Masters of the Universe category archive

I’ve tried to read this article three times now and each time I get lost in the mumbo-jumbo. Maybe Duncan understands it–after all, he used to teach this stuff–but I don’t.

One thing I have learned in years of working in large organizations is that, if something doesn’t make sense and can’t be expressed in plain language, the odds are that it just doesn’t make sense and someone is pulling a fast one.

The magician doesn’t really make the rabbit magically turn into a hankerchief and losers don’t magically become winners. It’s all just sleight of hand.

JPMorgan Chase & Co. stands to reap a $29 billion windfall thanks to an accounting rule that lets the second-biggest U.S. bank transform bad loans it purchased from Washington Mutual Inc. into income.

Wells Fargo & Co., Bank of America Corp. and PNC Financial Services Group Inc. are also poised to benefit from taking over home lenders Wachovia Corp., Countrywide Financial Corp. and National City Corp., regulatory filings show. The deals provide a combined $56 billion in so-called accretable yield, the difference between the value of the loans on the banks’ balance sheets and the cash flow they’re expected to produce.

Faced with the highest U.S. unemployment in 25 years and a surging foreclosure rate, the lenders are seizing on a four- year-old rule aimed at standardizing how they book acquired loans that have deteriorated in credit quality. By applying the measure to mortgages and commercial loans that lost value during the worst financial crisis since the Great Depression, the banks will wring revenue from the wreckage, said Robert Willens, a former Lehman Brothers Holdings Inc. executive who runs a tax and accounting consulting firm in New York.

Not that the Wall Street Wankers would ever try to pull a fast one. Oh! Certainly not!

We need new accounting rules.

Holy moly, here I am in Virginia Beach for Memorial Day and, after a long drive punctuated by massive tire FAIL (fortunately I have a Real Spare Tire), I fire up the netbook to find out that banks are dropping like, well, droppings.

Can’t bank on these no more:

Citizens National Bank, Macomb, IL

Strategic Capital Bank, Champaign, IL

Plus there was yesterday’s:

BankUnited, FSB, Coral Gables, FL

Masters of the Universe, oh, yes, indeedy.

Jack Welch quoted in Bloomberg on the Chrysler thingee:

“I didn’t like the terms,” Welch said. “The creditors’ rights were trashed and the unions got 55 percent of the company”

(He goes on to complain about Federal deficits. Funny. Don’t recall–maybe it’s just my faulty memory–his complaining about Federal deficits to fight made-up wars and build concentration camps.)

Not that I like the Chrysler thingee much myself, but I am damned glad I’m not the one to have to figure out what to do about Detroit’s dinosaur carcasses.

Anyhoo, in Welch’s world, the prospect of being out of work and out of money and having to live on the streets is unimaginable.

So why should he care about the workers, who spent years building the cars that management wanted them to build, only to face destitution through the incompetence of management?

Having to downgrade from a Rolls to a Bentley is a far more frightening thing.

In his world.

Put the hedge fundies first. After all, they have country club fees to pay.

accompanied by their little zombettes:

Commercial real-estate loans could generate losses of $100 billion by the end of next year at more than 900 small and midsize U.S. banks if the economy’s woes deepen, according to an analysis by The Wall Street Journal.

(snip)

Total losses at those banks could surpass $200 billion over that period, according to the Journal’s analysis, which utilized the same worst-case scenario the federal government used in its recent stress tests of 19 large banks. Under that scenario, more than 600 small and midsize banks could see their capital shrink to levels that usually are considered worrisome by federal regulators. The potential losses could exceed revenue over that period at nearly all the banks.

Via RawStory.

That the reputed “owners” of a company might have rights:

Sen. Charles Schumer, a prominent Democrat on the Senate Banking Committee, said he will introduce on Tuesday a “Shareholder Bill of Rights” that would give shareholders a “say on pay” and would require that the chief executive job be separate from the chairman position at U.S. publicly traded companies.

I’m not holding my breath on this one.

When the dealer keeps the deals out of sight, the deck is likely crooked.

You can bank on it (emphasis added):

New research by Gary Gorton, a finance professor at the Yale School of Management, shows not only how the shadow banking system has grown but how it’s truly the main culprit of the credit collapse. Gorton knows how financially deadly shadow banks can be. He advised AIG’s credit default swap unit. See full story.

Gorton argues that shadow banking is “at the heart” of the financial crisis in his research in a paper “Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007” last week at the Federal Reserve Bank of Atlanta’s Financial Markets Conference. Gorton argues that the recent financial crisis was really a banking panic in which banks, both in the shadows and in the light, were unable to meet their obligations.

