Defaulting banks - where will it stop?

[Peter Lemkin]

It is going from tragedy to comedy now. American Express [your friendly credit-card company] has asked for and apparently will receive from every man, woman and child in the USA [even those who they refuse to give CC to] a $10/per person bail-out from their Uncle Sam.
Everyone BUT the average taxpayer can get a bailout - guess who is paying for this redistribution of wealth! I don't think this will stop - the average person will be homeless, penniless, and jobless soon. The rich will be all that much richer. Time for a counterattack in this class war. I sense fear and I sense disgust, but I don't sense anger - yet. Are the People only Sheeple? Will they do to the slaughter without doing a thing? Those who think Obama will save them - without enourmous pressure from below will be sadly disappointed very soon....and perhaps too late.

[Jan Klimkowski]

Ticker Forum's Karl Denninger with some technical analysis that MSM aren't sharing with ordinary folk:

Posted by Karl Denninger at 09:13
How Do You Spell "Liquidity Trap"?

Release Date: November 12, 2008
For release at 10:00 a.m. EST

On November 10, 2008, the Federal Reserve conducted an auction of $150 billion in 17-day credit through its Term Auction Facility. This was a forward auction designed to provide term funding over year-end--the awarded loans will settle on December 22, 2008. Following are the results of the auction:

Stop-out rate: 0.528 percent

Total propositions submitted: $12.629 billion
Total propositions accepted: $12.629 billion
Bid/cover ratio: 0.08

Number of bidders: 16

The awarded loans will mature on January 8, 2009. The stop-out rate shown above will apply to all awarded loans.

Institutions that submitted winning bids will be contacted by their respective Reserve Banks by 11:30 a.m. EST on November 12, 2008. Participants have until 12:30 p.m. EST on November 12, 2008, to inform their local Reserve Bank of any error.

http://www.federalreserve.gov/newsevents...81112a.htm

Note the bid-to-cover.

No further explanation necessary.

Well, ok, maybe there is one necessary.

Less than 10% of the available credit was drawn down.

Why?

Because when cash becomes competitive with short-term credit in terms of return (that is, cash yields zero, short-term credit costs and yields zero) then there is no reason to take risk; you're better off with the cash.

Ben pointed his liquidity gun at the market, pulled the trigger, and got......

CLICK.

Game's over Ben; you no longer have "liquidity" to shower on the market; there's no take-up.

Now we're left with either (1) doing the right thing or (2) Weimar Germany-style printing.

Oh, to Henry Paulson, who is lying once again on national TV this morning:

Shut the hell up.

You're full of crap.

You've prevented nothing. You have in fact lied to Congress about the purpose of your $700 billion "TARP", which has been used to buy up competitors and pay bonuses, and you changed tax policy without a vote of Congress in the dark of night, which you STILL haven't talked about in public. You didn't know what you were doing originally and it is obvious that you still don't.

In fact, Rick Santelli put it quite simply on television this morning in regards to what you did by holding up two pieces of paper:

BAIT (and) SWITCH

Your (and Bernanke's) continued cheerleading and falsehoods have destroyed business and consumer confidence. Every time you open your mouth the market tanks, because you still have not decided to tell the truth. "Securitizing credit" is a pointless exercise until the excessive debt is defaulted, as there is no demand for additional credit when the consumer is tapped out and businesses are failing.

You continue to talk about increasing credit in the system when the cause of the problem in the first place was excessive credit creation.

YOU PERSONALLY lobbied Congress and The SEC to PERMIT that excessive credit creation, were rejected once in 2000, and in 2004 you came back as CEO of Goldman Sachs and GOT WHAT YOU WANTED - a policy change that WAS THE DIRECT AND PROXIMATE CAUSE OF THE MESS WE ARE NOW IN.

You have REFUSED to accept that responsibility and you continue to talk about "recovery" and "reform" but you and YOUR demands for removal of safeguards in 2000 and 2004 ARE WHY WE ARE HERE.

THERE IS NO SOLUTION TO THIS PROBLEM NOR WILL THE ECONOMY FIND A BOTTOM AND RECOVER UNTIL YOU STOP TRYING TO FEED A DRUNK WITH LIVER CANCER WHO IS PUKING UP BLOOD MORE BOOZE, AND IF YOU DON'T STOP THIS CRAP AND SOON THE DRUNK (OUR ECONOMY, OUR MONETARY SYSTEM AND POSSIBLY OUR POLITICAL SYSTEM) IS GOING TO DIE.

WHEN THAT HAPPENS, NOT IF, YOU, CONGRESS AND PRESIDENT BUSH WILL BEAR THE PROPER RESPONSIBILITY FOR THE ENSUING DEPRESSION, ONE THAT IS LIKELY TO SURPASS THE 1930s BOTH IN SEVERITY AND DURATION.

It is time for you to accept responsibility for your actions and their consequences, resign, and for the government to invite adults into the room before we have another fiscal "accident" - this time in the Treasury market as the world decides that buying government debt from a liar is a really, really bad idea.

http://market-ticker.org/archives/656-Ho...-Trap.html

[Magda Hassan]

Thanks for keeping us up to date with the always interesting Karl Denninger articles Jan. I like a man who tells it like it is and I enjoy his take on it. I too am miles away from him politically but I recognise a man who is honest and an expert in his field. The finance sections of the MSM should be explaining all this to the general public but they are not doing this.

