Monday, May 11, 2009

Signs of the Times

The front yard is having an entirely new lawn installed and today was day 1 of the process. The old lawn was bad off, the yard look tremendous with just the new loam! Tomorrow the hydroseed goes in and in a few weeks things should be looking pretty good.

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
-regulate banks
-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.

11 comments:

getyourselfconnected said...

This post was missing for a minute so I reposted. I hope it stays put!

Lisa said...

Looks like you got everything covered here tonight. Just the usual War on American Business. A friend sent me the video, it was nice to scoop Karl and Zero for a change :)

P.S. you do know that the grass has to be mowed, right? LOL Rock and cacti seem so much easier.

Anonymous said...

JEKYLL ISLAND, Ga , May 11 (Reuters) - U.S. Federal Reserve Chairman Ben Bernanke on Monday said the dollar would retain its dominant role as the world's reserve currency, and strong U.S. economic growth would ensure the currency's exchange rate value.
http://tinyurl.com/q6qux8

I'm getting so tired of the crap being spewed by this clown I can hardly stand it and he's speaking out of Jekyll Island, GA the birth place of the FED at that.

Kevin

getyourselfconnected said...

Lisa,
congrats on the front run on that video; you had it first and I appreciate the find.
Kevin,
Bernanke, Geithner, and Obama are waering really thin on me at this point. If all was well we would not need to se those clowns every day/night telling us bedtime stories.

david said...

No monopolies outside of the banking system!! haha

Here's a quote i saw on jsmineset.com

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up home-less on the continent their fathers conquered."
–Thomas Jefferson

Stagflationary Mark said...

GYSC,

"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."

I don't know why you are so concerned about the stock market. The S&P 500 is only up about 35% from the bottom roughly two months ago. At today's 0.16% interest rate on "safe" three month treasury bills, you can easily earn 37.7% in just 200 years of compounding. No joke.

Risky 2 Months = Safe 200 Years

Nothing seems even remotely out of whack. It probably happens all the time. 1200-1 leverage alone would do it.

I'm reminded of the housing market. You could make money SO much faster by taking on risk than you could by embracing safety. It was absolutely insane. At some point, nearly everyone was doing it. Heck, it wasn't even necessarily your risk you were taking on. Picture those buying homes without even having a job. Good times.

Too much sarcasm? I think I might have slathered it on a bit too thick this time. ;)

Anonymous said...

Mark

Is slathering kind of like drooling? I don't have a dictionary handy but it seems like they may be close to the same thing.

Kevin

GawainsGhost said...

Ha! So, you want to call me out by name and say that you're not going to engage in the Star Trek vs Star Wars debate, do you? Well, I'm not going to let that slide.

You had to be a kid in the 60s when Star Trek first aired on television. Those shows were rivetting. And it really is amazing how influential they really were in terms of technological development.

Take the cell phone, for example. What is it but a communicator? The one I have flips open, just like the real thing, and I can say, "Kirk to Enterprise. Spock! Spock!" anytime I want. Great fun.

When I was an undergraduate at The University of Texas, I took a course titled Philosophy of Communication and Culture. It was a survey course on television shows and movies, and how they influenced culture. We watched The Godfather, The Exorcist, Taxi Driver, The Shining, and a couple of other films, then discussed how they were reflective of and influential on American culture. We also watched episodes of television shows like All In The Family, The Jeffersons, The Brady Bunch, and a few others. And we spent a great deal of time studying commercials and subliminal messages in advertising. It was a fun and interesting course.

The professor spent an entire week on Star Trek, one of the most influential television shows ever. Just look at all the spin-offs it generated, Star Wars among them.

Get this. The Starship Enterprise = Free Enterprise. James T. Kirk = John F. Kennedy. The crew is indicative of the multi-ethnic American culture, with an African (Uhuru was the first main character portrayed by a black woman on television, by the way), a Scot, a Russian, a Japanese, a country doctor, and a Vulcan (a space alien).

