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Archive for the ‘Treasury’ Category

Like most politicians, Treasury Secretary Tim Geithner likes to talk out of both sides of his mouth, generally saying contradictory things in sound bites that may sound reasonable at first glance, but look idiotic upon closer inspection.

For example please consider Private sector must drive economy: Geithner

During an interview on NBC’s “Meet the Press,” Geithner also said the government has big plans for reforming Fannie Mae and Freddie Mac, the housing finance giants that now stand behind most of the mortgages in the U.S. after being bailed out by taxpayers during the 2008 financial crisis.

Geithner said Sunday that he doesn’t expect a double-dip recession, citing encouraging signs in the economy. “The most likely thing is you see an economy that gradually strengthens over the next year or two,” he said. Watch Geithner on Meet the Press.

Businesses are still “very cautious” and are trying to get as much productivity from current employees as possible, Geithner explained.

“They are in a very strong financial condition though. I think that’s very promising because there’s a lot of pent-up demand and there’s a lot of capacity still for them to step up and start to invest and hire again,” he added. “The government can help but we need to make this transition now to a recovery led by private investment.”

There’s a “good case” for the government to support small businesses, the unemployed and help states keep teachers in classrooms, but the transition to growth led by the private sector must happen, Geithner said.

Still, he stressed that the current system of housing finance has to change.

“We’re not going to preserve Fannie and Freddie in anything like their current form. We’re going to have to bring fundamental change to that market,” Geithner said.

There’s still a good case for the government preserving some type of guarantee to make sure that people can finance a house even in a very damaging recession, he explained.

“We’re also going to have to take a look at the broad set of policies we put in place to help encourage home ownership and particularly help low income Americans get access to affordable housing,” Geithner said. “We’re going to take a very broad look at how best to do that.”

No Pent Up Demand

For starters Geithner is wrong about pent up demand. The only pent up demand is in the opposite sense Geithner suggests.

Pent Up Demand Reality

• There is pent up demand for baby boomers to save more
• There is pent up demand for baby boomers to downsize
• There is pent up demand for banks to dump shadow housing inventory on the market and that will further suppress housing
• There is pent up demand for anyone with credit card bills to pay them down given outrageous interest rates banks charge for revolving credit vs. what one can make in CDs.

Although those are all necessary, nothing in that list remotely have anything to do with a private sector recovery in the manner Geithner presumes. Indeed, I expect a Expect Second-Half Housing and Durable Goods Crash.

The key reason is consumer spending plans have crashed as noted in Consumption Inflection Point – No One Wants Credit; Consumer Spending Plans Plunge

Thus, in regards to pent up demand Geithner is a fool, is lying, or both.

Geithner Hypocrisy

If that was not bad enough, we have to suffer with Geithner talking out of both sides of his mouth. While I certainly agree that the private sector needs to drive the economy, note his many statements to the contrary.

• “The government can help but we need to make this transition …”.
• “There’s a good case for the government to support small businesses …”
• “There’s still a good case for the government preserving some type of guarantee to make sure that people can finance a house even in a very damaging recession …”

How long is the “transition”?

Geithner does not say, so I will offer a translation: Forever.

Geithner is a clueless Keynesian clown who has no idea how the economy works. Not only do we have to put up with his blatant lies, we have to deal with his hypocritical never-ending government solutions.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

WE THE PEOPLE (Have Had Enough)

STARVE THE BEAST!!!!!!!!

Posted by Karl Denninger

THE seminal question for this year – coming into the mid-term elections – is exactly that.

Have you had it?

Are you tired of being bent over the table with 29.9% credit card interest rates while these big banks borrow at zero from The Fed and use that money to speculate in the markets?

Are you tired of “too big to fail” – better stated as heads we (the banksters) win, tails you (the taxpayer) lose?

Are you enraged beyond words with the fact that this economic mess was not an accident – it was an intentional act of willful blindness and perhaps even fraud?