[Peter Lemkin]

interesting interview with Dr. Michael Hudson http://www.kpfa.org/archives/index.php?arch=29371

and...the Washington Post reports the Bush administration has taken no action to fill congressionally-mandated independent positions to oversee how the bailout is used. A deadline for the first bailout monitoring report has already passed. The Treasury has already committed $290 billion in taxpayer money so far. Eric Thorson, the Treasury Department’s inspector general, said, “It’s a mess. I don’t think anyone understands right now how we’re going to do proper oversight of this thing.”

[Jan Klimkowski]

The trillion-dollar carcass of Lehman is rotting away and noone knows where the money has gone.

The article claims Lehman debtholders may recover nine cents to the dollar. That sounds optimistic to me..

Lehman task 10 times worse than Enron, say administrators





* Simon Bowers
* guardian.co.uk, Friday November 14 2008 18.29 GMT
* Article history

Adminstrators grappling with the European arm of failed investment bank Lehman Brothers have told creditors their task is "ten times as big and as complicated" as the unwinding of Enron.
Speaking after the first creditors meeting, a team from PriceWaterhouseCoopers said they had identified more than $1tn in assets and liabilities which need to be accounted for.
At the meeting, held behind closed doors in a conference hall at the O2 dome, lead administrator Tony Lomas told hundreds of representatives and lawyers who attended that he had recovered about $5bn out of a potential $550bn of obligations owing to creditors. A further $22.3bn of client assets had been identified, all of which will be returned to their owners.
He drew a comparison with the administration of US energy trading group Enron, which collapsed in 2001, noting that some of his colleague were still working on unresolved elements of that administration.
Lomas said the Lehman administration had already slipped behind schedule because of delays in receiving confirmation from third parties believed to be holding assets of Lehman Brothers International (Europe).
"The balance sheet position will be north of $1tn and we've got a long way to go before knowing what the position is for creditors and, if there is a shortfall, just how short it will be," Lomas said after the meeting. "The prospect is that some creditors will lose money. How much? We can't determine that for a significant time."
PWC has already identified more than 400 trade creditors to Lehman's European business, including Reuters, HSBC, Hewlett Packard, BT, the London Stock Exchange and Lufthansa. Even PWC is listed among those owed money by the collapsed firm, as are the Bank of England and the Financial Services Authority. Meanwhile, the list of trade counterparties contains about 6,000 names.
About 100 creditors have applied for "hardship status" which could see their claims fast-tracked.
Parent company Lehman Brothers Holdings, once America's fourth largest bank, was forced to file for bankruptcy protection in the US in September after investors lost confidence in the business and the quality of assets on its balance sheet. It had been one of America's most active players in subprime home lending and related financial engineering.
The settlement of Lehman credit insurance contracts linked to the bank's bonds suggested debtholders could expect to recover less than nine cents in the dollar.
About 1,500 Lehman staff in Europe lost their jobs or resigned as the bank went bust. A further 2,500, mainly at the group's Canary Wharf offices, became employees of Japanese bank Nomura, which quickly bought the bank's European and Middle Eastern equities and investment banking operations out of administration in September. Another 1,100 ex-Lehman staff have been kept on by PWC.

http://www.guardian.co.uk/business/2008/...anbrothers

[Magda Hassan]

Well, at least the companies doing receivership and administration are doing well. Quite a growth industry there.

I have yet to see a reason why any of these companies should be rescued. Let them fall. At the very least they should be handed over to their workers and let them run it since the 'experts' can't. Same for the car makers. Why not let the workers run them a la Argentina style? That way people still have jobs and goods made. Now would be a good time to shift over into electric, compressed air and other low and no emission types of transport.

[Myra Bronstein]

...Those who think Obama will save them - without enourmous pressure from below will be sadly disappointed very soon....and perhaps too late.

I sure would like to see some focus--in the media, on the internet, anywhere--on the fact that Obama voted for the hand out bill.

[Myra Bronstein]

"The more details emerge, the clearer it becomes that Washington's handling of the Wall Street bailout is not merely incompetent. It is borderline criminal.In a moment of high panic in late September, the U.S. Treasury unilaterally pushed through a radical change in how bank mergers are taxed -- a change long sought by the industry. Despite the fact that this move will deprive the government of as much as $140 billion in tax revenue, lawmakers found out only after the fact. According to the Washington Post, more than a dozen tax attorneys agree that "Treasury had no authority to issue the [tax change] notice."

Of equally dubious legality are the equity deals Treasury has negotiated with many of the country's banks. According to Congressman Barney Frank, one of the architects of the legislation that enables the deals, "Any use of these funds for any purpose other than lending -- for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc. -- is a violation of the act." Yet this is exactly how the funds are being used.

