You are hereWall Street
Here's how a typical TALF deal would work: A hedge fund uses $1 million of its own money and gets a $9 million loan from the Fed, payable after three years, to buy a $10 million asset-backed security, which finances consumer loans. Hoping that the market for these assets recovers, the hedge fund would hold the asset for three years.
If the security rises in value to $11 million, the investor would keep the profit, essentially doubling the initial investment. The government, meanwhile, would consider the deal a success because consumer lending was spurred.
If the value fell below $9 million, the hedge fund would lose its down payment but nothing more. The Treasury, using bailout funds approved by Congress, would cover the next set of losses, with the Fed ultimately on the hook for anything more.
There's a $700 trillion elephant in the room and it's time we found out how much it really weighs on the economy.
Derivative contracts total about three-quarters of a quadrillion dollars in "notional" amounts, according to the Bank for International Settlements. These contracts are tallied in notional values because no one really can say how much they are worth.
But valuing them correctly is exactly what we should be doing because these comprise the viral disease that has infected the financial markets and the economies of the world.
World Bank Group leaders said the United States and China should balance out their economic dysfunctions, which are paradoxically dissimilar.
Referring to the Group of 20 industrialized nations, World Bank Group President Robert Zoellick and its Chief Economist Justin Yifu Lin, in a report published in The Washington Post Friday, said "without a strong G-2, the G-20 will disappoint."
The United States, Lin and Zoellick said, "must rebalance saving and consumption. It cannot afford a return to the days of maxing out credit cards to finance unfettered consumption. It must regain control over expanding budget deficits, which are driven largely by entitlement spending," the article said.
The U.S. Financial System Is Effectively Insolvent
Nouriel Roubini | Forbes | Submitted by Peter Trottam
For those who argue that the rate of growth of economic activity is turning positive--that economies are contracting but at a slower rate than in the fourth quarter of 2008--the latest data don't confirm this relative optimism. In 2008's fourth quarter, gross domestic product fell by about 6% in the U.S., 6% in the euro zone, 8% in Germany, 12% in Japan, 16% in Singapore and 20% in South Korea. So things are even more awful in Europe and Asia than in the U.S.
"AIG is a huge, complex, global insurance company, attached to a very complicated investment bank hedge fund that built -- that was allowed to build up without any adult supervision, with inadequate capital against the risks they were taking, putting your government in a terribly difficult position," Geithner said. "And your government made the judgment back in the fall that there was no way that you could allow default to happen without catastrophic damage to the American people....On Monday, AIG announced a loss of $61.7 billion for the fourth quarter of 2008, the biggest quarterly corporate loss in U.S. history. The federal government simultaneously announced that it would once again restructure the terms of the AIG bailout, which began in September and had grown to a $152 billion total package."
By Dave Lindorff
The futility and stupidity of the Fed’s and the Obama administration’s policy of pumping ever more money into failing banks and insurance companies in a vain effort to get them lending again was demonstrated—if anyone was paying attention—by the collapse in auto sales this past month, with all the leading companies, Ford, GM and Toyota, reporting sales down by about 40%.
This fall off in car buying was despite record discounting by the auto industry, and offers of 0% financing.
Clearly, obtaining financing is not the reason people are not buying cars.
People are not buying cars because they are worried about having a job to enable them to pay back the loan.
Why is Geithner dithering? Because he is asking the wrong question. The question he is posing is: how can the government save Citigroup? The right question is: how can the government rebuild the banking system?
President Obama deserves immense credit for being willing to spend serious money to prevent recession from becoming depression. He has resisted pressures from fiscal conservatives to put budget balance first, or to make social insurance bear the brunt of spending cuts down the road. And he has used his gifts as a teacher to enlist the broad support of the American people for a far-reaching strategy of public investment.
These days, the way executives make money instead is in the form of bonuses for years where they bring in a lot of return (and often times for years they don't), but the threat of being fired for too much risk taking is minimal. The more risk you take, the more money everyone makes. And it's not the partner's money you're playing with anymore. You're playing with house money. No one is minding the store anymore....These executives did not actually fail. They succeeded wildly. It's just that they had a different goal - to take home as much money as they possibly could for themselves. Mission accomplished!
This is dated, but I decided to post it here for just that reason: "If we knew then, what they knew..." It's graph-intensive, and the source notes at the bottom of the screens are noteworthy, too, given the bailouts.
