Thanks go out to everyone that left over 37 comments over the last two posts! That is easily a record for Economic Disconnect. There was plenty of information, fun, and auto talk mixed in. It was great to see that kind of participation. And no, I am not going to get into the whole "Star Wars" vs. "Star Trek" thing with GawainsGhost because there is no debate there!
Signs of the Times
It has long been a central theme here at Economic Disconnect that the concepts of "confidence" and "group think" makes up the backbone of our financial system. The header of this blog reads "Examining the disconnect between perception and reality" and this gulf must be maintained in order for the highly leveraged economic scheme to function. Tonight I will present several items that highlight just how bad a joke the situation had become.
Is Anyone Minding the Store at the Federal Reserve?
I first saw this video over at Lisa's Capitalist Preservation site. The footage was enough to make me want to throw up. Obviously many others feel the same way as this short clip made the rounds in a big way today:
Basic summary: The Federal Reserve, the most powerful central bank in the world, is tasked with handling US monetary policy. Market players have confidence that the FED can do all of the following at the same time:
-correctly set interest rates
-successfully target mortgage rates
-support the dollar as the reserve currency
-engineer an economic recovery after a one year recession
The monkey in the wrench (thanks John McClane) is on full display in the above video. Hugh level officials at the FED have basically no idea what they are doing, where much of the money they are printing is going, and have little to no interest in finding any of this out.
While the US taxpayer was said to be able to "profit" from such wonderful investment opportunities as Fannie Mae/Freddie Mac, FHA loans, and many other banking instruments only losses have been generated as of yet. Better still the FED has no real grasp of where the sea of backstops are going. I have every confidence the FED is in control. Don't you?
Banks Bludgeoned Fed Into $50+ Billion Of Stress-Test Concessions
Clusterstock has a good write up on the partnership of the Treasury/FED and the banks in coming up with stress test results that were sure to please all involved:
One reason the final stress test tab for the banks was lower than expected was that the banks persuaded the Fed to drastically reduce its estimate of capital shortfalls. Bank of America saved $20 billion this way. Citigroup saved $30 billion.
The other reason was that the regulators ended up using "Tier 1" capital as the solvency metric instead of Tangible Common Equity. According to some estimates, this saved the banks $70 billion.
So the banks were able to press the government to use favorable parameters for the capital need numbers. Move along, nothing to see here.
PPIP Program May not return 80-90% on the Dollar
The FDIC illegal backing of the PPIP program is yet another idea by the government that the taxpayer will reap huge profits by overpaying for crap assets. Certainly they are entitled to their opinion, but sometimes facts can get in the way. From Zero Hedge:
When Zero Hedge previously demonstrated the results of FDIC commercial loan auctions and the discount the Federal Deposit Insurance Corporation was willing to take in order to offload commercial loans (both non-performing and performing) from its books, the result was very startling, specifically when considered in the context of the vocal endorsement Ms. Bair had given to the PPIP's Legacy Loan program and the expected commercial loan clearing levels in the 80s and 90s. At that time Zero Hedge concluded that it was very hypocritical for the FDIC to solicit banks in offloading loans, and for hedge funds to buy them at out of market prices (especially with taxpayer-subsidized guarantees for hedge fund purchases, compliments of the administration, Geithner and Bair).
The facts: in April, the average auction clearing price on the 331 loans the FDIC sold in January and February was 49.3%. In March, the number of loans FDIC sold in various auctions increased almost four-fold to 1,328, for a total of $470 million in book values of sales, with the average price dropping even more: the latest being at 46.4%. So much for a stabilization in the commercial real estate market.
Missing by 100% the intended target is no big deal, at least not yet!
No Monopolies Allowed; Outside the Banking System that Is!
The Obama administration is gearing up to go after conglomerates using anti-trust laws. Economic Disconnect is a big fan of making things competitive, so I say go for it. One little problem: Application of a principle should not be sector specific. As with the handling of the automakers (send them to surgical bankruptcy stat!) was in total opposition of the handling of the banks (none shall fail) we see again that banks will be above any anti trust targeting.
Mish has all the details:
WASHINGTON (AP) -- The Obama administration warned corporate America on Monday that the government will more aggressively investigate big firms that hurt smaller competitors, contending that lax enforcement by the Bush administration contributed to the current economic troubles.
The move could have serious implications for two corporate giants, Intel Corp. and Google. Intel is already enmeshed in an antitrust case with European Union regulators, and Monday's change is seen as shifting the U.S. toward the European approach to anti-monopoly enforcement.
So the usual bad guys, Intel-Microsoft-Google, are too big making sure the mega banks survive at all costs makes sense. Never mind that there is and was a deep bench of regional banks that were ready to pounce as the big boys were collapsing and now they will never be able to compete with special FED protections for banks like BAC. Again, anit-trust is fine but the deciding to ignore some big companies while targeting others is hypocrisy.
That is just a few of the headlines and stories that caught my eye today. As I read during the day I sometimes feel like laughing at how absurd the news is. Then I check out the markets and they are usually going higher.
It seems like we have passed a secret threshold. Where those in the government and in the markets had to ration their baloney for fear of losing credibility, the new model is to put out so much outlandish baloney that the noise level is deafening. I think the markets have been charging higher because some fear missing out on a move up should enough people buy into all the hype and sleight of hand. Strange times indeed.
Have a good night.