Archive for February 26th, 2010
Submitted by bmoreland
I have long suspected that it was only a matter of time before banks began to adjust their Collection efforts to reflect Government Guarantees on their loan portfolios.
Simply put, imagine you are a bank with $100 billion in loans. Of this, $20 Billion is guaranteed by the government, $80 billion is your own money. If you managed the collection organization responsible for servicing this debt wouldn’t you be just a wee bit tempted to make sure that your $80 billion was getting the priority?
The table below details the past 12 quarters of Total Loans for Bank of America along with the portion that is Noncurrent:
The Noncurrent percentage has jumped from 5.30% in Q3 to 6.75% in Q4. Quarter on Quarter there is another $12.44 Billion in Noncurrent loans.
The next table details the same 12 quarters and reviews what portion of the Noncurrent loans are guaranteed by the Government (er, you and me the taxpayer):
Bank of America has had a massive jump in the Noncurrent loans that are Governement Guaranteed. The Quarter on Quarter jump is… wait for it… $11.40 Billion.
So, magically, the incremental $12.44 Billion that has become Noncurrent Quarter on Quarter at Bank of America has a guarantee on $11.40 Billion. Nearly 92% of the jump in their Noncurrent loans are covered by us, the taxpayer.
This is no consipiracy theory discussion – these are cold hard facts supporting what any reasonable actor would do in the situtation. If the government is going to cover my losses on a portion of my loan portfolio I can damn well guarantee you I’d be moving my best collectors to the portfolio I’m responsible for. The government can have my new hires, my undesirables, my slow workers, etc…
I highly doubt that we’ll ever hear about this, but this is yet another massive shift from the taxpayer to the banks.
Posted by Karl Denninger
Gee, who saw this coming… oh wait – not in the press release, is it?
NEW YORK–(BUSINESS WIRE)– American International Group, Inc. (AIG) today reported a net loss attributable to AIG common shareholders of $8.9 billion for the fourth quarter of 2009, or $65.51 per diluted common share, compared to a net loss of $61.7 billion or $458.99 per diluted share in the fourth quarter of 2008. Fourth quarter 2009 adjusted net loss was $7.2 billion, compared to an adjusted net loss of $38.5 billion in the fourth quarter of 2008.
Blah blah blah blah look at the 10Q filed with the SEC:
AIG has been significantly and adversely affected by the market turmoil in late 2008 and early 2009, and, despite the recovery in the markets in mid and late 2009, is subject to significant risks, as discussed below. Many of these risks are interrelated and occur under similar business and economic conditions, and the occurrence of certain of them may in turn cause the emergence, or exacerbate the effect, of others. Such a combination could materially increase the severity of the impact on AIG. As a result, should certain of these risks emerge, AIG may need additional support from the U.S. government. Without additional support from the U.S. government, in the future there could exist substantial doubt about AIG’s ability to continue as a going concern. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Consideration of AIG’s Ability to Continue as a Going Concern and Note 1 to the Consolidated Financial Statements for a further discussion.
That’s not a sentence you ever want to see in a quarterly report. It winds up in there because the auditors essentially make you do it – that is, the bean counters think you’re a few beans short of a box.
Or maybe a lot of beans.
Mishkin is on CNBS this morning crowing that “clearly the recession is over.”
Uh huh. And your buddies over at the NY Fed, along with The Fed in DC and CONgress, haven’t fixed a damn thing.
Therefore the recession didn’t do what recessions are supposed to do – that is, clear out crap companies and return balance to the economy.
Instead, we’ve subsidized, we’ve lied, we’ve cheated, and we’ve kept the debt in the system, all of which are disastrous going forward because unlike inventory recessions this has been and is a “balance sheet” recession.
That, by the way, is typical CNBS misdirection too. Words mean things. A “balance sheet recession” is a liars way of saying there is too much debt in the system, not too much inventory.
Of course the fix for a recession caused by too much inventory is to work some of the inventory down.
The fix for a debt recession is to default the excessive debt.
We have done everything in our power at all levels of government to avoid doing exactly that, and it is for this reason that you’re going to continue to see the stress levels rise instead of fall, irrespective of the manipulation, until that excessive debt is extracted from the system – one way or another.
Our machinations have hidden an actual, ongoing depression. More than $2 trillion in direct spent support by the government – borrowed beyond tax receipts in the last 18 months, constitutes 14% of annualized GDP. On an annual basis this is about 10%, and a 10% top-to-bottom contraction in GDP is the economist’s definition of Depression.
This is math, not pumper jizz games and makes clear what’s actually happened. Any person who has lost their job and desperately clawed their head above water on a temporary basis by taking cash advances and using their plastic for a $2 bottle of soda at the local gas station “gets it” – you can play this game for a while, so long as your credit line holds up. You “win” that game if you manage to keep your head above water long enough to find a new job before your debt service requirements exceed your income – even with the new job. You “lose” if your card comes up “Really Declined” before then and are forced into bankruptcy, or if you wind up with so much debt that even finding a new job doesn’t allow you to make the payments.
Nations don’t quite do things the same way. Instead of “bankruptcy” they are forced into severe austerity measures when they are unable to borrow at attractive rates in the marketplace. If nations go too far down the hole and are unable to implement those measures the political system fails by either peaceful means (elections that sweep out the old ruling class and in a new one) or violent (mass civil unrest, revolt or war.)
So far that has not happened. But the machinations of The Fed have been met lockstep by Congress, which has absorbed and subsumed every penny of credit that The Fed has extended, neutering the ability of The Fed to stimulate the economy, and instead of stimulating the economy with its programs Congress has instead propped up failed businesses, effectively burning the money instead of putting it to work.
AIG is symptomatic of the fraud-laced financial disease in our nation – a disease that will soon enough consume us if we don’t excise it from our economy.
Sadly not only does our government refuse to do this but the people of this nation refuse to recognize the bare mathematical underpinnings that are staring them square in the face.
With each passing day we go further into that hole, and at some point the ladder will no longer be tall enough to be able to climb back out.
Disclosure: No position; it is my considered opinion, however, that AIG was a zero two years ago – and still is a zero.
Posted by Karl Denninger
Feb. 25 (Bloomberg) – The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program.
The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.
Contract rights don’t matter, law doesn’t matter, we’ll just ignore all of that pesky stuff when we don’t like it.
Should this come to pass the obvious thing for everyone in this country who is underwater to do is to default. On purpose. The resulting flood of defaults will bury the banks with the HAMP “review” requirement for literal years, allowing you to stay in a free house for that amount of time.
During that time you can save a lot of money (your entire mortgage payment) or live high on the hog on the money you would otherwise send to the bank.
Of course you should consult with counsel before doing this, but this sort of change, if Obama actually does it, should be expected to provoke exactly that response.
If I was underwater on my house and had a non-recourse loan, the day this went into effect I’d burn the payment book and send a picture of it on fire to the bank along with a photograph of my ass bearing a hand-scrawled “kiss it!”