SNL Financial came out with a report today that said 90 banks have missed at least 1 TARP dividend payment, that is about 11% of all TARP recipients have defaulted for those of you keeping count. Keep in mind that about 829 institutions received TARP funds and about 50+ have repaid TARP funds, mostly the big name institutions that we all know and love. What is critical to note is that the defaults, I would call missing a payment a default since banks call a borrower who misses a payment to be in default, are increasing, not decreasing, as we approach the 2 year anniversary of the historic TARP legislation.
What that tells me is that not everything is fine when we are 2 years into the largest bailout in the history of bailouts and we have banks defaulting, remember only the “strongest banks” were getting bailed out, and bank closures accelerating as well. All of this while the pundits talk about “the greatest V shaped recovery in history” which is laughable. If we were in recovery mode wouldn’t these banks be earning their way out of this mess? They have the greatest accounting gimmick, mark to model, at their disposal and they are defaulting and being taken over by regulators at an increasing rate, how can that be? Perhaps the system is not as strong as we are told, that sounds about right to me.
We have to face the facts and the fact is that the data does not lie, banks are defaulting and failing. Real estate prices, both residential and, especially, commercial are falling which means more problems for banks. The banking industry as a whole is much larger than Citi, Bank of America and JP Morgan, and I am hard pressed to make the statement that those banks are largely benefiting from proprietary trading, government bond underwriting and the ability to mark to model. In other words, the bailout failed with the exception of the too big to fails and, as we already knew, the bailout was really just a selective bailout anyhow. How could Bear, Sterns be allowed to be acquired, but Lehman fail? Just days after Lehman fails AIG gets bailed out, the proof is pretty overwhelming about the selectivity of the bailouts, in my opinion, and TARP was designed to make the big banks flourish and the rest of the banks, well who cares because no one cares about the rest of the banks. I mean, who ever heard of Midwest Banc Holdings anyhow, except for the depositors.
So, as the ECB gets ready to release useless stress test results, which I am sure will show Greek and Spanish banks in trouble, but everything else hunky dory, consider the fact that our stress test and bailouts were completely and utterly useless. In other words, if you cannot trust our results, it has taken almost 2 years for the failures to show up, how can you trust the ECB’s results? Geithner knows this which is why he pushed for the stress test. He knew you can fool the markets for a little while with useless stress test and a seemingly huge bailout fund. However, the results cannot be hidden forever and our results are public, for those willing to look for the statistics, and prove that their strategy just kicks the can down the road and still leads to failure. Unless you consider accelerating defaults and closures a success, I am sure some talking head somewhere will see it as a stunning success, but in the real world most people see escalating failure for what it is, failure.
I am what some would lovingly, or not lovingly, call a gold bug, but I find that term somewhat offensive. I simply believe in precious metals based on supply, demand and the Federal Reserve’s horrible track record of continually printing money. Essentially, if precious metals guard against inflation and the Fed tries to keep inflation at +2-3% a year it just makes sense to have some money in precious metals under normal circumstances, but add in a little financial crisis and demand far exceeding actual supply and metals are a sure thing, in my opinion.
Ever since I first decided to research gold and silver, those were the first metals I ever bought, I found countless threads and blog posts about the price being manipulated by the Fed and major banks. I figured that most of this was just rhetoric by my fellow bugs, but after awhile it started to make sense. Of course, there was never any real proof, just USGA reports showing the U.S. exporting way more gold than it imported and COMEX inventory reports showing far more metal being traded than could ever be delivered. There was also some obscure Federal Reserve minutes, from the 1970’s, talking about selling gold on the open market to suppress the price. Finally, there was Greenspan saying that the Fed was ready to sell as much gold as it could to drive the price down, which makes sense since gold did poorly in the 1990’s while money supply grew at an unprecedented rate.
It was all very interesting, but there was no actual proof. Sure, we had GATA with their data points and going to the CFTC to lodge complaints, but nothing ever was done. It finally appears that the rumors and conspiracy theories may have been right after all. Last week GATA dropped a bomb on the public by announcing it had a whistleblower that proves JP Morgan and other banks are suppressing the price of gold and silver.
Andrew Maguire, the whistleblower or Exhibit A, sent a few emails to the CFTC shortly before the non-farm payroll data was released a couple months ago. Mr. Maguire clearly outlined, 2 days in advance, that JP Morgan (JPM) was shorting silver in the thinly traded after hours market driving the price down. He told the CFTC that there were 2 possible outcomes, the payroll numbers would be good and silver would go down or the payroll numbers would be bad (which is bullish for metals) and the price of silver would go down. Sure enough, 2 days later, the price plummeted and Mr. Maguire traded emails again to ensure the regulator received them, he did.