Do you feel helpless to do anything about the fact that Government has willfully and intentionally refused to both clean up the mess and prevent it from happening again due to the presence of huge lobbying interests in Washington DC – paid for by the very same banksters who nearly destroyed this nation?

Do you realize that we have fixed nothing – the bad loans are still there, they are still bad, that millions of Americans have lost their jobs, that the economy is not actually recovering (despite what they say) and that without resolving the actual problems odds are that within a few years, and perhaps within a few months, we will face another crash – this one likely bad enough to destroy our economy and perhaps our government?

Let’s look at the facts.

• The testimony being put before the FCIC – the investigatory panel charged with looking into how the housing and foreclosure mess came about, and how our economy was stripped clean by the vultures that infest the banking business in this nation is a matter of record.  I, and others, have been documenting this for more than two years.  READ THE MISSION STATEMENT AND TESTIMONY OF PEOPLE LIKE MIKE MAYO.
• THE FBI has been warning of an “epidemic” of mortgage fraud since 2004.  The banks knew this.  Indeed, in 2004 their lobbyists convinced The Bush Administration to SUE to prevent state regulators from protecting YOU, THE CONSUMER, from predatory and unfair loans.
• Since 2006 there have been published stories that stated income loans were laced through-and-through with fraud:
  

  One lender recently compared 100 stated-income loans with the borrowers’ tax returns and found that only 10 of the borrowers were telling the truth about their wages, according to Mortgage Asset Research Institute, a division of data firm ChoicePoint Inc.  (September 2006)

• The Wall Street and large commercial banks did not include these disclosures in their offering circulars for securitized debt. 

• Wall Street entities knew they were at risk but bought “protection” (CDS, or “credit default swaps”) from firms who they knew or should have known could not pay, including but not limited to AIG.  This “allowed” them to consider assets they knew or should have known were rife with fraud as “money good”.

• Wall Street and “big lender” loan programs in the housing market during the years 2000-2007 all “assumed” that house prices would rise forever at a rate higher than inflation.  The key point is that even if they had, which is mathematically impossible, it doesn’t change the fact that the borrower, that is you the citizen, still was going to lose their house when they reached the limit of their borrowing capacity.  The bank’s only concern was designing a program that they would be protected by – not whether it was suitable for you nor whether you would have (or continue to have) a home.

None of this was a “mistake” or an “accident”.  It was not an “unforseen event.”

Government agencies were aware of and sounded the alarm as early as 2004.  Brooksley Born, chair of a federal regulatory agency (the CFTC) raised hell on complex derivatives (“CDS” and similar instruments) in 1999.  She was attacked by everyone in the banking industry including Alan Greenspan and literally run out of town.  She was right.

The banking and Wall Street institutions, through a combination of the above, “made” billions of profits that never really existed.  They then paid that money – money that didn’t actually exist AND NEVER WOULD – out in bonuses, dividends and stock price appreciation.

Starting in 2007, it all came apart, first with two hedge funds at Bear Stearns, then Bear Stearns itself, then Fannie Mae, Freddie Mac, Lehman Brothers and AIG.

In the fall of 2008 Ben Bernanke and Henry Paulson, Chairman of The Fed and Treasury Secretary (who had refused to heed the warnings of the FBI and others for the previous four years) corralled a bunch of Representatives and Senators in The Capitol.  We were told that the government “had to bail out the banks” to prevent the financial system from collapsing.  By anywhere from 100:1 to 300:1, the American People said “let ‘em burn.”  The government refused once again to listen, and together with The Federal Reserve propped up the banks instead of forcing them to eat their own cooking.  Rather than use the money appropriated to force these institutions through bankruptcy and shut them down, paying off the depositors that were insured, these failed institutions were instead mish-mashed together into even bigger financial companies and then given government backstops.

Nothing has been fixed.

The bad debt is still there.

