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Banking System

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Government Backing for Toxic Mortgage Securities?
The leaders of the U.S. Senate Banking Committee, Sen. Tim Johnson (D., S.D.) and Sen. Mike Crapo (R., Idaho), released a draft bill on Sunday that would provide explicit government guarantees on mortgage-backed securities (MBS) generated by privately-owned banks and financial institutions. The gigantic giveaway to Wall Street would put US taxpayers on the hook... Read More
Banks nab $400B in USTs for "Window Dressing"
“Increasing the Fed’s transparency, openness and accountability has been one of my top priorities as chairman.” -Fed Chairman Ben Bernanke on the 100th anniversary of the Federal Reserve Ben Bernanke is a big believer in transparency. Transparency, transparency, transparency. Hardly a day goes by that Bernanke doesn’t reiterate his commitment to transparency. He thinks the... Read More
Hard Landing in China? It's Just a Matter of Time
An uptick in manufacturing activity in March has eased fears of a hard landing, but China is not out of the woods yet, not by a long-shot. The industrial powerhouse has succumbed to the same problems as its trading partners in the West who were thrust into crisis by soaring real estate prices, reckless credit... Read More
How Wall Street "Privatized" Money Creation
Regulators are worried about the explosive growth of shadow banking, and they should be. Shadow banks were at the heart of the last financial crisis and they'll be at the heart of the next financial crisis as well. There's no doubt about it. It's simply impossible to maintain a system where unregulated, non-bank financial institutions... Read More
Cordray Fails to Protect
Richard Cordray might be the most powerful man in America today, and you've probably never even heard of him. As head of the new US Consumer Financial Protection Bureau (CFPB), Cordray can effectively set the clock back to 2005 and inflate another gigantic, economy-busting housing bubble without breaking a sweat. All he has to do... Read More
How the Financial Lobbyists Carried the Day
Last Thursday, the Wall Street Journal ran an article titled "Burdened by Old Mortgages, Banks Are Slow to Lend Now", in which, author Nick Timiraos said that the reason that housing has been so slow to recover is because Fannie and Freddie "have been forcing banks to take back an increasing number of loans that... Read More
Skimming Profits Off Bad Loans
Didn't Ben Bernanke promise that another round of bond purchases would lower unemployment and boost economic growth? We think he did, which is why we're wondering why all the benefits from QE3 appear to be going to the banks. According to Bloomberg News: Well, how do you like that? That means that Mr. Bernanke's trickle... Read More
Gaming the Housing Market
It's the same everywhere. The banks are keeping houses off the market to trick people into believing that prices have hit bottom. But prices haven't hit bottom, in fact, they still have a long way to go. So, what's going on here; what do the banks hope to gain by withholding supply? Here's a clip... Read More
What a Mess!
A poor jobs report, higher than expected inflation in China, and another flare-up in the Eurozone sent stocks tumbling on Monday. US Treasuries rallied on news from the Labor Department that employers added just 120,000 non-farm payrolls in March, far below analysts most pessimistic predictions. The Dow Jones lost 130 points on the day, while... Read More
The 50-State Foreclosure Settlement
Under the terms of the 50-state mortgage foreclosure settlement, US taxpayers could end up paying billions in penalties that were supposed to be paid by the banks. That's the gist of a front-page story which appeared in the Financial Times on Thursday, February 17. The widely-cited article by Shahien Nasiripour notes that the 5 banks... Read More
The Derivatives Flap
Why is Bank of America moving derivatives from Merrill Lynch to an insured subsidiary? Is it because the derivatives could blow up at any time leaving Merrill with gigantic, unsustainable losses? If that's the case, then it would make perfect sense to shift them into a depository institution that's covered by the FDIC. That way,... Read More
The Next Shoe to Drop
The deepening debt crisis in the eurozone and increasingly poor economic data in the US, have overshadowed rapidly deteriorating conditions in the world's second biggest economy. The China miracle is quickly becoming a nightmare as credit default swaps (CDS) spike parabolically to 3-year highs and stocks plunge "dragging the Hang Seng Index to its biggest... Read More
Le Tarp?
