Monday, June 6, 2011

I May Be Piling On, But they Deserve It!

The White House and the Congress deserve a heap of scorn for what they are not doing, which is not passing debt relief and a federal budget which cuts our too fat federal budget.

Why are they waiting until 2013, as seems to be the bi-partisan rallying cry?

“Answer, answer, class, class?”

Because most of these craven public officials will have faced the electorate in 2012 with no tough votes on their record and an ability to spin and blame the “other side” or somebody else for Washington’s spineless foot dragging.

Look, my Democratic stripes have been slowly fading as I watch this obscene Senate choreography with no real votes scheduled by Harry Reid, who’s trying to “protect Democratic seats.”

If the barely D controlled Senate fails to act on these vital issues and just “turtles,” because they can’t read the political winds correctly, what the hell good are they?

They all should lose their elections, as well as the waffling R’s, so we get enough people in office who will act.

Frankly, I was hoping that Speaker John Boehner could control his gaggle extreme righties, channel their energy, and get them to support some serious cuts, yet stay within some modicum of reason. That story has yet to be written. But—for now—JB’s on the run, not in control.

That leaves President Barack Obama. BTW, good job Mr. President on the “execution” of the Bin Laden plan, literally speaking.

The President’s support is up. While there always will be 40% of America who never will like or back him, that still leaves a big swath of the country and its voters who will rally behind a plan that fairly cuts the budget (yes, including the entitlement programs D’s love) but also ends the Republicans’ favored tax giveaways.

Lead, President Obama, please lead!

Someone has to try and expose this “getting reelected is the only thing that matters” horse manure, which both parties are displaying to the nation’s disadvantage and produce someone substantive federal policy changes and needed savings and it looks like you’re that person.

Oh and Then There Are the Big Banks!!!

Gretchen Morgenson writes a sophomoric book about Fannie Mae, Jim Johnson and the 2008 financial debacle.

The AEI’s Peter Wallison and, now, Ed Pinto kill hundreds of trees with their ranting about Fannie Mae and mysterious subprime loans, which turn out to be loans of their own invention and categorization. And I try and call attention to how the Bush and Obama Administrations, as well as the Congress, are serving the ultra large financial services companies, which haven’t done squat for the American people, but have done much “to” the American people.

Who is keeping and eye on the Banks?

Thanks to my friend and former colleague Gwenn Hibbs, the now retired financial services lawyer, who I once praised as someone who “can do more with two commas than most lawyers can do with two sentences,” I have some corroborating intel which argues the public is getting screwed by the banks.

The big banks are being aided and abetted by all of those congressional folks who think that unbridled bank authority to lend--and control whatever aspect of our national economy they can reach--is good public policy.

How can anyone who claims they are upset over the former GSEs not go catatonic when they read some of the work from—of all places--the ultra boring and conservative (not ideologically) Congressional Research Service (CRS), not exactly some left wing or right wing nut factory, which recently opined on bank perfidy.

I’ll just link the b-o-r-i-n-g CRS report and reprint some juicy comments from the blog world, commenting on the CRS findings.

Maybe this will wake up some of our blinkered congressional bank lovers, who think these huge subsidized financial beasts are somehow “private sector” and impervious to wrong doing.

As Gwenn Hibbs put it succinctly: "The points made by a number of bloggers and Fox Business News (!!) re: the CRS report is the inescapable conclusion that banks made huge trading profits by arbitraging the various credit facilities and then purchasing govt. bonds and MBS. That money did not go to promote economic growth or help underwater homeowners, or to address massive fraud by banks in the foreclosure process – it went straight to the banks’ bottom line in order to help them grow out of their toxic asset problem and give the appearance of having adequate capital. Not to mention huge executive pay packages."

Congressional Research Service Confirms Big Banks Borrowed Cash For Next To Nothing, Then Lent It Back to the Federal Government at Much Higher Rates

Here is the link to the CRS report.,

And, here are some blogosphere comments on the work.

Via The Big Picture by Washington’s Blog on 6/4/11

As Shahien Nasiripour reports, the Congressional Research Service has just confirmed what As I’ve noted for years, the government has been guaranteeing that the big banks make money at taxpayer expense by loaning money at very low interest rates, and then letting the banks loan the money back to the government at much higher interest rates.

