What does it all mean?

Doug is a great guy and smart as hell – I’ve actually met him. (Loves the Veal Parm at the Palm.)

At any rate he’s gone and done his 20 for 2010. Good reading if you’ve got a couple of minutes.

Kass: 20 Surprises for 2010

Notice #8…

And notice what I wrote back in May 2009:

More Confirmation

Guess we’ll see how it all plays out in 365.

Banks, Predictions Banks, GS, PE

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.

‘Admittedly, just as increasing private saving in the United States is challenging, promoting consumption in a high-saving country is not necessarily straightforward,’ Bernanke said.

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.

Uncategorized Bailout, Banks, Fed, GS, lending

The banks have largely started to decry additional regulation or restrictions.  They’ve threatened (and I use that word quite intentionally) that if there are additional strictures, they will be forced to reduce lending.

Let me make a few things clear:

1. The banks lend because that’s how they make money.  They borrow cheaply from the Fed or depositors and lend at higher rates.  Hopefully without too much of a duration mismatch (pdf link), but that has actually been at least one source of their problems.  Otherwise, they’re just speculators (a post for another day).
2. When the Fed drops the overnight rate to 0-0.25% and institutes a policy of paying interest on excess reserves, it has impaired the fundamental reason for banks to lend: profit.  Since banks can now earn a risk-free return with absolute liquidity while not lending, they have a reduced need to do so.  They also have no need to pay interest on deposits since they have more liquidity than they know what to do with.
3. Banks can’t force people or businesses to borrow.  Right now, there are basically ZERO marginal borrowers because the whole world is over-leveraged.

If the Fed wanted banks to lend, they would reduce some of the liquidity programs and stop incentivizing the banks to sit on what liquidity remains.  To the extent that additional regulation would require leverage limits at the banks, it’s true that some lending would be reduced.  Massively increased leverage levels was what allowed the banks to lend with such reckless abandon.  So, yes, if we return to a world with Glass-Steagal and leverage limits for ALL banks, lending could be reduced.  However, this is not a bad thing (despite legislators’ protestations to the contrary).

We need to deleverage as a society because excessive debt has clogged our economic engine.  You can’t fix it by borrowing more money.  Hopefully the US Government will figure that out as well.

EDIT – Barry Ritholtz, after REALLY stinking up the joint on GS bonuses, posts reports largely the same analysis I just walked you through as done by John Mauldin.

Banks Banks, Fed

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)

Uncategorized Bailout, Banks, Fed, GS

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 

Uncategorized Banks, PE

Back in January, I surmised that China was putting the screws to the US vis-a-vis the US’s fiscal and monetary policies.

Now we have confirmation from a well-respected source, Institutional Risk Analytics.

Note the last sentence of the third-to-last paragraph:

Foreign bond holders, like the government of China, have reportedly told the Obama Administration that further losses to debt holders of US banks will result in a boycott of US Treasury auctions.

So much for Caveat Emptor.  But hey, isn’t that what the taxpayer is for… to backstop all the idiots that invested poorly?

Source:

Can Citigroup Be Restructured Without an FDIC Resolution? (April 17, 2009)

China Banks, China