Financial fuckery thread

[Cain]

http://www.msnbc.msn.com/id/35772179/ns/business-answer_desk/

As Congress this week inches toward a new set of rules to avert another global financial collapse, it is focused on two conflicting goals: reforming the banking system to protect consumers while still giving lenders the freedom to take risks.

So far the score looks like: Bankers 1, Consumers 0.

More than a year after a wave of risky mortgage bets brought Wall Street to its knees, banks and other financial institutions are still playing by the same rules that got them into the mess.

[...]

The banking industry initially lobbied hard to make sure that any new consumer protections were housed within existing bank regulators, such as the Office of the Controller of the Currency or the FDIC.

Analysts who have followed the turf war say the latest proposal gives bankers most of what they wanted.

"This is a bill the industry will love," said Greg Valliere, chief policy strategist for Soleil Securities.

IOW, prepare for the second crash.

[Jasper]

>still giving lenders the freedom to take risks


Wh-why?

[Remington]

Because as a society, we have a short-term memory equivalent to that of a goldfish?

[Elder Iptuous]

>still giving lenders the freedom to take risks


Wh-why?

the freedom to take risks is not the issue.
having the govt. backstop the losses is the problem...

[Cain]

I would suggest both are an issue, if only due to the incestuous nature of the international financial system, where one collapse can, theoretically, bring the whole thing tumbling down.  The moral hazard naked theft of public funds to prop up ventures that have failed certainly doesn't help matters though.

Anyway, NEWS!

http://market-ticker.denninger.net/archives/2070-EXPLOSIVE-Lehman-Where-Are-The-Cops.html

Lehman regularly increased its use of Repo 105 transactions in the days prior to reporting periods to reduce its publicly reported net leverage and balance sheet.2850 Lehman's periodic reports did not disclose the cash borrowing from the Repo 105 transaction – i.e., although Lehman had in effect borrowed tens of billions of dollars in these transactions, Lehman did not disclose the known obligation to repay the debt.2851 Lehman used the cash from the Repo 105 transaction to pay down other liabilities, thereby reducing both the total liabilities and the total assets reported on its balance sheet and lowering its leverage ratios.

The most interesting part of this is that while Lehman tried to pull one over on the public about its accounting practices, the SEC and and Fed knew it was lying, and went along with it anyway.

After March 2008 when the SEC and FRBNY began onsite daily monitoring of Lehman, the SEC deferred to the FRBNY to devise more rigorous stress‐testing scenarios to test Lehman's ability to withstand a run or potential run on the bank.5753 The FRBNY developed two new stress scenarios: "Bear Stearns" and "Bear Stearns Light."5754 Lehman failed both tests.5755 The FRBNY then developed a new set of assumptions for an additional round of stress tests, which Lehman also failed.5756 However, Lehman ran stress tests of its own, modeled on similar assumptions, and passed.5757 It does not appear that any agency required any action of Lehman in response to the results of the stress testing.

Yes, thats right, the Fed allowed Lehman not only to mark its own papers, but to set the questions to ensure a pass.  They knew it was fucked, and wanted to let it pass the "stress tests" regardless.

[Cain]

http://www.marketwatch.com/story/a-year-more-of-bank-reform-debate-likely-boehner-2010-03-17?reflink=MW_news_stmp

Boehner's comments come as bankers prepare to descend upon Capitol Hill to press for changes to the bank-reform legislation, which they wouldn't support in its present form. Boehner said he urged bankers not to be shy when meeting with the lawmaker staff members and to send a message that new regulations and taxes translates to into banks having less available for lending.

"Don't let those little punk staffers take advantage of you and stand up for yourselves," Boehner said.

I say we wait outside the meeting and shake down the bankers and staffers for their lunch money, when they finally come out.

[Cain]

http://www.levy.org/pubs/wp_587.pdf

The derivative exposure of Goldman Sachs in 2009 was 33,823%.

33,823%

[ñͤͣ̄ͦ̌̑͗͊͛͂͗ ̸̨̨̣̺̼̣̜͙͈͕̮̊̈́̈͂͛̽͊ͭ̓͆ͅé ̰̓̓́ͯ́́͞]

http://www.levy.org/pubs/wp_587.pdf

The derivative exposure of Goldman Sachs in 2009 was 33,823%.

33,823%

Could you put that in english for economitards?

[Cain]

Sorry, I should have added "of its assets" at the end, it helps it make more sense.

Essentially, the sum of the total value of derivatives Goldman Sachs is responsible for is that many times as large as what they actually have in the bank.

[Elder Iptuous]

must be nice to make a fuck ton of money like that when things are panning out, and then have your GS alum buddies in the fed and treasury tell the american public that they are responsible for bailing you out when the deal goes belly up....

goddamn, that's crazy.

i think this is the decade of slapstick quantities.
we're innumerate enough as a society without this kind of shit prompting us to just throw up our hands....

[Cain]

Also, China looks like it might be the bubble which will set off the next round of the recession

http://www.businessweek.com/news/2010-03-16/china-in-greatest-bubble-in-history-ex-ltcm-s-rickards-says.html

China is in the midst of "the greatest bubble in history," said James Rickards, former general counsel of hedge fund Long-Term Capital Management LP.