The prime directive was to not interfere. But the Enterprise (America) always interfered, for the greater good and the expansion of the Federation (democracy). There were enemies--the Klingons (Nazis), the Romulans (the Soviet Union), and a whole host of others--but in the end, free enterprise and democracy always won out because of the superiority of American ideals, with a healthy dose of military strength (phasers, warp speed and photon torpedoes).

But what impressed me most about the show, after I got older, was the quality of the writing. (I am a literature major, after all.) There were episodes involving Shakespeare, Greek tragedy, Western literature, and good old American satire. "The Trouble With Tribbles" comes to mind.

Remember "The City on the Edge of Forever," the episode when Bones jumped through a portal, and Kirk and Spock had to follow him, went back in time to 1940s America where they had to allow the death of a female peace activist so the Germans wouldn't win WWII? That episode was written by Harlan Ellison, one of my favorite science fiction writers. That was quality television right there.

(Incidentally, Ellison's short story "A Boy and His Dog" was made into a movie, starring Jan Michael Vincent, and if you haven't checked it out, you really should.)

Yeah, I saw Star Wars when it first came out. Great movie, incredible special effects. The Empire Strikes Back was excellent as well. But Return of the Jedhi was about as disappointing as disappointing gets. What, Luke and Leiah are brother and sister, Darth Vader is their father, and through the Force they all become one big happy galactic family? Please.

Talk about failure to resolve conflict. But that's the ongoing trend these days, isn't it? Speilberg could have made a great statement about the battle of good over evil, about the primacy of freedom over tyranny, individualism over statism, capitalism over socialism. Instead he copped out and got sentimental. In other words, he sold out the Federation to the United Nations. We're all one big happy family!

Give me Star Trek over Star Wars any day. Kirk would have taken out the Death Star in no time flat. I mean, really, it had nothing on the Doomsday Machine.

Incidentally, to conclude this overly long post, and I apologize for taking up your bandwidth but some things just need to be said, and besides you called me out, isn't what is happening in America right now a parallel of the Star Wars vs. Star Trek debate? Style (special effects) over substance (quality writing).

These guys, Obama, Geithner, Bernanke, the whole Democratic Congress (Pelosi, Reid, Murtha, Franks, ad nauseam), they can talk a good game, but are their policies really what is best for the economy? The prime directive is not to interfere, but they're interfering. Not for the good of the country, but for the good of themselves and of the banks that prop them up.

This administration does not know what it's doing. Or maybe it does, wrecking the entire economy. Just like that episode in which the evil Kirk took over the Enterprise. The good Kirk had to go through hell to regain control.

Who is our good Kirk today? Certainly not on the Republican ticket, I'll tell you that for nothing.

Anonymous said...

May 12 (Bloomberg) -- China, which posted its slowest economic growth in almost a decade in the first quarter, issued draft rules for allowing non-deposit taking foreign institutions to offer consumer loans to its more than 1.3 billion citizens.

Foreign and domestic institutions with minimum total assets of 80 billion yuan ($12 billon) in the past year will be allowed to set up financing companies that provide consumers with loans for buying cars, appliances and other goods, according to draft rules posted on the China Banking Regulatory Commission’s Web site today. Companies must have at least five years experience in providing consumer loans and have been profitable for the past two fiscal years, it said.
http://www.bloomberg.com/apps/news?pid=20601110&sid=aNJ0gA_.QjV4

In search of the new debt slaves.

Kevin

Lisa said...

Gawains-I've never read a better comparison of Star Trek vs Star Wars. Sorry, GYSC, I'm with Gawains on this one.
Kevin- re: the Ticker. Agree. Take the money and run.

watchtower said...

@ GawainsGhost
Almost Thou Persuadest Me To Be A Trekkie : )

Just kidding, I like both, been looking forward to seeing the new movie but wanted to see it in IMAX.
Only problem is that the nearest IMAX theater is 3 hours away.