Taipan Daily: The Banksters Take a Page From Enron. by Justice Litle, Editorial Director, Taipan Publishing Group

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