The chart below, from EconomPic, puts the most recent rally into perspective. Bottom line for shorts: Take profits, keep your positions at least somewhat-hedged, and be ready for periodic bear-market rallies. The trend is still down, and the fundamentals are horrific. But nothing goes straight down, and if you’re like me, you believe this market is heavily manipulated by the big dogs.
The FDIC decided to publish public comments on their “Legacy Loan” program. A distinguished gentleman named Benjaman N. Dover III wrote in with his concerns, and the FDIC published them (pdf). Excerpt:
This sweetheart deal for taxpayers would penalize banks for finding themselves in an unforeseeable predicament for which they bear no responsibility. It would also require selfless investors and asset managers to bear an unconscionable portion of the risk in return for minimal reward. If we’re going to get through this crisis, everyone’s going to have pitch in and sacrifice — and that includes the taxpayer.
In addition, Congress should grant a pre-emptive amnesty and pardon to all parties for any wrongdoing that they later may be unfairly accused of in connection with the program. (Remember, contrary to what certain populist muckrakers may claim, “gaming the system” is just another word for “nothing to lose”.) I hope it goes without saying that none of the fees or profits resulting from the PPIP should be subject to any ordinary (much less special) taxes.
Oh, the sweet sweet irony and sarcasm. How it escaped the FDIC, I have no clue. Oh, wait… I wonder if they’ll publish some commentary from Mike Hunt and Dan Druff.
P.S. – If you were never a 7th grade boy, you may not get these jokes. The names these commenters used are gag-names. Benn Dover said aloud sounds like “Bend Over”. Many have commented that the American taxpayer is getting bent over by the bankers. Voila, crude middle school humor.
Firms love announcing horrific news when nobody’s paying attention. And there’s no better time to make nasty disclosures than right before a 3-day weekend. State Street’s announcement in January is a good example. Friday Jan 16th, after the close of after-hours trading, STT disclosed (as stealthily as possible) some gnarly earnings. They were down around 30% the next opening, and financials crashed at least 15%, if I remember correctly.
Will something nasty come out tonight? FDIC Bank closing-spree? GM bankruptcy? We’ll see. I’m happy to see a rally today, but am still not buying into it yet. I do have a fair amount of long exposure to offset my shorts, but of course I’d much rather have a healthy stock market. But I don’t believe the fundamentals are there to support it. Not yet, at least.
Here’s Larry Summers testifying to the Senate in 1998 about why the derivatives market does not need regulation:
“The parties to these kinds of contracts are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies.”
And this guy is Obama’s chief economic advisor? The same dude who took $5 million + from hedge funds and firms like Goldman Sachs and JP Morgan last year?! He’s obviously quite cozy with the players who caused this thing, and he seems dedicated to riding it out with the same crew.
What the hell is wrong with Obama?
We need change in key economic positions. I voted for Obama, donated to his campaign, and feel utterly violated. Fox in the henhouse doesn’t begin to describe the guys he has appointed thus far. What about somebody like Harry Markopolos as Treasury Secretary? He’s the guy who tried to alert the SEC about Madoff, and seems extremely sharp. He’s analytical, smart, and apparently has some integrity. He’ll never get the job.
FYI, I found the great Summers quote in this article, a must-read by Robert Scheer over at Truthdig.com.
Back in October 2008, Salman Khan of KhanAcademy.org proposed an intruiging solution to our country’s bank crisis. It’s an innovative solution, especially when you consider that he submitted the video to Youtube 6 months ago.
It seems clear that Khan’s proposal would have cost taxpayers less. Equally important, it would have had much less moral hazard. Worth watching:
Could the government possibly do anything to make banking easier or more profitable? The extent of the insanity is demonstrated well by this Bloomberg piece. Because of government-guaranteed debt, Warren Buffet’s baby, Berkshire Hathaway, is paying significantly more than Citigroup to borrow cash these days.
The difference in borrowing costs illustrates how government aid is giving an advantage to companies that needed multiple helpings of U.S. rescue funds. Each of the companies except for Berkshire were able to find buyers for notes paying 2.375 percent or less because of their government backing, while Berkshire will pay 4 percent to bondholders who bought $750 million of the firm’s AAA-rated debt last week.
Never underestimate the lengths that our elected officials will go to to bail out these banks. And betting against them is very risky, so be cautious out there.
