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Archive for February 11th, 2010
30 Year Auction: A Solid "F"
February 11th, 2010 | 
Author: Posted by Karl Denninger
There’s no other way to describe this:
Bad. Actually, let’s go worse than bad and call it what it is – by any definition this is just one step off from “Failed.”
Yield was way over where it was trading at the time, as you can see here:
The more-worrying factor here is that we’ve got this “mystery” direct buyers out here again taking nearly 25% of the offered amount (who is bidding for that undisclosed?) and another 11% taken down by The Fed for the SOMA account.
Yet even with this Treasury had to pay up to get it to go and the bid-to-cover was anemic at best.
Given the Primary Dealer system we have in this country, any BTC under 2.0 is an effective fail. To get an auction that behaves in this sort of fashion, complete with mystery direct bidders and heavy SOMA (Fed) participation, yet Treasury has to pay up in the form of a significantly higher coupon is not a good sign at all.
Remember folks, this sort of issuance isn’t a local event. It will continue through the year, as we are on track to run record budget deficits, so the premise that “it will all be ok and this won’t start a ratchet up of rates on the long end” is perhaps more than a bit fanciful.
Rick Santelli gave the auction an “F” and I agree – there’s simply no possible way to read this as anything positive at all, and that the equity market is ignoring it (other than a quick, small spike downward on the release) likely has more to do with how tightly equities have become coupled to the dollar in the last couple of weeks than anything else.
Posted in Banks, Economic Crisis, Economy, Financial System, Treasury Auction, Treasury bond sales | 
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Angela Merkel Clanks When She Walks
Angela Merkel Clanks When She Walks
Posted by Karl Denninger
“Gee, it’s all going to be ok and Germany is going to come to everyone’s rescue!”
Angela Merkel, the German chancellor, mounted stiff resistance tonight to any swift bailout of Greece, as a rift opened up between European capitals over how best to tackle the risks posed to the euro.
Despite a show of Franco-German unity on the crisis and the first statement from EU leaders pledging to safeguard the currency’s stability, hopes on the markets of a German-led rescue plan to shore up Greece’s critical public finances were dashed by Merkel, who repeatedly emphasised that Athens would need to put its own house in order and brushed aside all questions of financial support.
Someone forgot to tell the market pumpers (along with those who started buying Euros and Pounds against the dollar) that Greece is a bit player in this mess.
What ‘ya gonna do about Ireland – a nation that has enough out there in bank debt to make Iceland look like a Girl Scout picnic? Or Spain? Portugal, which has had an actual failed bond auction already?
and
One would hope that Merkel and friends in Germany aren’t really stupid enough to implement such a transfer of a peripheral nation’s problem to the EU’s core, but then again we have seen time and time again that “can-kicking” is the mantra of the world since this crisis began. Rather than deal with the underlying problems – excessive leverage, naked swaps that the seller can’t possibly pay, various forms of fraud and gamesmanship in securities issue and similar – governments have instead decided to lift up the corner of the carpet and sweep, time and time again.
Should the EU implement this with Greece they may indeed set a precedent that could easily destroy the European Union over the next couple of years. Faced with Spain, Portugal, Italy and Ireland, all of which are huge problems compared to Greece both in terms of the debt outstanding and the size of their economies Germany will find itself unable to backstop all four nations – yet it will have to, once the die is cast with Greece.
It appears that unlike Barack Obama and Ben-d-you-over-the-table Bernanke, who doesn’t much care about the formalities of what’s supposed to be on The Federal Reserve’s balance sheet, Angela Merkel has both a brain and she clanks when she walks!
I like it, although I’m not so sure that Ms. Merkel would be so steadfast had she not the benefit of watching other fools, specifically Henry Paulson, from afar, and thus got to see that the market always calls bluffs. She witnessed Fannie and Freddie’s “Bazooka” and the non-bailout that was a bailout and then more bailout via TARP, AIG and others, and thus knows damn well that if she comes to the aid of Greece (assuming the German court system will let her) the PIIS (heh, that’s a good acronym, no?), sans-Greece, will be there with hands outstretched instantly – and not by choice either.