On Thursday--exactly 3 years after Lehman Brothers defaulted igniting the greatest financial crisis in 70 years--the world's most powerful central banks launched a massive intervention to staunch a liquidity squeeze in the eurozone that threatened to wreak havoc on the EU banking system. The European Central Bank --acting in cooperation with the Federal Reserve, the... Read More
Debt Ceiling Doomsday
Okay, so we all knew that the cultists and screwballs who run the GOP were going to take this to the 11th hour, right? But who knew that once they got us out on the ledge, they wouldn't know how to cut a deal? Instead, Tea Party confederates seem determined to make sure the US... Read More
Hanky-Panky at the Fed
It's the biggest flim-flam in the nation's history. But, thanks to the Congressional Research Service, the scam has been exposed and the public can now get a good look at the type of swindle that passes as monetary policy. Here's the scoop: When Fed chairman Ben Bernanke initiated the first round of Quantitative Easing (QE),... Read More
More Trouble in Squanderville
Bob, Frank and Freddie all bought identical houses in the same neighborhood in 2004. Each man paid $300,000 for his home. Bob paid the whole $300,000 in cash. Frank put down 10% (or $30,000) and took out a $270,000 mortgage. Freddie paid $0-down on a 100% mortgage. In 2005, home prices rose by 10% which... Read More
How to Make $4 Trillion Vanish in a Flash
On August 9, 2007, an incident took place at a bank in France that touched-off a financial crisis that that would eventually wipe out more than $30 trillion in capital and thrust the world into the deepest slump since the Great Depression. The event was recounted in a speech by Pimco's managing director Paul McCulley,... Read More
Mr. Insubordination Makes His Exit
Stuart Levey, the United States official in charge of unilateral financial sanctions against Iran and North Korea, is resigning as Assistant Secretary of State for the Office of Terrorism and Financial Intelligence. Levey was apparently fondly regarded in the Obama White House as a key player in the "smart power" strategy, and highly regarded by... Read More
An Emerging Bubble Alert
Counterfeiting is an effective way to stimulate the economy, but the costs can be quite high. For example, if trillions of dollars in fake cash was injected into the financial system (undetected), we'd probably see the same type of thing that we see when a credit bubble is inflating; asset prices would rise, unemployment would... Read More
All It Has to Do is Vote "No"
Wednesday's press conference with ECB President Jean-Claude Trichet turned out to be a real jaw-dropper. While Master illusionist Trichet didn't commit himself to massive bond purchases (Quantitative Easing) as many had hoped, he did impress the gathering with his magical skills. The Financial Times recounts Trichet's what happened like this: Nice trick, eh? So while... Read More
Ireland is on the Way to Default
There was a bank run in Ireland last Wednesday. LCH Clearnet, a London based clearinghouse, surprised the markets by announcing it would increase margin requirements on Irish debt by 15 per cent. That's all it took to send investors fleeing for the exits. Yields on Irish bonds spiked sharply as banks tried to close positions... Read More
Austerity for Workers, Welfare for Banks
The EU banking system is in big trouble. That's why European Central Bank (ECB) head Jean-Claude Trichet continues to purchase government bonds and provide "unlimited funds" for underwater banks. It's an effort to prevent a financial system meltdown that could wipe out bondholders and plunge the economy back into recession. "We have the best track... Read More
Reflating High-Risk Assets
Credit conditions are improving for speculators and bubblemakers, but they continue to worsen for households, consumers and small businesses. An article in the Wall Street Journal confirms that the Fed's efforts to revive the so-called shadow banking system is showing signs of progress. Financial intermediaries have been taking advantage of low rates and easy terms... Read More
The Stress Test Fraud
The EU banking system is in big trouble. Many of the Union's largest banks are sitting on hundreds of billions of dodgy sovereign bonds and non performing real estate loans. But writing down their losses will deplete their capital and force them to restructure their debt. So the banks are concealing their losses through accounting... Read More
Trichet's Power Grab
On Thursday, European Central Bank head Jean-Claude Trichet announced that he would continue the ECB's low interest rates (1 per cent) and easy lending policies for the foreseeable future. Wall Street rallied on the news, sending shares rocketing up 273 points on the day. Trichet also said that he would continue his controversial bond-purchasing program... Read More
Europe Chooses Depression
Forget about a smooth recovery. Finance ministers and central bank governors of the G-20, met this weekend in Busan, South Korea and decided to substitute "tried and true" expansionary fiscal policies for their own strange brew of belt-tightening and austerity measures. The EU members are eager to restore the illusory "confidence of the markets", something... Read More
On to the 88 Cent Euro!
Despite a nearly-$1 trillion rescue operation, financial conditions in the eurozone continue to deteriorate. All the gauges of market stress are edging upwards and credit default swaps (CDS) spreads have widened to levels not seen since the weekend of the emergency euro-summit. Libor (the London Interbank Offered Rate) is on the rise and liquidity is... Read More
Systemic Instability
Debt woes in Greece have sent bond yields soaring and increased the prospect of sovereign default. A restructuring of Greek debt will deal a blow to lenders in Germany and France that are insufficiently capitalized to manage the losses. Finance ministers, EU heads-of-state and the European Central Bank (ECB) have responded forcefully to try to... Read More
"Thumbs Down" on EU Bailout
Barack Obama must have been very frightened, indeed. Otherwise he never would have inserted himself so forcefully into Greece's debt crisis. The truth is, there's much more at stake then people seem to realize. A Greek default would be a major blow to the banking system and the damage would not be limited just to... Read More
The Shadow Banking System Blew Up
Most people still don't know what caused the financial crisis. They know it had something to do with subprime mortgages and Lehman Bros, but beyond that, it gets rather hazy. Unfortunately, Congress appears to be in the dark too, which is why their attempt to regulate the system is bound to fail and pave the... Read More
An Insolvent System?