Free hand of the market my anatomy.

Because it clearly couldn’t be Republican Economic Theory. After all, they believe in pay for performance.

Sony reported Thursday its first annual loss in 14 years and forecast another grim year ahead, as the prolonged economic slump and a strong yen dashed hopes of a quick recovery for the electronics giant.

Facing more losses ahead, Sony said that it would close three factories in Japan, part of a continuing effort to trim production costs and rebuild a business that has been ravaged by the sharp cutback in consumer spending throughout the world.

To clarify, that’s pay for performance. Not performance.

One of the greatest honors Louis XIV of France would grant to his courtiers was the honor of helping him get put on his clothes. It served a dual purpose: It exalted his favorites, while reminding them that they were little more than body servants to the vaunted “Sun King.” Not unsurprisingly, despite his love of pomp and ceremony and war, he ruled France with astonishing incompetence, wasting blood and treasure on a series of fruitless wars and frequent defeats, setting the stage for the Revolution two generations later.

These days, he would have been a CEO who received “pay for performance.” After all, he wore expensive suits, looked good in meetings, and wrote nice letters.

From MarketWatch:

From golden parachutes to “golden coffins,” here are 10 of the most outrageous perks ever bestowed on grateful CEOs.

and sucked the blood of the polity. Citibank puts its bailout funds to use. From TPMMuckraker:

Today the bank emailed borrowers who took out student loans with Citigroup encouraging them to write to Congress opposing the administration’s student loan proposal.

Obama has been talking about overhauling student loans since at least 2007, echoing GAO estimates that banks had been taking in $15 million a day peddling and securitizing private student loans without taking on any risk, since student loans are guaranteed by the government and cannot even be discharged in a bankruptcy. The “most controversial” aspect of his proposed legislation, according to the New York Times, would cut out the proverbial middleman so all students could borrow directly from the government. Any “controversy,” of course, is likely to be fomented by the banks that make money off the arrangement.

Guess being skimming student loans is easier than honest work.

There have so far this year been 18 complete weeks.

That’s almost two a week, folks (emphasis added).

State and federal regulators on Friday closed Westsound Bank of Bremerton, Wash., marking the 33rd bank failure so far this year.

And that doesn’t include the zombie banks that still walk the earth.

Westsound Bank, Bremerton, WA, is no more.

InsolventInsatiable:

After conducting “stress tests” of the 19 biggest banks, the government has told Bank of America Corp it needs $34 billion of capital, roughly triple what had been expected, an industry source familiar with the results said.

Wells Fargo & Co needs $15 billion, Bloomberg News said, citing an unnamed source. Citigroup Inc may need as much as $10 billion, a person familiar with the matter said. About 10 of the 19 banks that were tested may need capital, a person familiar with the official talks said.

And the rumors are these stress tests weren’t very stressful.

Over at the Great Orange Satan, a poster wonders why the truth is coming out in such dribs and drabs (Warning: mild language):

Dribs and Drabs, that’s how these ‘little stories’ are coming out about the financial meltdown. Perhaps ‘they’ don’t think ‘we’ will notice the horrifying little details that way….like the new story about AIG bonuses. Now we find out that the bonuses were actually 4 times larger than was originally reported. Doesn’t it make you wonder who lied about the original figures, and why it is being reported now?

I think that it’s because the truth of Wall Street’s malfeasance, perfidy, cupidity, and stupidity is so bad that the government is afraid it could lead to panic and that, frankly, we would all be better off just to know the extent of the badness, but that’s just me.

But, then, that would reveal that the financial emperors have no clothes.

And We Can’t Have That. After all, Greenwich, Conn., gets awfully chilly in the winter.

The hedge hogs funds scurry to their burrows.

Follow the link to see the “evidence” of a “hostile climate” proffered by the lawyers.

Blaming a “hostile climate” perpetuated by the Obama administration “publicity campaign,” Tom Lauria, the attorney representing the group of twenty hedge fund calling themselves the “Chrysler Non-TARP Lenders,” filed a motion to seal claiming the hedge funds “targeted by the president” — presumably Oppenheimer Funds and Stairway Capital, since those were the only funds associated with the group — had “received various threats, including dozens of death threats directed to their employees.”

But today bankruptcy court Judge Arthur Gonzales denied the motion, seeing “no evidence that authorities found the threats bona fide” — maybe because the only evidence of said threats cited in the motion was a printout from the comments section of the Washington Post website.

