Federal Reserve Says Disclosing Emergency Bailout Loans Will Hurt Banks - Response
Well here is the first shot back after the New York District judge ruled against the Fed in the FOIA lawsuit brought against them from Bloomberg LP. I am just going to take a little time to address some of the quotes in this article to show how the English language can be distorted to get emotional responses that are incorrect based on the facts.
Quotes:
The Fed’s “ability to effectively manage the current, and any future, financial crisis” would be impaired, according to the motion. It said “significant harms” could befall the U.S. economy as well.
Response: It would be of more harm to the economy if we have banks and financial institutions that the public believes are in good financial health but in fact are insolvent. Bad banks drive aways good banks through their bad and reckless policies.
Fed lawyer Kit Wheatley told Preska in a conference call today that she did not know how long it would take for the Fed board to search the New York Fed for records. “We really don’t know what’s in New York,” Wheatley said. “We don’t control the system of record-keeping in New York.”
Response: This is rich, so your saying we actually gave out $2 trillion in emergency loans but it was such an emergency that we didn’t keep records that would be easily accessible? See how this game is played, even if The Fed is ruled against, they will play games about where the information is located. This just ruins the Central Bank’s credibility.
“Experience in the banking industry has shown that when customers and market participants hear negative rumors about a bank, negative consequences inevitably flow,” Norman Nelson, vice president and general counsel for the group, said in the document.
Response: Time to cut the “crap” here, they used the word “rumors“. This is a the quintessential case and point to what I am trying to convey. In this case, if you released this to the public, it would be showing “facts” not “rumors” and people would react to the reality that the facts presented. What this leads me to think when I read it without critically thinking about it is that even these facts would somehow create negative rumors that somehow would not be true. Here the catch though, if your a bank and you need a huge loan from the government via the Fed, GUESS WHAT, you are in trouble and I would pull my deposits from you because you were not prudent enough to keep my money safe. As long as we let this happen, bad banks will prosper and good banks will be acquired. I love good banks because they actually provide benefit to our society as a whole.
Link to the Original Bloomberg Article
Popularity: 1%
Bank of America Needs to Raise $33.9 Billion in Additional Capital
Well we will see how these “stress test” results look on Thursday. I have heard anywhere from 10 to 16 of the 19 biggest banks we need to raise additional capital to maintain an adequate reserve ratio. The problem I have with these tests are the fact that if you look at the criteria of the tests, they really painted a recovery this year and an additional 7 to 15% decline in housing prices.
Maybe we can keep good economic numbers while we have all of these government backed programs to prop up our failed financial system but once those need to be reigned in and all that cash that has been pushed into the system, starts to flow around. I believe we will be in the same position as last October or even worse. I guess we can keep our fingers crossed and our guns loaded?
News (NY Times):
The government has told Bank of America it needs $33.9 billion in capital to withstand any worsening of the economic downturn, according to an executive at the bank.
Popularity: 1%
Nobel Laureate Joeseph Stiglitz Says Ties to Wall Street Doom Bank Rescue
He is correct on this point, the bailout has been targeted to Wall Street on the assumption that if we give them good money and purchase their bad assets off their balance-sheet, it will get them to start lending in the middle of a soft-depression. Not likely, in reality they are holding on to the cash until this passes then they will lend and make acquisitions are bargain basement prices which in the end will give them more wealth and power. My question is how long it will take for people to wake-up and see this situation for what it is and start holding our elected representatives accountable to the biggest corporate subsidy in the history of modern civilization??????? Get on the phone and let your opinion be heard and vote accordingly. That is the only way they will know that we are serious and paying attention.
News (Bloomberg):
The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.
“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.”
Popularity: 1%
U.S. bank bailout extended to life insurance companies
The depth of this situation is now coming into focus. What has basically happened, is the life insurance companies who normally are very risk adverse in their investing got caught up in investing in dodgy “other assets” that carried a “AAA” credit rating. Now because we have realized that these were not “AAA” but in fact junk debt, the insurance companies are in a hole to provide adequate coverage to their policyholders (according to the insurers).