On Friday, the Wall Street Journal revealed details of a cover up by the nation’s largest banks that have been engaged in potentially-criminal accounting activities to conceal the amount of debt on their balance sheets. The SEC has been notified of the allegations and has launched a probe to determine whether further action is needed.... Read More
The Next Big Bailout "Any Day Now"
Housing is still on the rocks and prices are headed lower. Master illusionist Ben Bernanke has managed to engineer a modest 7-month uptick in sales, but the fairydust is set to wear off later this month when the Fed stops purchasing mortgage-backed securities (MBS). When the program ends, long-term interest rates will creep higher and... Read More
The Long Adjustment
The U.S. economy is at the beginning of a protracted period of adjustment. The sharp decline in business activity, which began in the summer of 2007, has moderated slightly, but there are few indications that growth will return to pre-crisis levels. Stocks have performed well in the last six months, beating most analysts expectations, but... Read More
Why the Economy Has Yet to Hit Bottom
There's a big difference between an inventory-driven recession and a credit-driven recession. An inventory recession is caused by a mismatch between supply and demand. It's the result of overcapacity and under-utilization which can only work itself out over time as inventories are pared back and demand builds. Credit-driven recessions are a different story altogether. They... Read More
Elizabeth Warren's Devasting Report to Congress
On Tuesday, a congressional panel headed by ex-Harvard law professor Elizabeth Warren released a report on Treasury Secretary Timothy Geithner's handling of the Troubled Assets Relief Program (TARP). Warren was appointed to lead the five-member Congressional Oversight Panel (COP) in November by Senate majority leader Harry Reid. From the opening paragraph on, the Warren report... Read More
Light at the End of the Tunnel? Wrong!
It's been 21 months since two Bear Stearns hedge funds defaulted, setting off a series of events which have led to the gravest economic crisis since the Great Depression. No one expected the financial earthquake to shake this hard or ripple this fast. The failure at Bear triggered a shock in the secondary market where... Read More
When Banks Rob People
This time the banks are  zeroing in on Geithner's cash giveaway bonanza, the "Public Private Investment Partnership" (PPIP). As expected, Bank of America and Citigroup have angled their way to the front of the herd, thrusting their snouts into the public trough and extracting whatever morsels they can find amid a din of gurgling and... Read More
Zombie Economics
Whether he deserves it or not, Timothy Geithner has become the poster boy for everything that's wrong with the government's scatterbrain financial rescue plan. Geithner was in the wheelhouse at the New York Fed when Bear Stearns and Lehman Bros defaulted, and he has played a central role in the $165 million AIG bonus scandal... Read More
Time for Geithner and Bernanke to Go
When George Soros recently said that the financial system had "effectively disintegrated", it caused quite a flap. But Soros was not exaggerating. The financial system has disintegrated. What we are experiencing now is just the fallout from that event. This is easier to understand using an analogy. Imagine watching the demolition of a hundred-story skyscraper.... Read More
It's Time to Break Up the Big Banks
Timothy Geithner is putting the finishing touches on a plan that will dump $1 trillion of toxic assets onto the US taxpayer. The plan, which goes by the opaque moniker the "Public-Private Investment Fund" (PPIF), is designed to provide lavish incentives to hedge funds and private equity firms to purchase bad assets from failing banks.... Read More
Geithner Gets the Keys to the Henhouse
The Obama Team has a big problem on its hands; Timothy Geithner. Geithner was picked as Treasury Secretary because he is a trusted ally of the big banks and has a good grasp of the intricacies of the financial system. The problem is that Geithner can't handle the public relations part of his job. His... Read More
"Not Ready for Prime Time"
This week was Treasury Secretary Timothy Geithner's coming out party. He was supposed to outline Obama's Financial Stability Plan to the Senate Banking Committee. Wall Street was looking for clarity, but it didn't get it. Instead, they got 25 minutes of political posturing and blather. The markets went into freefall. By the end of the... Read More
Higher Wages and Debt Relief
Barack Obama and Co. are planning to launch their own version of economic "shock and awe" in the opening weeks of the new administration. Aside from the $825 billion stimulus package, which will be used to create 3 million new jobs and make up for flagging consumer demand; Obama is planning a financial rescue operation... Read More
A Shock to the Collective Psyche Bad News and Bank Runs
The Bush administration is going to be mailing out more "stimulus" checks in the very near future. There's just no way around it. The Fed is in a pickle and can't lower interest rates for fear that food and energy prices will shoot into the stratosphere. At the same time, the economy is shrinking faster... Read More
Bye, Bye Reagan, Hello FDR The Great Bust of '08
On January 14, 2008 the FDIC web site began posting the rules for reimbursing depositors in the event of a bank failure. The Federal Deposit Insurance Corporation (FDIC) is required to “determine the total insured amount for each depositor.....as of the day of the failure” and return their money as quickly as possible. The agency... Read More
Rate Cut as Dagger America's Teetering Banking System
Somebody goofed. When Fed chairman Ben Bernanke cut interest rates to 3 per cent yesterday, the price of a new mortgage went up. How does that help the flagging housing industry? About an hour after Bernanke made the announcement that the Fed Funds rate would be cut by 50 basis points the yield on the... Read More
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