Masters of the Universe category archive

David Weidner at MarketWatch discusses what would happen if you were under water on your mortgage and went to the bank to apply for a second mortgage. Yeah, you’d get invited to leave after the laughter died down. But . . .

Here’s the difference between you and financial institutions. They want to rewrite the rules and say their house of mortgages is worth something, generally whatever they say it’s worth.

You can’t avoid the reality that your house isn’t worth anything in this market. If you should have a financial crisis — say, lose a job, for instance — that house does you no good.

The banks are in the midst of a financial crisis and their assets — all those mortgage securities and other junk — are doing them no good. Mark-to-market is forcing them to write that stuff to zero and get some real assets, preferably cash, into their coffers.

Banks don’t want to accept the truth homeowners have faced about their assets. The banks want to say their assets are worth something even though no one will buy them — at any price.

In a capitalist economy, and, despite the Republicans’ bleating about “socialism” (which does little more than reveal that they don’t know–or don’t want to admit that they know–what socialism is), this is a capitalist economy, things are worth what persons are willing to pay for them.

Assets should not be valued for today based on what somebody thinks someone else might be willing to pay for them at some mythical future date (computing the value of assets based on what someone may pay for them in the future is speculation, not valuation).

There is more to this than Wall Street Banks’ financial concern for not wanting to admit that they have rendered themselves insolvent.

There is the desire of Wall Street Bankers to continue thinking and trying to convince the world that they knew they are doing.

After all, who wants to willingly admit that they have been getting all those bonuses for all those years for blowing it?

The Booman, over there.

But not accountability, not in their rarified world.

“Is this America — when you do what your government asks you to do and then retroactively you also have additional conditions?” (Wells Fargo & Co. Chairman Richard) Kovacevich said. “If we were not forced to take the TARP money, we would have been able to raise private capital at that time” and not needed to cut the dividend to preserve cash, he said.

And just who “forced” them to take the damn money. They want the candy bars, but still don’t want to clean their damned rooms.

I must end this before violating my own ban on extreme profanity.

To other Masters of the Universe:

American International Group revealed on Sunday details of $105 billion of government funds that it paid to U.S. and international banks including Goldman Sachs, Deutsche Bank and Societe Generale.

The cash paid to AIG’s so-called counterparties was used to cover collateral payments, cancel derivatives contracts and meet obligations at its securities lending business.

Now majority-owned by the government, AIGhas received
more than $170 billion in bailout funds to keep it in operation since mid-September, when it found itself on the verge of collapse.

Back in the boys’ locker room in high school, we had a word for this.

Warning: Language

Oh, my goodness. Citi is helping Iraq learn how to do banking.

Beyond education and culture, in the field of economy and services, it’s worth noting that representatives of U.S. banks, JP Morgan and Citibank and others came to Baghdad on January 28th, participated in an international banking conference that explored correspondent banking relations that would deepen commercial ties between Iraq and the international community, business community. Citibank has already established correspondent relationship services agreement with Iraq’s Warka Bank that allows clients of both banks to execute cash payments, wire transfers and trade transactions to both corporate and retail entities in all Iraq’s cities and provinces.

That’s like learning how to hunt roadrunners from Wile E. Coyote.

Via Harry Shearer.

“Pay for performance.”

What goddamn performance?

Man, I’d love a job like that, one where I could get even a little bonus, say, just a measly $500k, for destroying equity, running a company into the ground, and generally being incompetent.

Only on Wall Street or in Congress, I guess.

James Saft on Reuters (emphasis added):

Suspending mark-to-market accounting immediately as a means of levitating banks out of peril simply won’t work. While transparency may or may not be the foundation of banking, trust undoubtedly is.

“Adjusting” or suspending fair value accounting, even if you swear up and down that this time it’s even more fair will erode rather than build trust and repel rather than attract capital.

(snip)

The problem facing the banking industry is not just solvency on some accounting or regulatory basis, it is solvency on, for want of a better phrase, a solvency basis. Thus banks are unwilling to do business with one another and investors unwilling to lend banks money or invest in them. They do not reliably know who is bust and who is not.

Folks, underneath all the Wall Street double-speak and the complexities of double-entry bookkeeping, this stuff really isn’t rocket science.

The banks are like the guys who keep feeling that radiating pain in their chests and down their right arms.