Here's a bit of background on Carlyle:
Remarkably, one of the most powerful organizations of the federal government, the Federal Reserve, is not subject to audit. Congressman Ron Paul wants to change that. He announced yesterday that he will be submitting a bill in the House of Representatives calling for an audit of the Fed. Paul states:
The Fed is now pledging to reveal to the public more about its economic predictions, and calls this greater transparency. This is little more than window-dressing, at best, utterly useless at worst...
Now, the details: Treasury to give banks unlimited refills
By Kevin G. Hall | McClatchy Newspapers
Taking the wraps off its much anticipated bank-rescue plan, the Obama administration on Wednesday announced that it will provide a virtually unlimited solvency guarantee to the nation's 19 largest banks.
Shortly after Treasury unveiled details of its plan, President Barack Obama appeared before TV cameras with congressional leaders to launch what he hopes will be a quick move to replace what he called a 20th century financial regulatory system.
"This financial crisis was not inevitable," Obama said, noting that his goal wasn't to inhibit the free market but to regulate it better to prevent a repeat of the global meltdown now occurring.
By Dave Lindorff
Barack Obama’s first address to Congress provided Americans with yet another example of competent speechmaking, and I suppose, given that we’ve just endured eight painful years of oratorical farce, being able to listen to your president without wincing is something.
The problem is that the way forward proposed by the president as laid out in this address was almost always half-hearted, wrong-headed or doomed.
Obama declared at the outset of his address that the economic crisis was the major issue confronting the country, and while one could argue that this crisis is merely a symptom of much bigger issues, like the nearly completed deindustrialization of the nation, the death grip of militarism, and the growing political power of corporations, one could also concede that there is an urgent need to deal with the deepening recession.
By Dave Lindorff
Free market aficionados, particularly in the media, have long been wont to tell us that the "market knows best." That was always the line when progressives (remember when there used to be progressives in government?) would come up with some do-good scheme like a public jobs program during the Johnson War on Poverty, or Medicare, or bigger subsidies for urban mass transit. If the stock market sank, they'd pronounce whatever program or bill it was as a bad idea, because "the market" (meaning investors), had nixed it by selling shares.
The same kind of analytical brilliance has been routinely ascribed by economic pundits to investors when it comes to business decisions--particularly mergers and acquisitions, or divestments and breakups. If Bank of America announces that it is going to buy the foundering Merrill Lynch and shares of B of A fall, then the merger is a bad idea. If the shares rise, it's a good idea. And so it goes.
Earlier this month, the Fed increased by fivefold the size of its Term Asset-Backed Securities Loan Facility, or TALF, to as much as $1 trillion. The program is designed to improve credit in markets backed by consumer-linked assets including credit cards, automobile and student loans, and small business loans. (Bolding mine.)
U.S. Federal Reserve Chairman Ben Bernanke said Tuesday that the recession should end this year and 2010 "will be a year of recovery," if actions taken by the government lead to some stabilization in financial markets.
But that's a mighty "if" given recent severe declines in equity markets to levels not seen in more than a decade despite repeated announcements of government bank and housing rescue plans.
Economist Dean Baker on Book TV: "Plunder and Blunder"
Dean Baker gives a great 1-hr. dissection of our economic plight.
Mr. Baker discusses the growth and "predictable" collapse of the housing and stock market bubbles and is critical of both the Reagan and Clinton administrations. He details the mistakes of Alan Greenspan and Robert Rubin. He offers suggestions for preventing additional financial crises and advocates massive government spending to combat the recession.
to watch Dean Baker on Book TV, click here.
Dispatches from the Front Lines of Economic Crisis
by Stephen Lendman
The more they do, the worse it gets, and world headlines confirm it. Recent ones include:
- The New York Times, February 17: "After Manhattan's Office Boom, a Hard Fall;"
- Washington Post, February 17: "Obama signs $787 billion stimulus bill; Dow Jones industrial average drops nearly 300 points;"
Dow theorist, Richard Russell, called it "one of the damnedest closes I've ever seen," within one point of the November 20 low, and added: "I thought President Obama outlawed torture in the US. Wall Street is not listening."
The next day both the Dow and Transportation averages hit new bear market lows. For Dow theorists like Russell and others, it's confirmation of lower ones to come.
Obama's Fiscal Sideshow | By John Perry
Manhattan High-End Housing in for Shock
Kucinich: Who Told SEC to "Stand Down" on Stanford Probe?
Chairman of Domestic Policy Subcommittee Opens Inquiry
Washington, Feb 20 -
Chairman of the Domestic Policy Subcommittee, Congressman Dennis Kucinich (D-OH) today sent a letter to Ms. Mary Schapiro, Chair of the Securities and Exchange Commission (SEC) requesting documents that could reveal which government agency told the SEC to "stand down" rather than take enforcement action against the Stanford Group in October 2006 as has been reported by the New York Times.