The Chinese central bank's balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc.

"As I see it, it is the greatest bubble in history with the most massive misallocation of wealth," Rickards said at the Asset Allocation Summit Asia 2010 organized by Terrapinn Pte in Hong Kong yesterday. China "is a bubble waiting to burst."

Rickards joins hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of an overheating and potential crash in China's economy following a rally in stocks and property prices. The government has raised lenders' reserve requirements twice this year to cool an economy that grew at the fastest pace since 2007 in the fourth quarter.

Leveraged speculation in the stock market, wasteful allocation of resources by state-owned enterprises, off-balance- sheet debt through regional governments and the country's human rights record are concerns, said Rickards, who worked for LTCM between 1994 and 1999, helping negotiate a $3.6 billion rescue after the hedge fund lost $4 billion in a few weeks in 1998.

"Take Russia and China together, neither of them is really deserving any investment" except for short-term speculation, Rickards said. India and Brazil are two of the "real economies" among the developing countries, he said.

More worries about the Chinese economy can be found

http://english.caing.com/2010-03-22/100128789.html
http://article.wn.com/view/2010/03/09/roach_in_china_bildet_sich_keine_blase_an_den_m_rkten/
http://www.creditwritedowns.com/2009/11/goldilocks-is-not-sleeping-in-america-anymore-shes-now-in-china.html
http://immobilienblasen.blogspot.com/2010/01/enron-esque-characteristics-hiding-even.html

[Cain]

Boy, it sure is a good thing Labour aren't like those nasty Tories   

http://news.bbc.co.uk/1/hi/uk_politics/8587877.stm

Alistair Darling has conceded that if Labour is re-elected public spending cuts will be "tougher and deeper" than those implemented by Margaret Thatcher.

Asked in a BBC interview to spell out how far-reaching future cuts could be, Mr Darling did not reject a comparison with measures taken in the early 1980s.

The Tories have said they would cut even more from spending than Labour.

Shadow chancellor George Osborne said the comments had "blown apart" Labour's claims that it could "go on spending".

Experts say Mr Darling has postponed the major decisions on departmental spending, and what is widely expected to be substantial cuts in many areas, to a spending review expected in the autumn.

The chancellor warned in his Budget speech that this review would be the "toughest in decades".

'Non-negotiable'

Asked by the BBC's Political Editor Nick Robinson to accept the Treasury's own figures suggest deeper, tougher cuts than those implemented by the Thatcher government in the 1980s, Mr Darling replied: "They will be deeper and tougher - where we make the precise comparison I think is secondary to fact is an acknowledgement that these reductions will be tough".

He added: "There may be things that we don't do, that we cut in the future. We will have to decide what precisely we can do within the [spending] envelope I set."

"What is non-negotiable is that borrowing is coming down by half over a four-year period."

The Institute for Fiscal Studies, an independent think tank, has noted that total public spending increased by an average of 1.1% a year in real terms over the Thatcher era, at a time when inflation was higher than it is today.

This is almost three times the increase of 0.4% a year that Mr Darling has pencilled in for the next Parliament.

The IFS went on to observe that "if we subtract spending on welfare and debt interest then we estimate that the rest of public spending would be cut in real terms by an average of 1.4% a year compared to an average increase of 0.7% in the Thatcher era. We have not seen five years with an average annual real cut as big as this since the mid-1970s".

As the Conservatives wish to make bigger spending cuts than Labour they have already accepted that they would have to be tougher than Margaret Thatcher.

All this does is make me want to vote Tory more.  Fuck it, if we're going to plunge the country back into a recession, I say we really do a proper job of it.  I want armageddon tomorrow.

[LMNO]

Is it just me, or does that sound like they're saying, "The country's fucked, so let's just fuck it harder"?

[Cain]

As far as I can see, their logic is if they fuck the country hard enough, we can avoid losing our Triple A credit rating, which would cause runaway inflation and kill the economy.  The problem with that is, if we stop public spending, with the banks not lending money, consumer purchases go down and we end up killing the economy regardless.

I'd rather the Tories did it though, because I want to see that smug expression wiped off George Osborne's face, and because Labour are already a discredited party, meaning someone else should take the fall for this.

[Cain]

http://www.reuters.com/article/idUSLDE6380MU20100409

Major U.S. banks temporarily lowered their debt levels just before reporting in the past five quarters, making it appear their balance sheets were less risky, the Wall Street Journal said, citing data from the Federal Reserve Bank of New York.

The paper said on Friday 18 banks, including Goldman Sachs Group, Morgan Stanley, J.P. Morgan Chase Bank of of America and Citigroup, understated the debt levels used to fund securities trades by lowering them an average of 42 percent at the end of each period.

The banks had increased their debt in the middle of successive quarters, it said.

Citi, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley were not immediately available for comment when contacted by Reuters outside regular U.S. business hours.

Excessive leverage by the banks was one of the causes that led to the global financial crisis in 2008.

Due to the credit crisis, banks have become more sensitive about showing high levels of debt and risk, worried their stocks and credit ratings could be punished, the Journal said.

Federal Reserve Bank of New York could not be immediately reached for comment by Reuters.

Heh