Big Surprise: Citi and BoA Fail Stress Test

Tuesday, April 28, 2009

From the Wall Street Journal.

Ken Lewis on life support. Pandit, too (though it really wasn’t his fault).

The real problem here is one, to repeat an oft used explanation, of confidence. No one believes the banks or the government. Any reasonably informed person sees what Geithner and Bernanke are doing and breaks out in a cold sweat. Borrowing and printing money to reinflate a bubble (our economy) is either genius or suicide. To me, it is most assuredly the latter.

We are in for years of topsy-turvy hard times with the outcome far from assured. Forget ripping the band-aid off quickly, they’re wrapping it up in bandages made of dollars. It’s going to hurt a lot more when it finally comes off.

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America’s Banking Oligarchy

Friday, April 24, 2009

This is a must read. IMF Chief Economist (2007-2008) Simon Johnson in The Atlantic:

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.


Paulson Punts

Tuesday, November 18, 2008

Treasury is not going to tap the remaining $350 billion in TARP, but preserve the money to maintain “flexibility” for the Obama administration.

From Hank Paulson in the New York Times today:

I am very proud of the decisive actions by the Treasury Department, the Federal Reserve and the F.D.I.C. to stabilize our financial system. We have done what was necessary as facts and conditions in the market and economy have changed, adjusting our strategy to most effectively address the crisis. We have preserved the flexibility of President-elect Barack Obama and the new secretary of the Treasury to address the challenges in the economy and capital markets they will face.

I actually think this is a good move. Ultimately, the money is there to prevent further panic. And the government has shown that it is willing to use it. With $350 billion already distributed and the financial system, for now, staying upright, why not hold fire?

Sometimes, punting really is the smart thing to do.

We’ll see if the markets and the economy will cooperate.


The Mortgage Equity Trainwreck

Thursday, October 23, 2008

Want to understand how important borrowing against the value of homes became to the U.S. economy in the 2000s? Look at these two charts.

This one shows U.S. GDP growth with and without mortgage equity withdrawals (MEWs). Notice the recession that didn’t happen in 2001 and 2002. Thanks, Alan Greenspan.

This one shows the declining rate of MEWs (can’t borrow if you owe more than it’s worth) now.

Just another indication of how badly our economy is addicted to debt and why this recession is going to long and tough.

(h/t: John Mauldin)


WaMu Bites the Dust

Thursday, September 25, 2008

The FDIC will seize Washington Mutual and sell its deposits and other assets to JP Morgan Chase. With the bailout deal now in jeopardy, watch for the markets to drop tomorrow (unless something moves overnight).


Lehman on the Brink?

Wednesday, September 10, 2008

From CNBC:

Beleaguered investment bank Lehman Brothers, which posted a third-quarter loss of $3.9 billion, or $5.92 per share, said it is in “advanced discussions with a number of potential partners” to sell a majority stake in its key investment management division.

The deal includes wealth management firm Neuberger/Berman.

Lehman has been in similar negotiations before that have ultimately fallen through. With the situation there growing dimmer by the minute, they’re going to need to pull something out their hat this time.

The big question is, if they don’t, is the Fed again ready to step in with a Bear Stearns type bailout?


Bernanke, Paulson Testify Before Congress Today

Tuesday, July 15, 2008

Federal Reserve Chairman Ben Bernanke will deliver his report on the monetary system to the Senate Banking Committee today and then he’ll testify with Treasury Secretary Henry Paulson and SEC Chairman Chris Cox. This is truly must see TV, as these three will work hard to calm the waters.

You can watch it all online on CSPAN beginning at 10:00 a.m.