FedUpUSA

Archive for August 12th, 2011

If I hear one more time about how TARP “worked” I’m going to throw up.

Let’s look at it in pure chart form, because that puts into stark relief the lie often told:

TARP passed on 10/3/2008.  The XLF (Financial Sector exchange-traded fund)) at the open of that day stood at $20.19.  It never rose above that number from that day forward until the market finally bottomed in March on the 10th.

What’s the importance of that date?  It was two days later that Paul Kanjorski (D-PA) stated that:

“We can, however, no longer deny the reality of the pro-cyclical nature of mark-to-market accounting.  It has produced numerous unintended consequences, and it has exacerbated the ongoing economic crisis.  If the regulators [SEC] and standards setters [FASB] do not act now to improve the standards, then the Congress will have no other option than to act itself.”

That was a clear threat.  You could call it extortion if you like; FASB (the accounting standards board) was told to either allow financial firms to lie about the market prices of their alleged assets or Congress would legislate into effect that which FASB refused to.

TARP, objectively, failed.  The financial sector’s market cap was decimated to the tune of more than 60% after the passage of TARP.

It was only the legalization of accounting fraud that stopped the slide in the market and destruction of the financial sector.  Injecting hundreds of billions of dollars of new loans into them (via TARP) did nothing; the money was simply sucked into the black hole of insolvency revealed by factual and honest accounting.  Had fictional accounting not been forced upon FASB and foisted on the market TARP would have been a 100% loss.

TARP was neither necessary nor did it do anything whatsoever in furtherance of stability.

The market’s pricing mechanism does not lie; it is not my opinion nor any other person’s – rather, it is the collective opinion of everyone in the market.  You simply cannot argue with it.

The problem with the FASB change is that while it temporarily “rescued” the financial sector it was insanely corrosive to long-term stability.  In point of fact it was specifically this change that has led us to where we are now.  Instead of true asset valuations and transparent balance sheets that support the claimed market values and are behind the liabilities on bank balance sheets we are back to having only “confidence” in our financial system.

But “confidence” is easily lost when it is based on nothing more than a con.  And a con it is – derivatives have not been forced into the open and marked to the market on a nightly basis, chained risk has not been removed, fantasy valuations are being maintained on mortgages and other instruments where the claimed balance-sheet value bears no relationship to the open market liquidation price of the asset in question and more.  The market is once again calling “BS!” on these claims as Citibank is trading at half of it’s book value and Bank of America is trading at roughly one third of book value!  Morgan Stanley, JPMorgan and Goldman are trading under book value as well.

These are clear statements by the market that the alleged “asset values” on these bank balance sheets are lies.

The problem becomes apparent if you substitute the market value for book value.  In that case, due to the leverage and tiny reserves (in the form of capital ratios) in these institutions every one of them is instantaneously insolvent, with most of them so far underwater that without helium at that depth you’d be narced to the point of offering your diving regulator to a fish!

Of course the argument will be made that the market is often wrong about valuation and this may, in the current case, be true.  The problem is that there is no way to judge the validity of this argument in the present tense nor on a forward basis since these allegedly-unobservable marks remain claimed but not proved up – since they don’t have to be.

Banking does not have to be a con job; the creation of systemic risk in this fashion is an intentional act made possible and furthered by governments.

We have run a scam for 30 years that operated on the premise that lying about asset valuations and ever-increasing debt loads were in some form or fashion “prosperity.”  This was not true 30 years ago and it is not true today.  These policies and their promulgation are not only worthless they’re dangerous, as they are flat denials of irrefutable mathematical facts – specifically, the fact that two exponential (compound) functions, where one has a larger exponent than the other by any amount, will inevitably run away from each other and thus cannot result in stability.

This nonsense must end.

London 09/08/11

The Fed has helped print a new kind of currency, currency being a means of exchange that in and of itself offers no return whatsoever.

This new kind of currency used to be referred to as notes and bonds.

Please be mindful of this change if you plan on using the tired old phrase, “A man’s word is his bond”.  Remember to replace “word” with “money”, and you’ll be okay, at least until 2013.

Money is freely available to those who don’t need it and don’t deserve it.  For everyone else there’s 29.99% Mastercard and Visa.

Elected officials in the United States are prohibited by both law and custom from looking in the mirror.

GDP for the sake of GDP is only a good thing if it is done in China, where empty buildings and empty cities are viewed as growth-positive.

On the other side of the world in the US, however, remember to change the plus sign to a minus to reflect the directionality of the gravity that has captured US assets and their funding mechanisms alike.  Just to note, were Las Vegas, South Florida, and Detroit located in China, they would be referred to as “Economic Miracles”.  It’s like that.

If you don’t have a job, you have 99 weeks to come to terms with it, after which you are no longer eligible to be counted in BLS labor participation rate statistics.  The proper term for this is “patriotism”.

If you are leader of a sovereign nation, please pick the type of social upheaval that is right for your country and its ways and customs:  violence stemming from out of control inflation (the Middle East Option), or violence resulting from austerity imposed on the innocent and downtrodden (Ye Olde Victorian Option).  Note that with the latter you are entitled to copious and unrestricted use of racial epithets to categorize the nature of the urban festivities.  Also, look for it to make its sporting debut in the upcoming Olympics, pending IOC approval, of course.

Sarah Palin is the new Nostradamus, because she “knew” that the US would be degraded or upbraided or desecrated by the ratings agencies under Obama.  She also believes that the 1960’s pop band Paul Revere and the Raiders should be inducted into the Rock and Roll Hall of Fame for fighting off the British Invasion.

The story of Jesus, the fish and loaves of bread is quaint, but it pales in comparison to what Europe can do.  If one is in need of real miracles, one need not look any further than the fund into which pay the governments of Greece, Ireland, Italy and Spain that will be used to bail out the governments of Greece, Ireland, Italy and Spain.

A rising tide lifts all boats, at least those moored off the Hamptons and Nantucket.

After watching Barney Frank’s appearance on the recent Rachel Maddow show, the Massachusetts state motto is henceforth changed to:  No Representation without Flatulation!

Unless you are a successful hedge fund manager, Cake Eater, a Social Networking IPO beneficiary, or a Congressman on a corporate junket, you are ineligible to consume cheese fondue, climb the Matterhorn, or have images of cows on your necktie, because—don’t kid yourself—you simply cannot afford it.

As a corollary to the above statement, both Turkey and Albania have now reached OECD status due to remittances sent from guest arbiters in Geneva, Basel and Zurich.  A hearty welcome to the club is in order.

As “Nando“, the Billy Crystal character from a long ago Saturday Night Live used to say, “If you are like me, you’d rather look good than feel good”.  Hence, a rising stock market is more important than a growing economy.  You look maaaahvelous!

Chindit13 for ZerhoHedge