Unemployment has skyrocketed, the banks have cranked up credit card interest rates to 29.9% and are feasting on zero interest Federal Reserve money which they use to speculate in the financial markets, paying out well over $100 billion in aggregate in bonuses for the last year.

We are told this is and was “necessary.”

I might accept that – if it came with the closing of all of these institutions.  Each and every one of them.  If it came with the permanent barring of every executive involved from ever serving as so much as a janitor in any financial institution – worldwide – ever again.  If it came with a full forensic audit of each and every one of these institutions and officials by the FBI, with every instance of fraud that was uncovered presented to a grand jury.

But it has not.

Instead, firms like Countrywide Financial and Washington Mutual were absorbed into Bank of America and JP Morgan/Chase.  Those who were “too big to fail” not only were not dismantled, they were made bigger and more powerful.

Wall Street may effectively own Washington DC and the politicians but they do not own us.

WE THE PEOPLE ARE UNDER NO OBLIGATION TO ACCEPT THIS.

WE HAVE RIGHTS.

WE THE PEOPLE have the freedom to associate – or not.

WE THE PEOPLE have the right to demand legal tender in payment of debts owed us.

WE THE PEOPLE have the right to demand that these institutions eat their own cooking on each and every one of the loans they securitized and peddled during these years without fair and full disclosure to the buyers that these loans were rife with fraud.

WE THE PEOPLE have the right – and the ability – to take personal, lawful action with specific, lawful political and business-oriented goals, including permanent structural changes that will end “too big to fail” and “rip off the consumer on demand” policies, including the full reinstatement of Glass-Steagall which will END financial speculation and dealing in all of its forms by firms that have access to Federal Reserve credit and/or any sort of public backstop.

In the coming days and weeks I will outline specific, lawful actions that I hope each and every financial blogger, writer and columnist will take up and push as the key item for the remainder of this year and, if necessary, beyond – all with the intent of accomplishing these goals.

I invite all financial bloggers, mainstream media writing or broadcasting on the financial markets and products and interested politicians to contact me at “karl <at> starve-the-beast <dot> org” with the explicit purpose of joining an effort to formulate cogent and real, tangible yet lawful actions that can effect positive and necessary change.  Further posts to The Market Ticker will be made under the Category ”Starve The Beast” – so you can find them all in one place.

Make this message – this post – viral.  Send it to your associates.  Send it to the media.  Send it to politicians.  Get involved and do it now.

The opportunity is now and our responsibility is clear.  We either accept that responsibility and act or we are consenting to serial asset bubbles and ever-larger detonations, with the very real risk that the next one destroys our political and economic system both in the United States and beyond.

How Do You Plan To Pay For This?

Posted by Karl Denninger

The numbers are now in on the first fiscal quarter for 2010, and it’s ugly.

This morning we got this from Bloomberg:

Retiree Annuities May Be Promoted by Obama Aides (Update2)

By Theo Francis

To contact the reporter on this story: Theo Francis in Washington at tfrancis14@bloomberg.net.

Jan. 8 (Bloomberg) — The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged.

The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.

Annuities generally guarantee income until the retiree’s death, and often that of a surviving spouse as well. They are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year, David Certner, legislative counsel for AARP, said in an interview.

“There’s a real desire on a lot of people’s parts to try to encourage something other than just rolling over a lump sum, to make sure this money will actually last a lifetime,” said Certner, legislative counsel for Washington-based AARP, the biggest U.S. advocacy group for retirees.

Promoting annuities may benefit companies that provide them through employers, including ING Groep NV and Prudential Financial Inc., or sell them directly to individuals, such as American International Group Inc., the insurer that has received $182.3 billion in government aid.

Balances Fall

The average 401(k) fund balance dropped 31 percent to $47,500 at the end of March 2009 from $69,200 at the end of 2007, according to a Fidelity Investments review of 11 million accounts it manages. The Standard & Poor’s 500 Index tumbled 46 percent in that period. The average balance of the Fidelity accounts recovered to $60,700 as of last Sept. 30 as the stock market rebounded.

