http://finance.yahoo.com/news/Wells-Fargo-repays-government-rb-4254656597.html?x=0&.v=1
The recent rise in long-term US interest rates comes as good news for several leading hedge fund managers, including John Paulson, who have positioned their trading books to benefit from higher yields on US Treasury securities.
Mr Paulson, who made big gains earlier this decade by betting against the subprime mortgage market and whose firm, Paulson & Co, manages $33bn, has said he believes that government stimulus efforts would inevitably lead to higher inflation and a corresponding rise in rates.
Bond prices fall as yields rise, and Mr Paulson told the Financial Times last week that he has been hoping to benefit in the Treasury market by buying options that would become profitable if rates headed higher. TPG-Axon's Dinakar Singh has been making similar options trades, according to a person familiar with the matter."It will be difficult for the government to withdraw the economic stimulus," Mr Paulson said in a speech. "An increase in the monetary base leads to an increase in the money supply, which leads to inflation."
http://www.chicagotribune.com/news/chi-wed-bright-start-dec23,0,7275727.story
OTTAWA — More than $3 million in government gold was unwittingly sold off at a fraction of its value as refinery slag, while $8 million more was miscounted and never left the Royal Canadian Mint, the Crown corporation revealed Monday in a full accounting of how it lost track of a fortune in gold for a year.
A series of miscalculations and blunders in the mint's gold refinery dating back to 2005 were responsible for 17,500 troy ounces — a system of weights for precious metals — of gold going missing from the mint's Ottawa inventory count last October, the mint announced in a 12-page report.
That's the equivalent of almost 44,400-ounce bars, worth more than $20 million in today's prices.
Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations' drugs and crime tsar has told the Observer.
Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.
This will raise questions about crime's influence on the economic system at times of crisis.
But the real kicker came when Frank's committee took up what is known as "resolution authority" — government-speak for "Who the hell is in charge the next time somebody at AIG or Lehman Brothers decides to vaporize the economy?" What the committee initially introduced bore a striking resemblance to a proposal written by Geithner earlier in the summer. A masterpiece of legislative chicanery, the measure would have given the White House permanent and unlimited authority to execute future bailouts of megaconglomerates like Citigroup and Bear Stearns.
Democrats pushed the move as politically uncontroversial, claiming that the bill will force Wall Street to pay for any future bailouts and "doesn't use taxpayer money." In reality, that was complete bullshit. The way the bill was written, the FDIC would basically borrow money from the Treasury — i.e., from ordinary taxpayers — to bail out any of the nation's two dozen or so largest financial companies that the president deems in need of government assistance. After the bailout is executed, the president would then levy a tax on financial firms with assets of more than $10 billion to repay the Treasury within 60 months — unless, that is, the president decides he doesn't want to! "They can wait indefinitely to repay," says Rep. Brad Sherman of California, who dubbed the early version of the bill "TARP on steroids."
The new bailout authority also mandated that future bailouts would not include an exchange of equity "in any form" — meaning that taxpayers would get nothing in return for underwriting Wall Street's mistakes. Even more outrageous, it specifically prohibited Congress from rejecting tax giveaways to Wall Street, as it did last year, by removing all congressional oversight of future bailouts. In fact, the resolution authority proposed by Frank was such a slurpingly obvious blow job of Wall Street that it provoked a revolt among his own committee members, with junior Democrats waging a spirited fight that restored congressional oversight to future bailouts, requires equity for taxpayer money and caps assistance to troubled firms at $150 billion. Another amendment to force companies with more than $50 billion in assets to pay into a rainy-day fund for bailouts passed by a resounding vote of 52 to 17 — with the "Nays" all coming from Frank and other senior Democrats loyal to the administration.
Even as amended, however, resolution authority still has the potential to be truly revolutionary legislation. The Senate version still grants the president unlimited power over equity-free bailouts, and the amended House bill still institutionalizes a system of taxpayer support for the 20 to 25 biggest banks in the country. It would essentially grant economic immortality to those top few megafirms, who will continually gobble up greater and greater slices of market share as money becomes cheaper and cheaper for them to borrow (after all, who wouldn't lend to a company permanently backstopped by the federal government?). It would also formalize the government's role in the global economy and turn the presidential-appointment process into an important part of every big firm's business strategy. "If this passes, the very first thing these companies are going to do in the future is ask themselves, 'How do we make sure that one of our executives becomes assistant Treasury secretary?'" says Sherman.
