Financial News

[Balta1701]

This paper on fiscal stimulus and its effect when divided between the states and the federal government is getting a lot of play this morning. Key graph:

This note shows that the aggregate fiscal expenditure stimulus in the United States, properly adjusted for the declining fiscal expenditure of the fifty states, was close to zero in 2009. While the Federal government stimulus prevented a net decline in aggregate fiscal expenditure, it did not stimulate the aggregate expenditure above its predicted mean.

The translated version of that is; their math shows that while the federal government expanded aggressively as a stimulus, the state governments contracted in size so dramatically that it completely offset the stimulus effect, and thus we're basically flat-lining. Not to say that there hasn't been a stimulative effect by the feds; if the federal fiscal policy wasn't there, then the state hole would have dominated, but to instead argue that if you wanted to genuinely pump the primer to get the engine going again, you needed a larger stimulus.

[lostfan]

lol, I can't read that s***, those graphs may as well be written in Russian.

[Balta1701]

lol, I can't read that s***, those graphs may as well be written in Russian.

Federal line goes up a lot. State line goes down a lot. Top graph = sum of the 2, which winds up flat. Expansionist policy would be the top graph moving up, contractionary policy would be the top graph moving down.

[lostfan]

Federal line goes up a lot. State line goes down a lot. Top graph = sum of the 2, which winds up flat. Expansionist policy would be the top graph moving up, contractionary policy would be the top graph moving down.

I think I get your explanation but I look at the graph and try to interpret it for myself and I'm all WTF.

[kapkomet]

I think I get your explanation but I look at the graph and try to interpret it for myself and I'm all WTF.

 

 

It says whatever Balta wants it to say so he can support his liberal idea of the day.

 

I'm kidding.

[lostfan]

Normally we tend to do this kind of coordination for our conspiracy in private away from you guys.

[Balta1701]

Normally we tend to do this kind of coordination for our conspiracy in private away from you guys.

We use the gay people to scare you away so that we can plan in private.

 

(really hope that one doesn't offend anyone)

[Balta1701]

Oh God...Oh God No...the FDIC grabbed a bank on Thursday.

 

PANIC!

[Balta1701]

LEH postmortem

It is the Wall Street equivalent of a coroner’s report — a 2,200-page document that lays out, in new and startling detail, how Lehman Brothers used accounting sleight of hand to conceal the bad investments that led to its undoing.

 

The report, compiled by an examiner for the bank, now bankrupt, hit Wall Street with a thud late Thursday. The 158-year-old company, it concluded, died from multiple causes. Among them were bad mortgage holdings and, less directly, demands by rivals like JPMorgan Chase and Citigroup, that the foundering bank post collateral against loans it desperately needed.

 

But the examiner, Anton R. Valukas, also for the first time, laid out what the report characterized as “materially misleading” accounting gimmicks that Lehman used to mask the perilous state of its finances. The bank’s bankruptcy, the largest in American history, shook the financial world. Fears that other banks might topple in a cascade of failures eventually led Washington to arrange a sweeping rescue for the nation’s financial system.

 

According to the report, Lehman used what amounted to financial engineering to temporarily shuffle $50 billion of troubled assets off its books in the months before its collapse in September 2008 to conceal its dependence on leverage, or borrowed money. Senior Lehman executives, as well as the bank’s accountants at Ernst & Young, were aware of the moves, according to Mr. Valukas, the chairman of the law firm Jenner & Block and a former federal prosecutor, who filed the report in connection with Lehman’s bankruptcy case.

 

Richard S. Fuld Jr., Lehman’s former chief executive, certified the misleading accounts, the report said.

 

“Unbeknownst to the investing public, rating agencies, government regulators, and Lehman’s board of directors, Lehman reverse engineered the firm’s net leverage ratio for public consumption,” Mr. Valukas wrote.

 

Mr. Fuld was “at least grossly negligent,” the report states, adding that Henry M. Paulson Jr., who was then the Treasury secretary, warned Mr. Fuld that Lehman might fail unless it stabilized its finances or found a buyer.

[Balta1701]

The FT says Ernst & Young may have some answering to do as well.

A one-year probe into the collapse of Lehman Brothers found “credible evidence” that top executives, including the former chief Dick Fuld, approved misleading financial statements and used an “accounting gimmick” to flatter results.

 

The long-awaited report by the court-appointed examiner Anton Valukas also said that there was enough evidence to claim that Ernst & Young, Lehman’s auditors, failed to “question and challenge improper or inadequate disclosures” in the firm’s results.