There is “a tremendous amount of interest in the White House” in retirement-security initiatives, Borzi, who heads the Labor Department’s Employee Benefits Security Administration, said in an interview.

In addition to annuities, the inquiry will cover other approaches to guaranteeing income, including longevity insurance that would provide an income stream for retirees living beyond a certain age, she said.

“There’s been a fair amount of discussion in the literature taking the view that perhaps there ought to be more lifetime income,” Iwry, a senior adviser to Treasury Secretary Timothy Geithner, said in an interview.

Lump Sums

“The question is how to encourage it, and whether the government can and should be helpful in that regard,” Iwry said.

While traditional defined-benefit pensions were paid out as annuities, providing monthly payments for retirees and often their spouses, workers increasingly are taking advantage of options to receive lump-sum distributions.

Only 2 percent of 401(k) plan participants convert retirement savings into an annuity on retirement, according to a July 2009 report from the Retirement Security Project, a joint venture of Georgetown University’s Public Policy Institute and the Brookings Institution in Washington.

A survey of 149 companies released on Dec. 17 by employee- benefits consultant Watson Wyatt Worldwide, now part of Arlington, Va.-based Towers Watson & Co., suggested that about 22 percent of employers with retirement savings plans offered retirees the choice between an annuity and a lump-sum distribution.

Annuity Sellers

Government success in getting workers to move retirement assets into annuities may prove profitable for insurers that sell annuities, Anne Mathias, policy research director for Washington Research Group, a policy analysis unit of Concept Capital, said in an interview.

Retirement plans, including 401(k) accounts, held $3.6 trillion in assets at the end of the second quarter of 2009, while annuity investments of all kinds totaled about $2.3 trillion, according to figures from the Washington-based Investment Company Institute, a trade association for asset managers.

The top sellers of individual annuities in the U.S. include AIG, MetLife Inc., Hartford Financial Services Group Inc., Lincoln National Corp. and New York Life Insurance Co., according to figures from the American Council of Life Insurers for 2008. The top group-annuity sellers include ING, Prudential Financial, MetLife and Manulife Financial Corp.

Under Fire

Asset managers are concerned the government may go too far in encouraging annuities, said Mike McNamee, a spokesman for the Investment Company Institute. Seven in 10 U.S. households would object to a requirement that retirees convert part of their savings into annuities, according to a survey the group released today.

“Households’ views on policy changes revealed a preference to preserve retirement account features and flexibility,” the institute said in a report.

The institute also said annuities have received support from academic research and “it is unclear why individuals usually forego the annuity option” even when it is available. The survey didn’t ask about potential efforts by the government to encourage voluntary use of annuities.

Annuity sales to individuals have come under regulatory scrutiny in recent years over the size of sales commissions and whether some varieties are suitable for older investors.

Social Security

John Brennan, the former chairman of Vanguard Group, the Valley Forge, Pennsylvania-based mutual-fund company, criticized annuities today as often expensive and offering little inflation protection. Americans already benefit from “the best annuity in the world, which is Social Security,” Brennan said in an interview on Bloomberg Television.

AARP’s Certner said policy makers could avoid many of those pitfalls by encouraging the use of group annuities, which are bought by employers rather than individuals and often carry lower fees, or using approaches that provide retirement income without commercial annuities.

Adding lifetime income to 401(k) plans won’t be sufficient for many workers because they can’t, or don’t, save enough to live on in old age, and Social Security often proves inadequate as more than a safety net, said Karen Ferguson, director of the Pension Rights Center in Washington, D.C.

Senate Bill

“It’s a great idea, but how much are people really going to get out of it?” she said. A better approach would be to give employers incentives to revive defined-benefit pensions, which have languished as employers have focused on cheaper and more flexible 401(k) plans, Ferguson said.