It appears that an investigation is being started which would be the first manipulation investigation since the Hunt brothers 3 decades ago. What is striking is that one of the largest banks in the world has been implicated in what could turn out to be the manipulation case of the century, if the claims are true, and no media source has picked it up. I even brought it to a reporter friend of mine for a lead, after days of not hearing anything, not even from CNBC, but nothing yet. If this is true there are large implications for the precious metals market and it is very bullish.
I always figured that if the price was being suppressed, more sellers than buyers, eventually the gig would be up because you cannot sell more than you have forever. Eventually someone will want their metal along the way which means the banks would have to deliver and buy it in the open market. If that happened the price would go through the roof, but, again, this was all speculation until the whistleblower came forward. Somehow, I know this might be hard to believe, I am sure the CFTC will find no wrong doing anywhere and everything will continue back to the way it was, dysfunctional, but if the allegations are true prices will surely rise rapidly.
It is crazy to think that silver, especially silver, would be trading so low considering it is rarely recycled and silver is used in everything from the common mirror to your cell phone. By all accounts most of the easy silver has already been mined and new mines are just coming online now, but they take a long time to get into full production. Let us not forget that silver is usually mined s a secondary metal to begin with, usually gold or copper is the primary metal being looked for. I have seen some estimates that silver reserves will be depleted in 5 years, but no one really knows and that is an aggressive figure to say the least. What I do know is that silver is in high demand, above ground reserves are declining and governments used to be net sellers of the metal, but now are net buyers of it, all of this is very bullish. My point being is prices are cheap and regardless of whether these accusations are true or not one should hold some precious metals in their portfolio, silver being a core holding.
In a story from the New York Times Goldman Sachs is at the heart of yet another financial crisis, Greece and some of the other PIIGS. The firm, apparently, helped Greece raise a substantial amount of money secretly in order to avoid the EU from knowing the country was violating the debt to GDP ratio. While I am not a regulator and my opinion is worth whatever the reader thinks, in my opinion Goldman, the Vampire Squid, is guilty of several EU rules and should be banned from doing business in the Euro Zone. The firm should also disgorge all fees paid to them for helping Greece bamboozle the world.
Goldman clearly suffers from a lack of a conscience and needs to attend business ethics training, although if you need to learn about ethics chances are you simply have none, as they clearly would sell their soul for a few million in fees. I agree that Goldman Sachs probably has the best f the best working for them, but that does not excuse the fact that, apparently, the firm helped a country violate rules and hide their reckless spending. At the core of the problem is also another familiar financial product, derivatives.
Apparently Greece, in order to keep spending, also sold their rights to airport landing fees, roads and lottery revenue in return for short-term money upfront which lowered their deficits in the near-term. Many of these deals were done in the early 2000’s which begs the question, what else is Greece and, apparently, Italy hiding? It also begs the question of what else has Goldman been up to? We know that Goldman went to Greece to help with a solution to their problems, which means kick the can down the road while sucking the remainder of Greece’s blood, but Greece said no to their plans.
Unfortunately, the story about Greece seems to be getting worse and worse as more details come out. As more of the story comes out I have a feeling we will learn more about Goldman’s and JP Morgan’s involvement in this deceitful tale. One also wonders if the US has also participated in such shenanigans as well. At this stage of the game, with the close ties Goldman has with Treasury, would it really surprise anyone if the US engaged in idiocy like the Greece government?
What is most disturbing about this whole story is the fact that Greece basically sold off their public entities to a firm like Goldman and JP Morgan. Essentially, those public utilities, which is the best description of what Greece gave as collateral, revenues would go to these banks. Along with that disturbing piece of financing news we also find out that if Greece takes a bailout the population will be forced to give up part of its sovereignty as well. How would you like to be a citizen of Greece knowing your Politian’s sold your sovereignty out in secret to private banks and now to the EU.
If there is a moral to this story it is why is Goldman allowed to exist at all? They clearly provide no real value to society or even governments as they made it so Greece could sell worthless bonds to foreign governments. This is also the second time the world is witnessing a credit crisis with a major US bank, Wall Street if you will, creating the mess or at least adding to it. Goldman and JP Morgan literally threw gasoline onto the fire in the case of Greece and, perhaps, Italy as well. How can we trust a firm who consistently knows how to make money for themselves, but screw everyone else? At the end of the day, why should Goldman exist at all?
According to a Bloomberg article the Too Big to Fail Banks are crying over higher capital requirements that would take effect next year. I am sure your hearts, like mine, go out to these institutions as they struggle to scratch out a living, it is tough when the industry can only payout some $140B in bonuses for 2009 when they wanted $150B, but hey, we are all sacrificing aren’t we? The institutions are requesting a 3 year period to phase in the new requirements instead of doing it all at once and, once again, they are putting the gun to America’s head threatening the economy and the, cough, cough, recovery if their wish is not granted.