Commercial real estate has to be the next bailout target, I know personally that many of these insurance companies and pensions invested heavily during the boom times in commercial real estate and sercurities based on commercial real estate. To be continued…..
News (Reuters):
Shares of U.S. life insurance companies rose broadly on Wednesday on a report that the government may widen a funding program for troubled financial companies to include insurers.
The U.S. Treasury is expected to announce within the next several days the inclusion of life insurers that are bank holding companies or own a thrift in its capital injection program, The Wall Street Journal reported, citing people familiar with the matter.
Shares of Hartford Financial Services Group Inc climbed more than 30 percent to as much as $11.35 in early morning trading, from $8.45 on Tuesday.
Popularity: 1%
Under New FASB Accounting Rule, Toxic Assets May Be Revalued By Banks
Well this is were we have come. Instead of letting the market determine the price of assets on their books, we instead changed the accounting rules so they can set the price for them and then ultimately sell them off and higher than actual value. This move was a bad one and will backfire on the regulators face. All this tells me, is the banks are in a much worsen condition and they had to play an accounting trick in order to no be insolvent. This does not bring confidence back to the market or fool any of the smart money out there. Good job.
News (Washington Post):
The board that sets U.S. accounting rules voted yesterday to let financial firms report higher values for some troubled assets, a controversial step likely to increase some banks’ reported earnings but also heighten suspicions that the companies are concealing problems.
Popularity: 1%
Fed buys $2.5 billion of long-term U.S. government debt at auction
Well between Obama giving the GM CEO the boot and the Federal Reserve having to purchasing more of our debt, the market is down sharply (over 4% at the time of this writing). It is becoming clear that we had a “bear-market rally” last week and these rosy predictions were much too early and now the reality of what is happening is becoming clear.
Who really thinks once the economy turns around, the Fed is actually going to retract all the credit they have let, not I? We should know that if that happens, the economy will collapse again so that tells me we are going to see a heavy bout of inflation that has the possibility to destroy the currency. I advise everyone to proceed with caution and trust your gut, it will mostly likely give you the most honest assessment of the situation.
News (Reuters):
U.S. government debt prices rose on Monday as heavy stock market losses and the threatened bankruptcy of two major U.S. automakers whetted investors’ appetite for safe-haven government debt.
Key Wall Street stock indexes were down more than 3 percent as the Obama administration forced out General Motors Corp’s CEO, pushed Chrysler LLC toward a merger and threatened bankruptcy for both.
Popularity: 1%
Toxic Asset Purchase Plan May Involve Purchases from Hedge, Mutual and Pension Funds
Now this is pretty big news that does not seem to be getting the same news cycles. Up to this point it has been said that we are issuing all of this debt to “recapitalize” the banks to get credit (debt) flowing in the economy. But now we have a new chapter in the bailout that does not involve banks at all. It looks like the normal conservative buyers of fixed income assets have now gotten in trouble by investing in highly risky assets. Are we now suppose to bailout these bad bets?
This is way beyond sub-prime assets being that those were only $500 billion-$1 trillion dollars total. Basically we keep being lied to about what the real problem is and the extent this goes, I believe what has happen is all these companies were buying OTC derivatives, collected the premiums and now these bets are going bad and they are looking to the U.S. taxpayer to make them whole again. This is not a form of capitalism I am familiar with. I am not sure how we can have a system when the good times are good, everyone is happy and no questions are asked but when they go bad then we give bailouts. It really kills the incentive to work really hard when you have to pay higher taxes for others mistakes and greed.
News (Bloomberg):
Treasury Secretary Timothy Geithner’s plan aimed at ridding banks of toxic real-estate assets may involve U.S.-backed purchases from hedge, pension and mutual funds at higher-than-current prices.
All financial market participants will be eligible to participate in the Treasury’s new program for older mortgage- securities, an administration official said. Investment funds will be able to buy and sell into the securities program, which was announced yesterday. The Treasury also unveiled a companion program to finance purchases of whole real-estate loans that will only allow banks as sellers.
Popularity: 1%