I’ve moved to London and taken a new job in VC, so the posts may be more sporadic as I settle in. Yes, they were already sporadic enough during the summer.
On another note, did you know the UK is now considered a third world country? Yup. One of my friends told me so.
The Fed and the Treasury bailed out the large banks last year to the tune of several Trillion dollars. The banks and their minions went from zeros to heros in about 6 months time. Strangely, the banks haven’t increased their lending. In fact, they’ve done the exact opposite by squeezing borrowers with new and improved credit card rates up to 29.99%.
So where did all that bailout money go? Judging by some of the banks’ quarterly reports, mostly prop trading and speculation since that’s the only place they can make a buck.
Want to know why oil is pushing $80+ with no end-user demand in sight and storage facilities at max capacity? Taxpayer-backed Speculators masquerading as Investment Banks.
Bernanke says that we need to save more to fix the global imbalance.
If everything is so flippin’ hunky-dory, suck some liquidity out of the system and start paying savers SOMETHING instead of ripping them off to bail-out the losers!
Paying 1.2% and Charging 29.99% ???
Remind me again why they got bailed out? Was it so they could run around and gouge their customers? Or maybe so they could threaten and extort more cheap capital from the captured Washington geniuses?
Sometimes I feel like I’m in the Twilight Zone and I’ve woken up to find the world has gone mad, but everyone is treating me like I’m the crazy one. I guess it’s ok because in the end, Washington will reap what its sown when they realize they’ve gone and re-empowered the psychopaths on Wall St. Basically guarantees we get a W-shaped recession.
People always say that the Fed or other Central Banks can’t control where the liquidity flows when they cut rates.
I think we can safely say that when you cut rates to bail out the Banking industry, you inevitably blow a bubble in GS Executive Bonuses. Too bad the Fed can’t call such a surgical strike on the unemployment rate…
Or did I miss something?
(nod to DMB)
There are a few schools of thought it seems about whether we’re facing inflation or deflation. You can cross-categorize them by the time-frame they address. I’m not going to get deeply into the debate because I think it’s been discussed ad nauseum almost everywhere else. Personally, I think the Fed has done everything it can to reignite inflation, but we’re well-past the point where the Fed can single-handedly fill the gap. And even when you add in all the additional Federal spending and the liquidity from the other central banks, I still think the wealth destruction and necessary de-leveraging will overwhelm this coordinated attempt. The best they can do is try to soften the landing a little bit.
At the end of the day, US consumers don’t need more credit… they need better wages. Until real wage growth returns to the United States (and I’m not too optimistic in this department), neither will inflation for domestically produced goods. Unfortunately for many, it is certainly possible that inflation will return for many foreign goods (including petroleum-based auto fuel) prior to that wage growth. Realistically, most of the new money “printed” by the Fed has gone to recapitalize the banks and assist the credit markets. It will not make it off their balance sheets in any meaningful way. To wit, the demand for credit is declining. Until we reach a more sustainable level of societal leverage, you can expect more of the same.
Back in February, I predicted PE would step in and begin to take banking assets private, in particular the bulge bracket firms. It’s starting although we’re not up to the bulge brackets yet… that’ll probably have to wait until 3Q09.
Buyout Firms Elude Fed as OTS Lets Private Equity Acquire Banks
1. This guy should have been axed months if not years ago. He represents the very worst of the old paradigm.
2. It’s a vaguely encouraging step by someone in charge, somewhere.
3. Most importantly, 1 down, about 5000 more to go.
As almost everyone else these days, I’ve been pondering AIG. Things like Bonuses and Bailouts. Reminds me of Chutes and Ladders for some reason… Counterparties, Counterparty risk, CDS, Bear Stearns. Moral hazards and externalities (that’s old timer for unintended consequences).
Ironic isn’t it… the banks that took the bailout money and the FDIC bond insurance complain about salary restrictions. Banks that didn’t take TARP money or bond insurance? They’re complaining that the banks that should have gone under are now using their cheap capital as a competitive advantage to underprice their competition. So not only have you bailed out the losers that failed, but you’ve armed them with the very weapon (cheap capital) that will effectively do what all the other Investments of Mass Destruction couldn’t do, put the winners out of business. How totally droll.
I’ll leave off with the observation that the short end of the Treasury curve went negative again today. Good times… unless you’re running a money fund… or retired… or on a fixed income. The Chinese are down to roughly a $3B monthly trade surplus (down from $30-40 during most of 2008). They’re probably still trying to sterilize it. Maybe instead of complaining about the weakness of the USD, they should keep in mind that they’ve been manipulating their currency for quite some time.
I wonder when the equity market will wake up and smell reality.
I’m surprised no one has picked up on this.
GE is getting knocked because they’re only marking 2% of their assets to market since they’re not a bank. If they mark the portfolio to market, then the transparency would potentially improve shareholder confidence (what’s left of it) and potentially the stock/bond prices.
The banks are getting crushed because they’re being required to mark their entire portfolios to market regardless of maturity.
So which is it? Mark-to-market accounting is causing the problem (banks) or it’s the solution (GE)?
From where I sit, GE has some explaining to do come March 16th.
After pulling the biggest fleecing on the world in at least a decade and now under significant Congressional scrutiny and shareholder proposals to finally limit compensation, the bulge bracket firms will all go private. KKR and the rest of the PE players are just waiting for the opportunity. It’s just a matter of re-pricing the debt, limiting exposure to CDO/CDSs, and of course, wiping out the current equity. Whatever legislative and tax hurdles exist that prevent private equity from owning these firms will be removed as well.
Not really that earth-shaking a realization actually.
Another 3pm’ish announcement from the government today. Timed as always for maximum effect against anyone bold enough to short the stock market. This isn’t the first time and I’m sure it won’t be the last. I could rant here about this, but I’m going to leave that to another post.
In the meantime, I’m going to go out on a limb and call this plan DOA not an hour after it was announced. Why? Because there’s no fix for what ails us other than time and pain. The government can ill afford to prop up the housing market with subsidies. It’s mortgage stabilization writ large with the taxpayers eating the loss.
Despite all the protestations to the contrary – the bad debt has to be written off by someone. Either it’ll be the debt holders or the US taxpayer through some messed up government intervention program that will only further impoverish the American people. Plain and simple. There is no other way out of this.
Expect at the least the bond market will call their bluff starting tomorrow.