They’re trying to force the doctor to diagnose it as heart burn, when it’s heart attack.

It appears that the FDIC didn’t nationalize take over any banks this week.

Penny-ante shenanigans.

Also known as “fair value rules,” mark-to-market is an accounting standard that requires banks and other corporations to assign a value to their assets, such as a mortgage-backed security, based on the current market price.

Proponents of abolishing or modifying the rules say that assets owned by troubled banks have become impossible to value, as the market for these assets have disappeared due to the financial crisis. Uncertainty about what banks such as Citigroup Inc. are worth, they argue, is at the core of the financial crisis.

However, opponents of any changes contend that the rules are necessary because shareholders deserve to understand the troubled state of banks. Banks could provide fuzzy accounting and commit fraud without the standard, they say.

The reason that financial types want to abolish or modify the rules as regards “assets owned by troubled banks (that) have become impossible to value” is that they do not want to admit that those “impossible to value” assets can indeed be valued.

They are bleedin’ worthless.

Tell me, would you buy a share in a “securitized mortgage-based bond”?

Of course not. Neither will anyone else.

In a capitalist system (regulated or not), something that no one will buy is something that is worthless.

As soon as balance sheets are altered to show that that crap is really crap, it will be obvious that the Masters of the Universe who hung their hats on those securitized boxes of air–and their companies–are worthless. Those “assets” have no intrinsic value and are not worth a bucket of warm spit.

So of course the Masters of the Universe want to change the rules.

Lack of transparency is their best friend.

Addendum:

The Huffington Post has more.

[EDITORIAL MODE ON]

(As if it were ever off in these parts.)

Didn’t I call it? These guys couldn’t run a Girl Scout cookie stand. If they did, the customers would get home to find their cookie boxes full of air, even though the balance sheet said “Thin Mints.”

[EDITORIAL MODE OFF]

A email for lil ole me? From my zombie mortgage company? With “Confidential” in the subject line?

Better look.

Read more »

I have discussed “leverage” before.

It is the practice of buying stuff with money you don’t have, holding on to it for a while, and then selling it for more than you paid for it, so you can pay off the money you borrowed to make the initial purchase and keep the difference.

Until recently, being “deeply in debt” was bad, but being “highly leveraged” was good, at least on Wall Street. The primary difference seems to be that normal working folks were “deeply in debt”; persons with private jets were “highly leveraged.”

Sort of like Flip This House, only it was Flip This Company. Problem is, it only works as long as the bubble keeps expanding.

Not so much expansion any more:

Bain Capital LLC, which has made more than $100 billion of investments since its founding in 1984, has hired restructuring specialists AlixPartners LLP and Miller Buckfire & Co. to help salvage its $3.2 billion 2007 takeover of Tampa, Florida-based OSI Restaurant Partners Inc. The company, which owns the Outback Steakhouse chain, is struggling with declining revenue and a 30-fold increase in losses during the worst economic crisis since the Great Depression.

Boston-based Bain isn’t the only leveraged buyout firm trying to bail out its investments. Apollo Management LP and Blackstone Group LP are employing an arsenal of tools, including debt exchanges and equity infusions, to rescue leveraged buyouts, such as Freescale Semiconductor Inc. and Realogy Corp. After spending a record $1.2 trillion on acquisitions during 2006 and 2007, LBO firms are now focused on deal-saving, not dealmaking.

.

1 : the act of vilifying : abuse
2 : an instance of vilifying : a defamatory utterance

Backtracking:

vil·i·fy

1 : to lower in estimation or importance
2 : to utter slanderous and abusive statements against : defame

Bloomberg:

Jamie Dimon, chief executive officer of JPMorgan Chase & Co., said the U.S. can rescue its banking system by the end of the year if officials start cooperating and stop the “vilification” of corporate America.

Dictionary of Frank:

vi-li-fy

to make a villain of

Too late. No one can do it to them. Did it to themselves.

These bozos just don’t see what they have done with their boxes of air.

They still think they are the Masters of the Universe, as opposed to the buffoons of wankery bankery.

But it was only a paper money sailing over a credit card sea:

Private equity company Blackstone Group LP (BX.N) CEO Stephen Schwarzman said on Tuesday that up to 45 percent of the world’s wealth has been destroyed by the global credit crisis.