Rather, the market will simply shift it’s attention to Spain, Portugal, Ireland or all three, and place them under speculative attack until the story is repeated time and time again.
Germany simply lacks the ability to bail everyone out.
Our “officials” lacked the brainpower to recognize this even after having reality smash into their face at 450 mph in the form of a clue-by-four after Hank Paulson was so puerile as to threaten the market with his mighty “Bazooka”.
He proceeded to blow off his own balls with that very bazooka just days later.
The market is bigger than any one man or any one nation and it does not suffer arrogance lightly. Virtually everyone who has tried to tangle with it has wound up with their head between their legs after not only their head was chopped off but both arms as well.
If Ms. Merkel has learned this lesson adequately from the last three years then progress has indeed been made. Perhaps she can put in a visit to Mr. Obama and whack him upside the head a few times, knocking some sense into that arrogant ass before he blows our nation to Hell with his belief that $1.6 trillion deficits are a “small mismatch” between spending and income – a mismatch that he largely created himself.
I wish Ms. Merkel luck dealing with her banks. Don’t think for a minute that they’re not neck-deep in the sludge themselves – they are – or that somehow they’re so much wiser than us in the land of beer and schnitzel – they’re not.
But when it comes to the consequences of “bailout world”, it appears that Angela Merkel has learned from the experience of others, and as such, she deserves – at least for today – a gold star.
We’ll see if I have to revoke it tomorrow.
Posted in Angela Merkel, Economic Crisis, Economy, EU, Financial System, Germany, Greece |
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How Far Does It Go Before Indictments Issue?
How Far Does It Go Before Indictments Issue?
Posted by Karl Denninger
“Gee, look over there!” says the mortgage industry.
In a rather-stunning posting on 4closurefraud.com we have a recorded assignment to BOGUS ASSIGNEE FOR INTERVENING ASMTS!
Yes, really.
Foreclosures are being prosecuted and people tossed out of their homes on the basis of a defective assignment?
Gee, who’d-a-thought?
You don’t think that the clerks of these counties were recording anything that comes in the door, in proper form or not, simply to generate the fee income, do you?
Sharon Bock, County Clerk and Comptroller, were you SLEEPING when you accepted and recorded this document in PALM BEACH COUNTY or WERE YOU COMPLICIT IN A SCHEME TO RECORD BOGUS AND PERHAPS EVEN FRAUDULENT DOCUMENTS OF ASSIGNMENT OF PROPERTIES IN YOUR COUNTY?
WHERE THE HELL ARE THE DAMN COPS?
Posted in Banks, Corruption, Economic Crisis, Economy, Financial System, Foreclosures, Fraud |
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Whistling Past The Graveyard We Be…..
Whistling Past The Graveyard We Be…..
Posted by Karl Denninger
Jonathan Weil of Bloomberg has woken up to what I’ve written about for nearly three years now in The Ticker – that so-called “balance sheets” are and have been a pure act of fiction, yet it is impossible to find a cop anywhere.
Other banks, Paulson wrote, balked at an industry-backed rescue because “they knew that to make the math work, they would have to make a loan secured by assets worth much less than their stated value.” In describing one pile of bad investments, Paulson said these “had been carried by Lehman at $52 billion, but after their analyses the firms estimated their value at closer to $27 billion to $30 billion.”
In short, Paulson said, “the investment bank had been loaded with toxic assets worth far less than the value at which they were carried, creating a capital hole.”
Paulson’s account is as lucid an explanation of why Lehman blew up as anyone has written. It does leave you wondering, though, if it ever occurred to him to tell anyone at the Securities and Exchange Commission or the Justice Department that Lehman’s accounting might need to be investigated. His book provides no indication that he did.
Of course not.
That’s because Lehman is not the only bank involved here. Indeed, not only was this a past transgression it is clear that it’s a present transgression.
Was not the entire purpose of getting rid of “mark to market” accounting in early 2009, without which we were told the entire financial system would turn to slag and melt around our ankles, all about balance sheet fraud? About financial institutions that were carrying “assets” at values that could not then (and still cannot now) be justified based on their market price?