“The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks,” said Christopher Whalen, managing director of Torrance, California-based Institutional Risk Analytics. “It’s a transfer from savers to banks.”The trading results, which helped the banks report higher quarterly profit than analysts estimated even as unemployment stagnated at a 27-year high, came with a big assist from the Federal Reserve. The U.S. central bank helped lenders by holding short-term borrowing costs near zero, giving them a chance to profit by carrying even 10-year government notes that yielded an average of 3.70 percent last quarter.

The gap between short-term interest rates, such as what banks may pay to borrow in interbank markets or on savings accounts, and longer-term rates, known as the yield curve, has been at record levels. The difference between yields on 2- and 10-year Treasuries yesterday touched 2.71 percentage points, near the all-time high of 2.94 percentage points set Feb. 18.

Harry Blodget
The latest quarterly reports from the big Wall Street banks revealed a startling fact: None of the big four banks had a single day in the quarter in which they lost money trading.

For the 63 straight trading days in Q1, in other words, Goldman Sachs (GS), JP Morgan (JPM), Bank of America (BAC), and Citigroup (C) made money trading for their own accounts.

Trading, of course, is supposed to be a risky business: You win some, you lose some. That’s how traders justify their gargantuan bonuses–their jobs are so risky that they deserve to be paid millions for protecting their firms’ precious capital. (Of course, the only thing that happens if traders fail to protect that capital is that taxpayers bail out the bank and the traders are paid huge “retention” bonuses to prevent them from leaving to trade somewhere else, but that’s a different story).

But these days, trading isn’t risky at all. In fact, it’s safer than walking down the street.


Because the US government is lending money to the big banks at near-zero interest rates. And the banks are then turning around and lending that money back to the US government at 3%-4% interest rates, making 3%+ on the spread. What’s more, the banks are leveraging this trade, borrowing at least $10 for every $1 of equity capital they have, to increase the size of their bets. Which means the banks can turn relatively small amounts of equity into huge profits–by borrowing from the taxpayer and then lending back to the taxpayer.
The government’s zero-interest-rate policy, in other words, is the biggest Wall Street subsidy yet. So far, it has done little to increase the supply of credit in the real economy. But it has hosed responsible people who lived within their means and are now earning next-to-nothing on their savings. It has also allowed the big Wall Street banks to print money to offset all the dumb bets that brought the financial system to the brink of collapse two years ago. And it has fattened Wall Street bonus pools to record levels again.

Paul Abrams
chimes in: To get a clear picture of what is going on here, ignore the intermediate steps (borrowing money from the fed, investing in Treasuries), as they are riskless, and it immediately becomes clear that this is merely a direct payment from the Fed to the banking executives…for nothing. No nifty new tech product has been created. No illness has been treated. No teacher has figured out how to get a third-grader to understand fractions. No singer’s voice has entertained a packed stadium. No batter has hit a walk-off double. No “risk”has even been “managed”, the current mantra for what big banks do that is so goddamned important that it is doing “god’s work”.

Nor has any credit been extended to allow the real value-producers to meet payroll, to reserve a stadium, to purchase capital equipment, to hire employees. Nothing.

Congress should put an immediate halt to this practice. Banks should have to show that the money they are borrowing from the Fed is to provide credit to businesses, or consumers, or homeowners. Not a penny should be allowed to be used to purchase Treasuries. Otherwise, the Fed window should be slammed shut on their manicured fingers.

In the next blog, more evidence and outside commentary that further bury the Wallison, Pinto, Morgenson “Fannie fantasy” lending theories.

Maloni, 6-6-2011

(Happy 74th birthday to the late Louis G. Maloni, my only sibling.)


Anonymous said...

You are filling a vital financial "reporting" void.
Keep pounding away!

Bill Maloni said...

Oh,and I thought that "pounding" was the sound of my head hitting the wall, but thanks for the support.

Anonymous said...

I am a new reader so you may have addressed this in earlier writings.
My senior citizen memory recalls that in the 1986 tax reform act there was a specific provision to expand the role of MBS in the mortgage market. I do not recall that it was specifically designed by or for Fannie but rather was most aggressively pushed by wall street firms that wanted a bigger role in the MBS world. Could this have been a door opener for the private issues of mbs? Might this have been an unintended result in leading to the ultimate spoiling of the mortgage market?