Month: October 2013

Submitted by Simon Black of Sovereign Man blog,

Do you remember the $700 billion bailout of the financial system in 2008?

It seems these days that most investors do not. People are partying like it’s 1929… as if all the issues and challenges that plagued the banking sector just a few years ago have miraculously vanished.

This thinking is absurd, and even a casual glance at the balance sheets of so many banks in the West shows objectively that the entire system is still precariously leveraged, undercapitalized, and illiquid.

In the wake of the bailout, Congress created a special position to oversee how the funds were spent. Like anything else in government, they used an unnecessarily long name followed by a catchy acronym –

Special Inspector General for the Troubled Asset Relief Program, or SIGTARP.

(The first SIGTARP was a former federal prosecutor who had previously indicted 50 leaders of the Revolutionary Armed Forces of Colombia… just the right man to keep a watchful eye on bankers.)

SIGTARP just released its quarterly report to Congress… and it’s scatching, suggesting that “the toxic corporate culture that led up to the crisis and TARP has not sufficiently changed.”

There are some real zingers in the 518 page report, including:

• “[F]raudulent bankers. . . sought TARP bailout dollars to have taxpayers fill in the holes on their fraud-riddled books.”

• “Some bankers cultivated a culture of self dealing, criminally concealing that the bank was funding their luxury lifestyles, believing they were entitled to the finest money could buy. . .”

• “They were trusted to exercise good judgment and make sound decisions. However, they abused that trust. Many times they abused that trust for their own personal benefit.”

Moreover, the report calls into question the Treasury Department’s administration of the bailout.

For example, many banks have been delinquent in making TARP payments, or payments to one of TARP’s sub-programs.

Yet while many banks are delinquent by 1-2 quarters, according to the report, roughly 3% of the banks who received funds under the Community Development Capital Initiative are more than –two years– behind in their payments.

Yet the Treasury Department has done nothing to enforce terms on behalf of taxpayers.

Most alarmingly, though, the report throws a giant red flag on the Treasury Department’s deceit.

In 2011, the report states, 137 banks took in billions of dollars of funding from the Treasury under the Small Business Lending Fund (SBLF). They then used those funds to repay their TARP loans.

In other words, they repaid taxpayer money with more taxpayer money.

But the Treasury Department still reported that TARP was being repaid, suggesting in a May 2013 press release: “Taxpayers have already earned a significant profit from TARP’s bank programs.”

Total BS, says the report.

SIGTARP writes that “Treasury should not. . . call these funds “repayments” or “recoveries”. Treasury owes taxpayers fundamental, clear, and accurate transparency and reporting on monies actually repaid.”

Something tells me this woman isn’t going to have a particularly long career in government.

And given the Obama’s administration’s track record against whistleblowers, SIGTARP had better start booking her flight to Moscow. Or better yet, marry a Brazilian.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/x7Cw26UciY8/story01.htm Tyler Durden

Submitted by Simon Black of Sovereign Man blog,

Do you remember the $700 billion bailout of the financial system in 2008?

It seems these days that most investors do not. People are partying like it’s 1929… as if all the issues and challenges that plagued the banking sector just a few years ago have miraculously vanished.

This thinking is absurd, and even a casual glance at the balance sheets of so many banks in the West shows objectively that the entire system is still precariously leveraged, undercapitalized, and illiquid.

In the wake of the bailout, Congress created a special position to oversee how the funds were spent. Like anything else in government, they used an unnecessarily long name followed by a catchy acronym –

Special Inspector General for the Troubled Asset Relief Program, or SIGTARP.

(The first SIGTARP was a former federal prosecutor who had previously indicted 50 leaders of the Revolutionary Armed Forces of Colombia… just the right man to keep a watchful eye on bankers.)

SIGTARP just released its quarterly report to Congress… and it’s scatching, suggesting that “the toxic corporate culture that led up to the crisis and TARP has not sufficiently changed.”

There are some real zingers in the 518 page report, including:

• “[F]raudulent bankers. . . sought TARP bailout dollars to have taxpayers fill in the holes on their fraud-riddled books.”

• “Some bankers cultivated a culture of self dealing, criminally concealing that the bank was funding their luxury lifestyles, believing they were entitled to the finest money could buy. . .”