[Balta1701]

The examiner's report also seems to argue that the NY Fed (aka one Timothy Geithner) was at the very least also complicit in Lehman's shenanigoats. Here's a blog-reading summary of that portion.

the Examiner questioned Lehman executives and other witnesses about Lehman’s financial health and reporting, a recurrent theme in their responses was that Lehman gave full and complete financial information to Government agencies, and that the Government never raised significant objections or directed that Lehman take any corrective action.

[jasonxctf]

strong retail sales numbers today

[kapkomet]

strong retail sales numbers today

 

DEflation?!?!

 

Oh wait, INflation?!?!?

 

Oh wait, hell no one knows.

 

 

P.S. I can see lostfan doing this in his cube during the day when posting his rants on facebook.

[Cknolls]

strong retail sales numbers today

 

 

net net up .10 with last months revisions.

[Balta1701]

On 60 min. tonight Steve Croft had a great interview on the raping of everyone else by the banks (my phrase) that Michael Lewis details in his new book. First 2 segments.

 

[mr_genius]

On 60 min. tonight Steve Croft had a great interview on the raping of everyone else by the banks (my phrase) that Michael Lewis details in his new book. First 2 segments.

 

 

those bankers are too important to fail, balta. why can't you accept the fact that they deserve special entitlements and endless government money?

[Balta1701]

Lewis's book sounds worth checking out, based on this review also.

From their tales, we learn that Wall Street banks think nothing of stealing the trading strategies of their clients and peddling them to other customers. We learn that the investment bankers knew as early as 2006 about the rising default rate on subprime mortgages but engaged in elaborate ruses to hide that reality from ratings agencies and investors. We learn that when investor demand for subprime mortgages outstripped the supply, Wall Street filled the gap by creating "synthetic" mortgage-backed securities whose performance would mirror that of the real thing.

 

We learn that Goldman Sachs and other banks conspired to inflate the price of mortgage-backed securities well into 2007, even when they knew the true value was falling, only marking them down in value after their own hedging strategies were in place. And we learn that top executives were largely clueless about the risks their organizations were taking.

 

For me, the most memorable chapter in Lewis's tale involves Burry's struggle to keep his fund alive in 2007 and early 2008 as longtime investors lost faith in his strategy to "short" the housing market and began demanding their money back. Although home prices had begun to fall and mortgage defaults were rising quickly, Wall Street's securitization machine had managed to prop up the price of mortgage securities while forcing down the value of the bets Burry had placed against them. And even after the market crashed and Burry's strategy was vindicated with a $720 million profit, not a single investor called to say thanks.

 

"What had happened was that he had been right, the world had been wrong and the world hated him for it," Lewis writes. "And so Michael Burry ended where he began -- alone, comforted by his solitude."

 

There is nothing subtle about the dark portrait Lewis creates of the financial community. Through his lens, all bond salesmen are out to cheat their customers, all top executives are clueless and all ratings analysts are second-raters who could not get jobs in investment banks.

 

Even footnotes drip with sarcasm, such as this one regarding a less-than-forthright statement by Morgan Stanley chief executive John Mack to his investors on how his firm managed to lose $9 billion on subprime securities: "It's too much to expect the people who run big Wall Street firms to speak in plain English, since so much of their livelihood depends on people believing that what they do cannot be translated into plain English."

...

 

What Lewis writes of two of his characters, young Ledley and Mai, might just as well apply to Lewis himself, or to us:

 

They "had always sort of assumed that there was some grown-up in charge of the financial system whom they had never met; now they saw there was not."

[jasonxctf]

those bankers are too important to fail, balta. why can't you accept the fact that they deserve special entitlements and endless government money?

 

i have a general question about this whole, too big to fail argument. While the theory of too big bothers nearly everyone, have people actually thought about what they would have preferred to have happen in these equations?

 

Say that Chase, BOA, Wells and Citi didn't receive TARP funds and went under. Then what? These 4 banks represent nearly 40% of the consumer deposit accounts in this country. That means that 40% of the population would have had their $ in banks, that went out of business. Now, because these banks are so big, no one would buy them in full, thus they would be broken up. (which is a good thing) However, the community banks who would maybe consider buying some of these branches individually, are in worse shape than the national banks. (you might get a few regional banks stepping to the plate, but they were scared of their own shadow) So now, no one buys these banks. The FDIC is responsible for settling and repaying consumers their deposits at these banks. (if the FDIC account even had enough $ to do this)

 

So then you've got 40% of the population, with no access to their deposit/savings accounts to pay their bills. 40% of the people in this country are making FDIC claims. The FDIC program does not give a specific timeline of how soon individuals would be repaid, the law says... "as soon as possible." So walk that through, if you can't access your $, you can't pay your mortgage, credit card bills, student loans, etc. What happens to you and your credit?