One proposal raised by Iwry as co-author of a paper while at the Retirement Security Project, before joining the administration, has reached Congress. A bill requiring employers to report 401(k) savings both as an account balance and as a stream of income based on an annuity was introduced on Dec. 3 by Senators Jeff Bingaman, a New Mexico Democrat, Johnny Isakson, a Georgia Republican, and Herb Kohl, a Wisconsin Democrat.

On CNBC this morning, Rick Santelli from the CME had this to say:

The floor is a bit abuzz. There is published reports out that I am getting from many of my sources about something the Obama administration is going to put towards a public comment period. This is very early in the process, but it goes something like this – avg Americans were hurt big during the big givebacks in their IRAs when the credit crisis pushed stocks down. So remember how IRAs are formulated, they are thinking of changing that and allowing more of an annuity scenario. Now if you think this thru what it means is instead of a bit of your paycheck going into equities every week, it will probably be going into things like Treasuries it would be a little bit lower return but it would be safer and this is very early but you want to pay attention to any new stories coming out about this annuity conversion they are going to put out for public comment.

Sue Herrera and Tyler Mathiesen comment about (a) isn’t this the wrong time to go into treasuries since folks coming on CNBS are saying it is, and (b) people can already put their IRA monies into Treasuries if they want.

Rick responds: The difference is that it is going to be something that is going to be more of a large scale program a very simple one and more of a conversion as well. Like I said early stages, but the range of opinions is “hey it is not a bad idea” to very cynical that we are worried about who is going to buy treasuries ad infinitum.

Rick’s a pretty sharp guy and most importantly, he tells the truth.  So, what does this all mean?  We shall translate:

US Treasury To Americans:  To Prevent Treasury Market Collapse, We Will Force YOU To Buy Treasuries In Your Retirement Accounts

The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.   Business Week

In other words, Social Security Trust Fund II.   As of last month Fund I is broke.   Summary of 2009 Annual Reports Social Security Board of Trustees    The government already stole all this money, and has not been refunding it for years.  With all the deficit expenditures heaped on top of this, which have gone exponential in the last two years, Social Security ran out of money completely last year, more than 5 years ahead of the previously projected date.  This means that retiree’s checks only go out through DAILY sales of Treasuries.  So, if they sell them to YOU, perhaps you can fund the retirees.  Heh.  Talk about a Ponzi scheme that is doomed to go the way of Bernie Madoff.

 Although this proposal will be presented shortly by the administration as being a ‘frugal choice,’ maybe even the ‘patriotic choice.’  And this will actually sound good to the people who were scrambling around in 2008 trying to find a safe-haven for their retirement accounts during the stock market sell-off.   Indeed, historically speaking,, there has never been a safer asset class in which to be invested.  The problem is, this time we aren’t talking about just a stock market (equities) crash, we’re talking about a potential crash in the Treasury market.  The reality is that there is no one left to buy Treasuries and they need YOU to fund their debt.  After all, China stopped buying Treasuries (funding our debt) in October 2009, but of course no one is talking about this. 

 Press Release:  Treasury International Capital 

 Major Foreign Holders of Treasury Securities 

You see, if they force people to buy Treasuries now, at the current price, when more and more foreigners stop buying, like China did, the price goes down as the yields (interest rate) goes up.  Thus, all the people forced to buy in here will LOSE a tremendous amount of money. 

 Expect the procedure to look something like this:

Step 1 – Make this ‘option’ available
Step 2 – Listen to crickets
Step 3 – Crash stock market
Step 4 – We’re the government and we’re here to help. All your IRA are belong to us. Or of course, you can risk it in stocks if you want.

It’s step 5 they wont’ tell you about:  Treasury market crashes, after all your money has been allocated into it.  It’s exactly like herding sheep.

At this point, anyone expecting the government to be honest about their true intentions about this proposal, or anything for that matter,  is woefully misguided.

Here It Comes (You Were Just Warned Folks)

Posted by Karl Denninger