• “They were trusted to exercise good judgment and make sound decisions. However, they abused that trust. Many times they abused that trust for their own personal benefit.”

Moreover, the report calls into question the Treasury Department’s administration of the bailout.

For example, many banks have been delinquent in making TARP payments, or payments to one of TARP’s sub-programs.

Yet while many banks are delinquent by 1-2 quarters, according to the report, roughly 3% of the banks who received funds under the Community Development Capital Initiative are more than –two years– behind in their payments.

Yet the Treasury Department has done nothing to enforce terms on behalf of taxpayers.

Most alarmingly, though, the report throws a giant red flag on the Treasury Department’s deceit.

In 2011, the report states, 137 banks took in billions of dollars of funding from the Treasury under the Small Business Lending Fund (SBLF). They then used those funds to repay their TARP loans.

In other words, they repaid taxpayer money with more taxpayer money.

But the Treasury Department still reported that TARP was being repaid, suggesting in a May 2013 press release: “Taxpayers have already earned a significant profit from TARP’s bank programs.”

Total BS, says the report.

SIGTARP writes that “Treasury should not. . . call these funds “repayments” or “recoveries”. Treasury owes taxpayers fundamental, clear, and accurate transparency and reporting on monies actually repaid.”

Something tells me this woman isn’t going to have a particularly long career in government.

And given the Obama’s administration’s track record against whistleblowers, SIGTARP had better start booking her flight to Moscow. Or better yet, marry a Brazilian.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/x7Cw26UciY8/story01.htm Tyler Durden

BofAML’s NacNeill Curry remains bullish gold. He notes the impulsive gains from the 1251 low of Oct-15 and break of the 2-month downtrend (confirmed on the break of 1330) imply the medium-term trend has turned bullish. We look for an ultimate break of the 1433 highs of Aug-28, with potential for a push to 1500/1533 long-term resistance. Curry suggests traders buy this dip at around 1310 – warning that this view is nagated with a break below 1251. For those awaiting, a break of 1375 (Sep-19 high and right shoulder off a multi-month Head and Shoulders Top) is additional confirmation of the trend turn.

Buy Spot Gold at 1310, risking 1250, targeting 1450, potentially beyond

And beware, he notes, the S&P 500 is “ripe for near term stalling”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/A7I83qkv1ak/story01.htm Tyler Durden

BofAML’s NacNeill Curry remains bullish gold. He notes the impulsive gains from the 1251 low of Oct-15 and break of the 2-month downtrend (confirmed on the break of 1330) imply the medium-term trend has turned bullish. We look for an ultimate break of the 1433 highs of Aug-28, with potential for a push to 1500/1533 long-term resistance. Curry suggests traders buy this dip at around 1310 – warning that this view is nagated with a break below 1251. For those awaiting, a break of 1375 (Sep-19 high and right shoulder off a multi-month Head and Shoulders Top) is additional confirmation of the trend turn.

Buy Spot Gold at 1310, risking 1250, targeting 1450, potentially beyond

And beware, he notes, the S&P 500 is “ripe for near term stalling”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/A7I83qkv1ak/story01.htm Tyler Durden

Just a few weeks ago, President Obama (and his right hand men in the Treasury) issued what was about as explicit a “sell” signal on US equities as is possible. His goal was to ‘scare’ congress into action on the back of an equity market collapse… of course, the Republicans folded with no such collapse in stocks (though bonds did implode). Today, following his “Buy Obamacare” pitch yesterday, the President delivers remarks to the SelectUSA Investment Summit – we assume his message will be BTFATH…

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Bx92YjIQVGQ/story01.htm Tyler Durden

Just a few weeks ago, President Obama (and his right hand men in the Treasury) issued what was about as explicit a “sell” signal on US equities as is possible. His goal was to ‘scare’ congress into action on the back of an equity market collapse… of course, the Republicans folded with no such collapse in stocks (though bonds did implode). Today, following his “Buy Obamacare” pitch yesterday, the President delivers remarks to the SelectUSA Investment Summit – we assume his message will be BTFATH…

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Bx92YjIQVGQ/story01.htm Tyler Durden

Presented with no comment…

 

 

(h/t IBD)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/03_goze7gHI/story01.htm Tyler Durden

Submitted by Chales Hugh-Smith of OfTwoMinds blog,

 

What is the prudent response when hefty profits beg to be booked and assets purchased with leverage/debt start declining? Sell, sell, sell.