 

So who ends up getting screwed the most if too big to fail didn't occur.... the US Population.

 

Instead, the two administrations, fed and treasury decided to make loans and provide lifelines to these financial institutions. Many of these institutions have paid back the $, plus interest.

 

So option #1, no one gets bailed out and the FDIC is left holding the bag with the US consumers. Option #2, taxpayer $ is used to make loans, which are repaid in full, plus a profit.

Edited March 15, 2010 by jasonxctf

[mr_genius]

i have a general question about this whole, too big to fail argument. While the theory of too big bothers nearly everyone, have people actually thought about what they would have preferred to have happen in these equations?

 

Say that Chase, BOA, Wells and Citi didn't receive TARP funds and went under. Then what?

 

0% chance that would have happened. You really think Chase, for example, was going under? There is no way. Far too much money was given out, most was not needed.

 

anyways, whats done is done. i really don't feel like getting back into this bailout debate. there will be plenty of time to debate this type of activity when they come back for the next inevitable ginormous government bailout.

Edited March 15, 2010 by mr_genius

[NorthSideSox72]

0% chance that would have happened. You really think Chase, for example, was going under. There is no way. Far too much money was given out, most was not needed.

And most was paid back with interest. Of the originally tagged $700B or so, all but about $100B has already come back. And they think half that remaining about will come back as well, if not more. The interest earned will probably make up part or all of the true loss amount (~$50B), and then they plan on these fines (which is a whole different discussion) to pay for that.

 

I was not happy with TARP at first either, and certainly it wasn't executed all that well... but considering the time pressure they were under, I'd say breaking even is a pretty damn good outcome.

 

[Balta1701]

There was another possible way to deal with those folks that was legitimately discussed at least on the left...nationalize them. Do what you did to the auto companies. Take them over, fire everyone who ran the place, dismantle them, and sell them off piece by piece. T...his is basically what happened at AIG, and as the government is selling pieces of them off, it's actually gradually cutting into the enormous sum of money that it cost us to take them over.

 

Or...alternatively...make use of the fact that they're going under to actually extract concessions from them, regarding things like compensation and the structure that rewarded the folks for blowing up the system, their size, their over-leveraging, their off-the-books accounting, their lobbying, etc.

 

Neither of those were done. Thus, we're in a situation where every underlying cause of the 2008 meltdowns has been worsened, not improved, and the people who ran things into the ground have made off like bank robbers. Literally.

[mr_genius]

And most was paid back with interest.

 

What about the opportunity cost, which damages the non-entitlement portion of the population. Hundreds of billions in loans, given to an entitled few, is an explicit advantage at any time. I will gladly take 52 billion from the government and will pay it back with interest within a year.

 

What about all those toxic assets we had to buy? Those paid back? I hope so, I doubt they are.

 

The bailout just rewarded risky investment behavior and it encourages more. How big will the next meltdown be?

 

[NorthSideSox72]

What about the opportunity cost, which damages the non-entitlement portion of the population. Hundreds of billions in loans, given to an entitled few, is an explicit advantage at any time. I will gladly take 52 billion from the government and will pay it back with interest within a year.

 

What about all those toxic assets we had to buy? Those paid back? I hope so, I doubt they are.

 

The bailout just rewarded risky investment behavior and it encourages more. How big will the next meltdown be?

I agree with your last point about this not avoiding future risk the way it should - the follow-on work that had to happen after TARP has been slow and incomplete at best, and negligent at worst. But that isn't about TARP, its about the regulatory environment and the rules as they currently stand, which still need serious overhaul.

 

I think the overall impact of TARP was very positive in terms of what it avoided, and the return is going to be basically flat. To me, that is nothing to be concerned about - I am much more upset with the debacle that was the Stim bill, which is paying very little in the way of returns, certainly not to the level of its cost.

 

[Balta1701]

I am much more upset with the debacle that was the Stim bill, which is paying very little in the way of returns, certainly not to the level of its cost.

Just a remarkable statement for so many reasons.

[Cknolls]

What about the opportunity cost, which damages the non-entitlement portion of the population. Hundreds of billions in loans, given to an entitled few, is an explicit advantage at any time. I will gladly take 52 billion from the government and will pay it back with interest within a year.

 

What about all those toxic assets we had to buy? Those paid back? I hope so, I doubt they are.

 

The bailout just rewarded risky investment behavior and it encourages more. How big will the next meltdown be?

 

 

You mean the toxic assets on the fed's balance sheet that they do NOT want to talk about. The one's they hope to hold until they deem them above water. What a joke...