What else is “mark to market” but a demand that one’s balance sheet accurately reflect the market value of what you hold?
The requirement that publicly owned corporations disclose complete and accurate financial reports is part of the bedrock of U.S. securities laws. Just as important is the promise that the government will enforce those laws when they’ve been broken. Undermine the public’s faith in either of those functions, and confidence in the capital markets crumbles.
Uh huh.
While I applaud Jonathan for coming to this conclusion he is nearly three years behind those of us who have been screaming about this very issue since 2007 – or even before.
Indeed, The Ticker began publication in no small part because this “little bitty bank” called Washington Mutual was paying dividends out of capitalized interest – that is, negative amortization – on loans to homeowners in California that were already underwater in 2007, and thus were rather unlikely to ever be paid – never mind that capitalized interest isn’t cash, it’s an accounting entry, yet you have to pay dividends with actual money!
This is at the root of why I have said for the last three years that it is not possible to invest in today’s capital markets, because it is not possible to trust a balance sheet.
Even companies that are allegedly “Strong” and have “No material exposure” are doing tricky things – witness CISCO’s recent disclosure that it is funding customer financing at below-market interest rates (zero!) with off-balance sheet vehicles.
We have learned exactly nothing from MCI/Worldcom and ENRON. We not only learned nothing we have allowed corporations to repeat the precise same sins that detonated both of those firms, we have papered over the losses and fictions that were hidden from investors and we have failed to hold executives and boards to account for committing this sort of trickery.
What’s worse is that we’re still doing it, nearly three years into this mess, and if anything the fictions that infest our corporate balance sheets in America have gotten worse, not better, in the intervening three years.
It is a fundamental tenet of the capital markets that one’s financial statements must accurately reflect all material income streams, exposures, liabilities and assets to which a firm is exposed in a form and fashion that they can be independently analyzed. Without this it is absolutely impossible to form an opinion that can be defended on the value of that entity, and thus their stock price and even their status as a going concern is nothing more or less than a casino game where the dealer has marked cards unknown to the player and can deal off the bottom of the deck besides – all with the knowing and willful blindness of the alleged authorities that are supposed to prevent this sort of raw abuse.
Update: Jonathan has taken apparent umbrage at my suggestion that he’s “late to the party” and has sent me a host of articles of his (some of which I’ve opined on in the past) representing his opinion on same. I maintain that this is the first time I recall him talking about The Justice Department – that is, possible criminal charges.
Lest one think that recognition is a bad thing I will say for the record that it most certainly is not and I hope it continues. I simply note that there have been damn few people asking where are the cops on any sort of consistent basis, and civil lawsuits (e.g. “Where’s the SEC?”) with their nearly-always-settled complaints that inevitably wind up being charged back to the shareholders, thereby abusing them twice, may be a good start but is nowhere near as good a tonic for the outrages we have suffered as a people as would be orange jumpsuits.
If You're Not Mad Yet….: Indymac OneWest Bank & The FDIC
You won’t believe the deal OneWest Bank got from the FDIC to take over Indymac (on your dime, of course). And if you think Indymac is the only failed bank that got a deal like this, I’ve got some swamp land to sell you.
Posted in Banks, Corruption, Economic Crisis, FDIC, Federal Deposit Insurance Corporation, Financial System, Indymac Bank |
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TARP Watchdog: Don't Be Fooled By The Calm, Banks Will Be Rocked By 2011's $300 Billion Commercial Real Estate Time Bomb
Today’s latest report from the Congressional Oversight Panel makes it very clear that while things may feel relative lty stable right now on the commercial real estate front, the real bomb hits in 2011. Banks could lose $200 – $300 billion, and ‘every American’ could be affected:
The full force of the commercial real estate problem will be felt over the next three years and beyond, according to the panel’s February assessment, which means it starts to get worse starting today.
Cop 021110 Report
Posted in Bankruptcy, Banks, Commercial Real Estate, Economic Crisis, Economy, Financial System, real estate |
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