Guess their mastery of the universe doesn’t include standing up for themselves in public.

When it’s not good enough for Wall Street “analysts,” the unsung and often nameless arbiters of everything. Demand for India’s Nano automobile is double supply, but, nevertheless, it’s not good enough.

The company (Tata Motors, which makes the Nano–ed.), which accepted orders for the $2,000 car between April 9 and April 25, said it has received over 200,000 fully paid orders during the period, amounting to nearly 25 billion rupees ($500 million). Tata said it had collected 610,000 application fees of 300 rupees each.

But this was not enough in the eyes of the market.

“Poor response to Nano is a sentiment dampener for the stock,” said analysts at Batlivala & Karani, which has an underperformer rating on the company.

This whole pathology of judging companies based on (someone’s? whose?) expectations, rather than on performance, stinks like limburger cheese.

One.

Two.

And they haven’t even gotten to the western closing times yet.

Here it is . . .

Three.

Interesting phrasing, “overlapping contracts” and “redundant trades” (emphasis added):

Credit-default swap dealers cut the volume of outstanding trades to $38.6 trillion last year as they tore up overlapping contracts amid pressure from regulators to scale down the privately negotiated market and reduce risk.

(snip)

Traders have been rushing to cancel redundant trades as federal authorities seek to impose regulations on the market for the first time since it was created a decade ago. After the collapse of Bear Stearns Cos. last year, 17 banks that handled about 90 percent of trading in default swaps agreed to initiatives including trade compression to help reduce day-to- day payments, bank staff paperwork and potential for error.

What those phrases mean was explained in this interview with Frank Partnoy.

The financial geniuses sold the same derivatives over and over to different buyers, because they thought nothing would ever go wrong. Not only did they build a house of cards, they printed the damned cards themselves.

In other words, the city slickers kept selling the Brooklyn Bridge repeatedly, obsessively, to different suckers–in this case, the suckers were not country hicks, but other city slickers.

Then, one day, all the owners of the bridge showed up at once, to discover not only that hundreds of people had deeds to the bridge in sole tenancy (that is, each all to his lonesome), but also that, in the meantime, the damned bridge had fallen down.

On Wall Street, this is called “creating wealth.”

Dean Baker in The Guardian:

This backdrop in extremely important in assessing the “fix the banks” battle cry of the economists who did not see the housing bubble. The word from this distinguished group is that if we can get the banks lending again, then the economy will be on its way to recovery. Coincidentally, the central ingredient in their formula is throwing hundreds of billions, or even trillions, of taxpayer dollars at the banks. In other words, they want to impose huge taxes on ordinary workers to give more money to the people who were most directly responsible for the propelling the bubble.

The elite economists tell us that even if this idea might offend our sensibilities, it is the only way to get the economy going again. This is where a little basic economics would be useful again.

(snip)

In other words, the arithmetic shows that a bank fix, while desirable, cannot possibly be sufficient to offset the collapse of the housing bubble. If our priority is to save the bankers from suffering the consequences of their own mistakes, then it makes sense to throw all our money at them. But if the point is to fix the economy, then we have to look elsewhere.

Those of us who know economics recognise this fact. Those who insist on the bank-fix route should be asked one simple question: “When did you stop being wrong about the economy?”

The Philadelphia Shrinquirer on rising credit card fees:

Credit-card companies say they need to raise fees and interest rates, even on good customers, to recoup some of their losses from bad loans. But this is punishing customers who are not bad risks. And it comes at a time when money is especially cheap for banks, which can borrow from the Federal Reserve at virtually no cost.

In other words, the credit card companies say that they are entitled to the money because, well, they are entitled to the money.

They weren’t there. They had nothing to do with it. They didn’t see anything.

And they think the world owes them their houses in the Hamptons, just because, well, because.

To Wall Street people who have grown up in the bubble, the meaning of the crisis is only slowly sinking in. They can’t yet grasp the idea of a life lived on less. “Without exception, Wall Street guys have gotten accustomed to not being stuck in the city in August. So it becomes a right to have a summer home within an hour or two commute from Manhattan,” says the Goldman vet. “There’s a cost structure of going with your family on summer vacation that’s not optional. There’s a cost structure of spending $40,000 to send your kids to private school that is not optional. There’s a sense of entitlement, that you need that amount of money just to live, that’s not optional.”

It you really really like self-pity pr0n, follow the link and read the whole thing.

Via the Democratic Daily.

Noz stumbled over a gem of an idea. Follow the link to read it.