The threat is that lending, as if there is any to begin with as banks are buying some $1.2T in US government debt, would cease as it would impact securitization of consumer debt. First, let me explain what is happening and why they are fighting these new regulations, then you will see what the real agenda is and why they are fighting for a phase in period. As many of you know, banks have off-balance sheet accounts called all sorts of things from SIV’s, Special Investment Vehicles to Qualifying Special Purpose Entities, these gems are where banks move their products of questionable quality to be sold or securitized. Now, the rule is past and the asses are coming on the boost, period. The question is how fast will the assets come on the books, now or over 3 years.
Lehman made them famous because they did the granddaddy of all accounting sleight of hand tricks and would sell their CDO’s to their SIV’s and then report the sale as a profit, not bad, huh? It works until the value of these things completely blows up, see September of 2008 for the results. Well, the FASB in conjunction with Fed and FDIC want to move these off balance sheet items to the balance sheet, finally! This way, you the investor, can value the bank properly because you can see the “assets” or lack thereof in the day light. Now do you understand why the banks are fighting this move?
The banks want a 3 year window for the assets to come onto their balance sheets, I think you know why, but I will tell you anyhow. If the assets came on all at once it might break their balance sheets and a portion f these banks could fail or require more government assistance, we know this. However, my feeling is so what? Let them fail, do we really need a Citi Group or Bank of America or any other too big to fail bank anyhow? No, we don’t as there are plenty of banks to fill their shoes. Frankly, these institutions should not exist anyhow and they are not really lending, sorry FHA loans do not really count as lending.
These new assets are a significant problem, I am not saying they are not, but this is what the industry did to itself. Wells Fargo claims that every $1B it brings on in new assets will crowd out $15B in new loans. This sounds an awful lot like last year when the industry put a gun to its head and said save us or we will pull the trigger and take you with us. I don’t like it and I don’t buy it, sorry. Let them go and do it now. Cram down the rule on them without a phase in period at all and while you’re at it reinstate mark-to-market so we can truly value the bank’s assets. I know the ramifications and I am willing to accept them as I am tired of this one industry that blew up the whole world still wielding all this power over us when they should be begging for forgiveness. Just to fuel the fire, here is what John Gerspach from Citigroup and JP Morgan wrote:
Citi:
“We do not plan to reduce lending in only those businesses specifically impacted by the incremental regulatory capital requirements,” Gerspach wrote.
JP Morgan:
The capital requirements “will have a significant and negative impact on the amount of consumer-conduit funding that will be made available by U.S. banks,” said the letter from JPMorgan, the New York-based bank that this week reported its biggest quarterly profit since the subprime-mortgage market collapsed in 2007.
“We strongly support a phase-in period for the rule changes,” according to JPMorgan’s letter, which was signed by Managing Director Adam Gilbert.
These statements sound like threats to me, don’t they? To me they sound like they are going to reduce lending to every business line, which is surprising since they are not really lending anyhow. So, record profits are rolling in while they are clearly hiding huge losses offshore, which is what it looks like to me at least, but we will not know until we see what is there. However, if they are made to put these assets on their balance sheets all at once, they will bring down the house of cards all over again, how convenient.
Regardless of what happens the change will have to take effect for annual reports on November 15, 2009. Guess what I will be doing on that date? Hopefully the same thing you will be doing because this is a big deal.
Capmark filed for bankruptcy tonight, which was not surprising, but it this will create a stir in the markets on Monday. It marks me happy that I am short as hell, but I am sure this is spun as some sort of green shoot, on CNBC at least.
Capmark, created out of the commercial real estate arm of GMAC, was negotiating with its creditors, Citi and JP Morgan, but apparently, that did not go as planned. The move also wipes out private equity stakes from KKR, Goldman Sachs Capital Partners and Five Mile Capital which bought Capmark for $1.5B in cash and $7B in debt. KKR already wrote down their investment in this company.
According to the bankruptcy filing, the group owned 75.4 percent of the company while GMAC, or the General Motors Acceptance Corp, owned 21.3 percent. Employees and directors owned most of the remaining stock. Equity investors are typically wiped out in bankruptcy.
Capmark listed $20.1 billion in assets and $21 billion in liabilities as of June 30, 2009 in the bankruptcy filing, which was made in U.S. Bankruptcy Court in Wilmington, Delaware.
Pretty interesting for a Sunday night and I guess this confirms the rumors about the commercial real estate business being just fine…
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