Then there is the nearly $2 trillion the Federal Reserve has handed out in emergency loans. Incredibly, the Fed will not reveal which corporations have received these loans or what it has accepted as collateral. Bloomberg News believes that this secrecy violates the law and has filed a federal suit demanding full disclosure.
Despite all of this potential lawlessness, the Democrats are either openly defending the administration or refusing to intervene. "There is only one president at a time," we hear from Barack Obama. That's true. But every sweetheart deal the lame-duck Bush administration makes threatens to hobble Obama's ability to make good on his promise of change. To cite just one example, that $140 billion in missing tax revenue is almost the same sum as Obama's renewable energy program. Obama owes it to the people who elected him to call this what it is: an attempt to undermine the electoral process by stealth.

Yes, there is only one president at a time, but that president needed the support of powerful Democrats, including Obama, to get the bailout passed. Now that it is clear that the Bush administration is violating the terms to which both parties agreed, the Democrats have not just the right but a grave responsibility to intervene forcefully.

I suspect that the real reason the Democrats are so far failing to act has less to do with presidential protocol than with fear: fear that the stock market, which has the temperament of an overindulged 2-year-old, will throw one of its world-shaking tantrums. Disclosing the truth about who is receiving federal loans, we are told, could cause the cranky market to bet against those banks. Question the legality of equity deals and the same thing will happen. Challenge the $140 billion tax giveaway and mergers could fall through. "None of us wants to be blamed for ruining these mergers and creating a new Great Depression," explained one unnamed Congressional aide.
More than that, the Democrats, including Obama, appear to believe that the need to soothe the market should govern all key economic decisions in the transition period. Which is why, just days after a euphoric victory for "change," the mantra abruptly shifted to "smooth transition" and "continuity."

Take Obama's pick for chief of staff. Despite the Republican braying about his partisanship, Rahm Emanuel, the House Democrat who received the most donations from the financial sector, sends an unmistakably reassuring message to Wall Street. When asked on This Week With George Stephanopoulos whether Obama would be moving quickly to increase taxes on the wealthy, as promised, Emanuel pointedly did not answer the question.
This same market-coddling logic should, we are told, guide Obama's selection of treasury secretary. Fox News's Stuart Varney explained that Larry Summers, who held the post under Clinton, and former Fed chair Paul Volcker would both "give great confidence to the market." We learned from MSNBC's Joe Scarborough that Summers is the man "the Street would like the most."

Let's be clear about why. "The Street" would cheer a Summers appointment for exactly the same reason the rest of us should fear it: because traders will assume that Summers, champion of financial deregulation under Clinton, will offer a transition from Henry Paulson so smooth we will barely know it happened. Someone like FDIC chair Sheila Bair, on the other hand, would spark fear on the Street -- for all the right reasons.

One thing we know for certain is that the market will react violently to any signal that there is a new sheriff in town who will impose serious regulation, invest in people and cut off the free money for corporations. In short, the markets can be relied on to vote in precisely the opposite way that Americans have just voted. (A recent USA Today/Gallup poll found that 60 percent of Americans strongly favor "stricter regulations on financial institutions," while just 21 percent support aid to financial companies.)

There is no way to reconcile the public's vote for change with the market's foot-stomping for more of the same. Any and all moves to change course will be met with short-term market shocks. The good news is that once it is clear that the new rules will be applied across the board and with fairness, the market will stabilize and adjust. Furthermore, the timing for this turbulence has never been better. Over the past three months, we've been shocked so frequently that market stability would come as more of a surprise. That gives Obama a window to disregard the calls for a seamless transition and do the hard stuff first. Few will be able to blame him for a crisis that clearly predates him, or fault him for honoring the clearly expressed wishes of the electorate. The longer he waits, however, the more memories fade.

When transferring power from a functional, trustworthy regime, everyone favors a smooth transition. When exiting an era marked by criminality and bankrupt ideology, a little rockiness at the start would be a very good sign."

http://www.alternet.org/workplace/107000...about_it_/

[Myra Bronstein]

Change has come to America in much the same way that change came to South Africa.

According to Klein's "The Shock Doctrine" power was only ceded to Mandela and the African National Congress after changes to the country's banking and economic laws made the "power" largely symbolic.

The difference seems to be that in South Africa Mandela was duped. In America Obama seems to be very much in on the scheme.

[Jan Klimkowski]

Watch his lips. Wall Street's Boy, Hank Paulson, tells it straight and true.

According to Hank, US taxpayer money is a trough for the banker pigmen to schlurp in.

Like a toddler in a tantrum telling everyone else to go get their own trough....

Henry Paulson, the US Treasury Secretary who has less than three months left in office, said that Congress should devise its own bail-out for America's collapsing car companies and leave his $700 billion rescue package alone.
Mr Paulson reiterated that the Treasury's Troubled Asset Relief Programme was not the suitable vehicle to rescue General Motors, Ford and Chrysler from collapse, adding that his scheme is only designed to throw a lifeline to banks.
Speaking in a television interview yesterday, the former chief executive of Goldman Sachs said: "Congress should address the question of the auto industry. I encourage Congress to come up with a pot, to get money to deal with this issue."

http://business.timesonline.co.uk/tol/bu...151948.ece