Bearish News

Looks like Bank of America plans to repay $45b of bailout cash to Treasury. Funds they didn’t want or need, apparently. But which they plan to pay for, in part, with $18b of fresh securities (which may later turn into a common stock offering). And they will also sell $4b of unspecified assets. Clear as mud.

They will declare themselves free of government assistance. But they continue to enjoy TBTF status. And while I can’t find an recent number, as of Feb of 2009, they had raised $33b in government-guaranteed debt. Nonetheless, after they pay back the $45b, they are free and clear of any government control. Back to huge bonuses and reckless spending with other people’s money.

FASB battle

If the FASB succeeds in eliminating “mark to imagination” accounting, this will not look like a good move for BAC in retrospect. Or if banks are forced to bring all the toxic off-balance sheet crap back onto their books. That would be ugly.

Fortunately bank lobbyists are fighting hard against transparency. From CFO.com:

SEC commissioner Elisse Walter is fighting a proposal that would weaken the regulator’s authority over accounting standards-setters. In a hearing Tuesday before a House committee, Walter called the concept of allowing bank regulators to have a significant say in accounting rules “a grave mistake.”

While Walter’s prepared speech included the usual caveat that her words were not representative of the entire commission, she noted that Securities and Exchange Commission chairman Mary Schapiro “endorses this testimony.”

Currently, the SEC has budget approval over the Financial Accounting Standards Board, which it has designated as the main U.S. accounting standards-setting organization. The commission also frequently provides input to the board’s standards-setting activities. In addition, the SEC has the ability to nominate and interview trustees of the Financial Accounting Foundation, FASB’s parent, which nominates and approves the five FASB members.

All this year, lawmakers have toyed with the idea of making FASB subject to a new oversight body as they work to pass sweeping financial regulatory reforms. Soon, Rep. Ed Perlmutter (D-Colo.) is expected to introduce an amendment to the Financial Stability Improvement Act — a key piece of legislation in the markup phase in the House Financial Services Committee — that would establish a new board of regulators, including bank regulators, to oversee accounting standards-setting. Critics are concerned that the body would give the bank regulators too much say on accounting rules.

The concept has been embraced by advocates of financial institutions — many of which have blamed fair-value accounting rules for exacerbating the financial crisis. Conversely, investors, business advocates, and accounting firms oppose such a move, as they fear it would harm FASB’s independence.

Disclosure: No positions in companies mentioned

This is a re-post from Karl Denninger’s site, which appears to be having technical difficulties. Hope Karl doesn’t mind.

Some will watch this film and be turned off by the over-the-top presentation. Fall of The Republic has a conspiratorial tone, which may limit its reach somewhat. But it has already racked up 500,000+ views on YouTube.

The movie conveys hard truths about American politics and economics. At times it veers into questionable territory, but the overall message is of critical importance — both parties in the U.S. are hopelessly corrupt. America is being pillaged.

After a cinematic intro on the New World Order, the film into some extremely relevant stuff. It’s over two hours long, so get a beverage. It features interviews with Bill Black, Max Keiser, Gerald Celente, Jesse Ventura, and Wayne Madsen.

The film’s official website is here, where you can order the DVD.

When given the rare opportunity to debate Fed officials, Schiff didn’t pull his punches. He’s gets into it with fellow panelists James Bullard (St. Louis Fed president), and Alan Blinder (former Fed Vice Chair). At one point he says “Bernanke hasn’t gotten anything right”. The Fed guys’ response is predictably weak.

Unfortunately the conversation gets cut off just as it seems to be heating up. Aaron Task gives a good interview, but I haven’t been able to find the rest of the video. Anyone?

The FHA continues to guarantee risky loans on behalf of the American public. And they’re now backing loans of almost $1m. Clearly, the FHA no longer serves the purpose it was created for – providing responsible loans to low-income and minority borrowers.

The current system simply transfers risk from private lenders to taxpayers. What a deal for lenders – government takes all the risk, and lenders only have to do paperwork and service the loan. With this kind of sweetheart deal, it’s no surprise that banks are reaping huge profits.

Part of recent profits are due to banks setting aside smaller cash reserves to cover losses. But why should they? Taxpayers will mop up the red ink, while banks reap all the gains.  See Freddie Mac, Fannie Mae, AIG, and GMAC for more examples. Quite the recurring theme these days.

Add accounting gimmicks and low interest rates, and voila! Banks look great again. The overall economy, not so much. But banks are cleaning-up.

Excerpt from a great NYT piece.

In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.

A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.

“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five”…

Some F.H.A. borrowers here say they have the cash for a full down payment but would rather invest it in the stock market or use it for remodeling. Others, like Mr. Rowland and his friends, simply do not have the money required by private lenders — which would have been nearly $200,000, in their case.

Apparently we haven’t learned much from recent crises. The current strategy is to resurrect the problems that got us into this mess, but on a larger and publicly-backed plan. Push back doomsday a few years if you can.

Take a look at these past FHA pieces if you’re interested, where I uncovered some ridiculous claims from FHA-backed lenders:

#1 – FHA – Bailout waiting to happen?
#2 – FHA dutifully following sub-prime playbook
#3 – Quicken Loans responds