Recent media reports have indicated that the SEC was aware of improprieties at Stanford Financial Group as early as October 2006, but withheld action at the request of another government agency.
Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.
Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.
He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.
"We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."
A recent column on the legacy of disaster left by the Bush Administration brings to mind some of the history behind that legacy, for the truth is, Bush didn’t sink the country on his own. His stealth attacks on both the economy and the bill of rights were prepared by previous administrations, in particular the two terms of the Reagan Administration. This is made clear by several things I’ve read recently, in particular, Thom Hartmann’s 2006 book, Screwed: The Undeclared War Against the Middle Class, and Katherine Austin Fitts’ stunning account of her time as a mortgage banker and later a high official in HUD, “Dillon Read and the Aristocracy of Profits.” Both shed important light on the staggering economic crisis the United States now faces.
Same Old Smoke and Mirrors
By John Perry
This scandal involves just one county in the U.S., and one relatively small private prison company. According to The Sentencing Project, “the United States is the world’s leader in incarceration with 2.1 million people currently in the nation’s prisons or jails—a 500 percent increase over the past thirty years.” The Wall Street Journal reports that “[p]rison companies are preparing for a wave of new business as the economic downturn makes it increasingly difficult for federal and state government officials to build and operate their own jails.” For-profit prison companies like the Corrections Corporation of America and GEO Group (formerly Wackenhut) are positioned for increased profits. It is still not clear what impact the just-signed stimulus bill will have on the private prison industry (for example, the bill contains $800 million for prison construction, yet billions for school construction were cut out).
Thirty states have struck such deals with banks that include Citigroup Inc., Bank of America Corp., JP Morgan Chase and US Bancorp...With the national unemployment rate now at 7.6 percent, the market for bank-issued unemployment cards is booming. In 2003, states paid only $4 million of unemployment insurance through debit cards. By 2007, it had ballooned to $2.8 billion, and by 2010 it will likely rise to $10.5 billion, according to a study...
First, Arthur Santa-Maria called Bank of America to ask how to check the balance of his new unemployment benefits debit card. The bank charged him 50 cents.
He chose not to complain. That would have cost another 50 cents.
UBS AG, Switzerland’s largest bank, will pay $780 million and disclose the names of some secret account holders to avoid U.S. prosecution on a charge that it helped thousands of wealthy Americans evade taxes.
The Justice Department accused UBS of conspiring to defraud the U.S. by helping 17,000 Americans hide accounts from the Internal Revenue Service. The U.S. will drop the charge in 18 months if the bank reforms its practices, helps prosecutors and makes payments. UBS will immediately turn over names of about 250 clients, according to people familiar with the matter.
I Want Some TARP!
In the fall of 2001 I attended a private investment conference in London to give a paper, The Myth of the Rule of Law or How the Money Works: The Destruction of Hamilton Securities Group.
The presentation documented my experience with a Washington-Wall Street partnership that had:
- Engineered a fraudulent housing and debt bubble;
- Illegally shifted vast amounts of capital out of the U.S.;
- Used “privitization” as a form of piracy - a pretext to move government assets to private investors at below-market prices and then shift private liabilities back to government at no cost to the private liability holder.
UBS Said to Pay $780 Million to Settle U.S. Tax Investigation
By Carlyn Kolker and David Scheer | Bloomberg
UBS AG, Switzerland’s largest bank, will pay $780 million to settle U.S. investigations related to whether clients at the Zurich-based bank avoided taxes, two people with knowledge of the matter said.
'King Size Combo:' New Report Reveals Broad Toll on Taxpayers by Bailed-Out Bank Goldman Sachs and Its Holdings in Burger King
'King Size Combo:' New Report Reveals Broad Toll on Taxpayers by Bailed-Out Bank Goldman Sachs and Its Holdings in Burger King
Goldman paid nearly double the average bonus on Wall St; Burger King costs taxpayers estimated $273 million a year
As Congress and the Obama administration look to hold major banks that have received billions in federal bailout funds better accountable for their corporate practices, a report released today by the Service Employees International Union (SEIU) on Goldman Sachs and its holdings in Burger King finds that the true total of taxpayer subsidies some of the banks are enjoying extends well beyond the monies they've taken through the Troubled Assets Relief Program (TARP).
The report finds that one of Goldman Sachs' major investments, Burger King, costs taxpayers more than a quarter billion dollars a year as Burger King employees are forced to rely on public health and income support programs as a result of the lack of affordable employer health coverage and sub-poverty wage levels at Burger King.