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“None of [the big Wall Street insitutions] would have survived” had the government stood aside and let the crisis run its course, he said. “The entire U.S. financial system and all the major firms in the country, and even small banks across the country, were at that moment at the middle of a classic run, a classic bank run.”
http://www.nytimes.com/2009/12/04/business/economy/04norris.html
http://www.newsweek.com/id/224694/page/1
Voltron says: Fortunately, I got out of all my short positions in March
(http://cfcsux.blogspot.com/2009/03/im-out-of-srs.html). I started
re-shorting Wells Fargo at an average price of $20. (It's $27 now . . .
Ouch) If you're looking for something to short . . . I recommend Wells
Fargo. They are bankrupt 3-4 times over by my estimate.
http://www.reuters.com/article/marketsNews/idCNN2421092420091124
http://blogs.wsj.com/economics/2009/11/06/broader-unemployment-rate-hits-175
/
http://www.breitbart.com/article.php?id=CNG.4dadcffd230970c1a66462397286ee1f.381&show_article=1
http://blogs.wsj.com/deals/2009/10/29/mean-street-a-sham-gdp-for-a-sham-economy/?mod=yahoo_hs
Reports are circulating that similar audits of certain Asian depositorieshave already produced "good" delivery bars (400 oz or 12.5 kg gold bricks) that have been gutted and stuffed with tungsten - a metal whose specific weight approximates that of gold
http://www.businessinsider.com/mystery-why-did-glds-published-list-of-gold-bars-shrink-2009-10
http://theautomaticearth.blogspot.com/2009/10/october-24-2009-greatest-theft-in.html
http://www.rollingstone.com/politics/story/30481512/wall_streets_naked_swindle/print
"I think the loan loss reserve has to go to a lot higher and I also think that they'll be writing off a minimum of $6 billion in bad loans every quarter for the next four to six quarters"
Wells' Fire Engine Red Flags
Dig deeper into Wells Fargo's third quarter report, and here's what you'll find. It's got a massive consumer loan portfolio that it picked up when it bought Wachovia a year ago.
Wachovia had been brought low by its disastrous decision to buy the damaged Golden West Financial, which popularized the now excoriated 'pick-a-payment' loan program, which essentially let borrowers defer interest payments and add them to the loan's principal.
Many of these loans carry low initial rates that are just now starting to reset higher, backfiring on Wells as the recession continues.
Pick-A-Payment Losses
Ok now this is where it gets to be a funhouse hall of mirrors. Amidst the pie charts and graphics and footnotes, you'll see this in Wells Fargo's report: $107.3 billion in pick-a-payment loan principal still due and owing at the bank.
Now, a new accounting rule that just took effect this past summer says banks must book the value of those loans as of the time they're reported to shareholders. It's part of the 'fair market' rules you may have heard about.
So now Wells says these loans are really only worth, watch this: $87 bn. It calls this the carrying value of these loans.
That $20 billion could potentially come out in the wash as a future writedown-and $20 billion is nearly half Well's $53 billion in Tier 1 capital, Tier 1 being the capital cushion bank regulators says all banks must have to support their businesses.
But where did that $20 billion swing downward come from? Dig deeper into Wells' disclosures, you'll see that of those $107.3 billion in pick-a-payment loans, Wells says $57 billion are what's called 'impaired,' meaning, they're either not paying any interest, they're in default, or they are flat out delinquent.
Out of that pile of rotten apples, Wells says it thinks just $37.9 billion are worth anything at all.
What do you want to bet that it's not actually $37.9 billion, but the full $57 billion are worth nothing at all, given that home foreclosures are rising, wages are falling, as unemployment continues to rise?
Wells' Souring Commercial Real Estate Loans
It gets, well, worse at Wells. The bank says it also has $135 billion commercial real estate loans, much of which it picked up from Wachovia--$43 billion of this sum is at risk. About a third of Wells Fargo's commercial real estate loan book is tied to properties in California or Florida, two states slammed hard by downturn in real estate.
Wells' Off-Balance Sheet Uglies
There's more. Wells also has $174.4 billion in off balance sheet assets, with some $109 B that could come back onto its balance sheet if a new accounting rule takes effect next year.
And Wells executives are staring morosely at a mountain of rotten paper, $55 B in other toxic assets, called level 3 assets. Supporting all of this is its $53 billion in Tier 1 capital, as well as $98.1 billion in net worth on a hard asset, or tangible, basis.
Cookie Jar Reserves Swamp Interest Income
Meanwhile, Wells' loan loss reserves have grown to $24.5 B, double its $11.7 B in net interest income for the third quarter. Net interest income is the lifeblood of any bank, it's the money that comes in the door from loans, mortgages, credit cards, you name it.