Many analysts have described the core-periphery dynamic: instability tends to manifest first in the periphery and then move inexorably to the core. Social and economic changes work in a similar fashion, originating on the margins of the economy/society and then gaining wider influence/acceptance once roughly 4% of the populace (a 64/4 Pareto Distribution) utilizes the innovation.

Everything from fashion fads to Internet useage follows this model of expansion from the margins to widespread acceptance.

Though we welcome this model of technology and fashion distribution, destabilizing financial crises tend to propagate in a similar way, from the margins/periphery to the core. For example, the "Asian contagion" crisis of 1997 began in Thailand, far from the core of the global economy. Once the crisis infected other Asian economies, it soon disrupted core economies.

In the same era, the losses experienced by one firm, Long-Term Capital Management (LCTM), ignited a financial firestorm that quickly spread to global capital markets.

How do we interpret India's brewing crises in currency devaluation (rupee) and inflation? The conventional view is that these are unique to India and therefore isolated. This was of course the conventional view of the Thai currency crisis of 1997–that it was unique to Thailand, and therefore of little concern to the rest of the global economy.

Financial crises spread not because conditions that triggered the crisis are universal, but because fear and loss of faith are universal emotions. What happens in financial crises is the initial disruption/instability causes participants to ask if risk is truly as low as advertised/assumed in the markets where they're exposed. Prudence demands lowering not just conventionally measured risk but potential risk and perceived risk, both of which may diverge radically from pre-crisis risk measured by various portfolio insurance methodologies.

In other words, potential and/or perceived risk triggers selling, which then raises the premiums on risk management. These indicators of risk then trigger a wider perception that risk is rising, which then unleashes more liquidation of assets. This prudent risk-management selling depresses prices, tripping margin calls, trading stops and thus more selling.

In a financial system that is heavily dependent on leverage, credit, phantom collateral and sky-high asset valuations, selling begets more selling, launching a self-reinforcing feedback dynamic in which selling leads to more selling that then triggers margin calls (i.e. selling assets that were purchased with borrowed money) and technical selling (i.e. selling when critical support levels are broken).

What is the prudent response when hefty profits beg to be booked and assets purchased with leverage/debt start declining? Sell, sell, sell, until the entire profit is booked and all at-risk debt is paid off. Anything less invites risk, loss and even insolvency if declines get away from those who purchased assets with leverage/debt.

Could India's currency/inflation crises spread to other nations? That is an open question, but what could easily spread is prudent doubts about the risks that are as yet unrecognized in other markets. If prudence demands selling first and asking questions later, risk is quickly repriced. That repricing itself triggers doubt, fear and a loss of faith in the supposedly permanent bull markets in bonds, real estate, stocks, 'roo bellies, quatloos, etc.

A financial sell-off doesn't even need a real crisis to spread like wildfire; it simply needs nosebleed asset valuations, excessive leverage/credit and risk priced at "the bull market is guaranteed to last essentially forever" levels. Prudence alone will ignite the conflagration.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-S9Fm3CfCG8/story01.htm Tyler Durden

In what is merely the latest humiliating blow to Obama, moments ago, in a 42 to 56 vote, Senate Republicans blocked President Barack Obama’s nominee to oversee the FHFA – the administration in charge of mortgage finance giants Fannie Mae and Freddie Mac, which in turn are so instrumental to restoring housing as the primary source of “High Quality Collateral” (and its securitization), which in turn is critical to allow the Fed to eventually step away from QE. The defeat on a procedural vote for the nominee, Democratic Representative Mel Watt of North Carolina, came despite an aggressive White House push in the past few days to round up support. The vote against limiting debate on Watt’s nomination was 56-42, four short of the needed 60 votes to move ahead in the Senate. Whether this means that Moody’s ADP’s Mark Zandi is back on the table as a potential nominee is unclear as of this writing.

As we pointed out back in May, all those mostly financial lobby supporters of Mr. Watt are encouraged to see their money back.

From: In Whose Pocket Is Mel Watt?

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/VRFVrSNPIco/story01.htm Tyler Durden