“Between 40 and 45 percent of the world’s wealth has been destroyed in little less than a year and a half,” Schwarzman told an audience at the Japan Society. “This is absolutely unprecedented in our lifetime.”

From the Toimes, in a review of House of Cards: A Tale of Hubris and Wretched Excess on Wall Street, By William D. Cohan:

Nobody could have predicted. Except that lots of people did:

Two things stand out in Mr. Cohan’s narrative. The first has to do with just how worried some Wall Street analysts and the federal government were about the liquidity crisis and the possibility of a dominolike collapse in the world financial markets in March 2008, six months before things really began to slide out of control in the fall, and just how many earlier warning signs there were in 2007, 2006 and even 2005 about the housing bubble and subprime mortgages. The second has to do with the power of the so-called butterfly effect (in which the flapping of a tiny butterfly’s wings can lead to a gigantic storm) in a globalized, interconnected world, where rumors fly around the planet by television and the Internet, where automated computer programs can magnify or speed up trends, where bad decisions made by a handful of powerful people can ricochet through a company or industry.

H/T Alison for the link.

“Mark to market” is Wall Street double-talk for valuing assets at their current market value. A number of firms have diddled their balance sheets by not marking assets to market. Rather, they have been valuing them based on some arbitrary number from the past.

It should surprise no one that the arbitrary number from the past is almost always higher than the current market value of the assets. “Wall Street Analysts,” the high gods of the financial system, winked at this fraudulent less-that-full disclosure accounting technique because, well, the bubble kept expanding and commissions were plentiful.

Now that the bubble is kaput, Wall Streeters are suddenly concluding that falsifying misrepresenting fudging not updating the value of assets maybe isn’t such a good idea.

The world’s biggest maker of jet engines and power turbines (General Electric-ed.) told shareholders last week that 2 percent of GE Capital Corp.’s assets are being valued based on market prices. The remaining $624 billion is being carried at levels that GE, the last original member of the Dow Jones Industrial Average, established in many cases years ago, according to CreditSights Inc.

“The notion of having 98 percent opaque and 2 percent valued with clarity is something that by its very nature would make investors nervous,” said Robert Arnott, founder of Research Affiliates LLC, which oversees $30 billion in Newport Beach, California and owned 481,201 GE shares as of Dec. 31. “Having some clarity on what the other 98 percent is worth is valuable.”

“Tell me the story again, Daddy. You know, the one about how Big Bad Regulation stays Prince Free Hand of the Market.

“Daddy, I like fairy stories.”

Standard and Poors debates whether to kick some banks out of the Standard and Poors 500 (which is now on worth a dollar three-eightly anyway).

If the index committee at Standard & Poor’s decides to remove embattled financial stocks from the blue-chip benchmark, it could push the shares even lower, as index funds sell to reflect the index changes.

“In the S&P 500, four financials rank within the bottom 10 companies in the index,” wrote Melissa Roberts at Keefe, Bruyette & Woods in a research note.

(snip)

S&P says the (index) committee’s goal is to ensure that the S&P 500 is a leading indicator of U.S. stocks, reflecting the risk and return profile of large-cap shares. The committee also considers a stock’s liquidity and tries to limit turnover.

In plain language, this means that S&P is wondering whether the banks in question (Developers Diversified Realty Corp., E-Trade Financial Corp., Huntington Bancshares Inc., and MBIA Inc.) are so crippled that there’s almost no hope for them.

A share of Citi.

Reuters has more.

So say the Masters of the Universe. They had to have their cuts, not just their tax cuts.

More than a dozen Wall Street trading firms systematically cheated their customers of millions of dollars by improperly slicing bits of profit from countless trades, federal regulators said on Wednesday.

(snip)

The 14 firms named in the complaints are all “specialists,” trading firms that have a specific duty to maintain orderly markets by matching buyers and sellers and standing ready to conduct trades when buyers or sellers are scarce. They include units or subsidiaries of well-known Wall Street names, including E*Trade Capital Markets, Goldman Sachs Execution and Clearing, Knight Financial Products and TD Options.

Via the Huffington Post.

Via Southern Beale, who comments:

Harvest?? Are you kidding me? Like the way we “harvest” a cadaver for organs? So, you folks who worked for AmPad, Sensata Technologies, and CSI: you were “harvested” for the sake of Bain’s profits. Hey, Randy Johnson of Marion, Indiana — you and your fellow employees just got “harvested.”