When cookie jar reserves swamp interest income, watch out, that's a fire-engine red flag. Wells' credit reserve ratios are also well below what JPMorgan Chase and BofA have now.
http://emac.blogs.foxbusiness.com/2009/10/21/behind-the-numbers-at-wells fargo/
Peter Bernholz (Professor Economics in Basel) studied the world's 12 most important periods of hyperinflation and discovered that the tipping point occurs when deficits amounted to 40% of the expenditures.
For the United States we have arrived at exactly that point. The deficit of $1.5 trillion amounts to 41.7% of the $3.6 trillion in expenses.
http://wallstreetpit.com/11369-us-hyperinflation
http://www.bloomberg.com/apps/news?pid=20601206&sid=arm1bqFn5sy8
"Although our leaders ought to be making some serious choices, they appear too trapped in the short term and special interests to make them," Mr. Einhorn said.
Last week when Federal Reserve Chairman Ben Bernanke, Mr. Geithner and White House economic adviser Larry Summers spoke in interviews and on panel discussions, Mr. Einhorn said, "My instinct was to want to short the dollar but then I looked at other major currencies - euro, yen and British pound - and they might be worse."
Mr. Einhorn added, "Picking these currencies is like choosing my favorite dental procedure. And I decided holding gold is better than holding cash, especially now that both offer no yield."
http://dealbook.blogs.nytimes.com/2009/10/20/einhorn-goes-for-gold-slamming-us-policies/
http://www.businessinsider.com/dont-kid-yourself-inflation-will-kill-stocks-2009-10
http://www.marketwatch.com/story/wells-fargo-sees-credit-losses-peaking-next
-year-2009-10-21
Perhaps most importantly, China's massive stimulus program is helping to generate internal consumption in the People's Republic, meaning local manufacturers are less dependent on exports. Because of the "rapid growth" of Chinese domestic consumption, Ferguson predicts China's international trade surplus could be gone by next year.
Oct. 15 (Bloomberg) -- The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.'s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy.
"The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger," said Daisuke Uno at Sumitomo Mitsui, a unit of Japan's third- biggest bank. "The dollar's fall won't stop until there's a change to the global currency system."
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_A5nqmw9Dq8
http://www.zerohedge.com/article/dow-10000-oh-wait-make-7537
http://www.nypost.com/p/news/business/dollar_loses_reserve_status_to_yen_hFyfwvpBW1YYLykSJwTTEL
http://finance.yahoo.com/news/US-jobless-rate-reaches-98-apf-93159528.html?x=0&.v=13
http://www.businessinsider.com/dollar-carry-traders-take-advantage-of-fed-stimulus-2009-9
http://crfb.org/blogs/cbo-projects-social-security-deficits-2010
Marshall Plan: $115.3B
Louisiana Purchase: $217B
Apollo Moon Shots: $237B
S&L Bailout: $256B
Korean War: $454B
the New Deal: $500
Operation Iraqi Freedom: $597B
Vietnam War: $698B
NASA (total): $851.2B
WWII: $3.6T
http://www.ritholtz.com/blog/2009/09/bailout-costs-to-date/
Home sales drop 2.7 percent.
Foreclosures and other financially distressed sellers accounted for about 30 percent of the market.
With unemployment and foreclosures rising in the upper end of the housing market, "there will be plenty of more pain for higher-priced properties,"
http://finance.yahoo.com/news/Home-sales-drop-27-apf-2064841344.html?x=0&.v=6
"We could be facing a triple whammy at the end of the year: the expiration of the tax credit, the end of the Fed mortgage-buying program and rising foreclosures."
Thomas Lawler, housing economist
A California couple was so dependent on the housing market that, facing economic ruin after they lost virtually all of their property wealth when the economy tanked, they allegedly burned down their own home for insurance money.
"BlackRock Inc. Chairman Laurence Fink said Obama administration programs to help homeowners stave off foreclosure may hinder the recovery of the mortgage market while benefiting banks that own second loans on the properties.""Fink said policies introduced this year to reduce foreclosures are flawed because they don’t require home-equity loans to be wiped out before the mortgage is modified. Instead, in a break with the intentions of contracts, the second loan’s terms may also be revised, spreading the financial loss among lenders, he said.""One concern is that many servicers, which handle billing and collection for mortgage owners, also hold home-equity loans that would lose all value in a foreclosure."...aid for consumers whose debt is greater than the value of their homes is being blocked because other loan changes allow second mortgages to be kept “on the books of the financial institution as a performing asset”“If you really want to protect the homeowner, wipe out the second lien, modify the first lien,” Fink said.
Voltron says: Of course Moody's is wrong about this, like they are always wrong about everything. I expect that the government will try to paper it over with inflation; however, it's interesting that Moody's is admitting that there is a problem looming. Of course they probably won't change the rosy forecasts they use to rate mortgage pools.
