« Bank Bailout News: CNBC's Erin Burnett, Banking Apologista, Leader of Idiots »
Erin Burnett of CNBC doesn't get it. She was on Meet The Press yesterday and decided to demonstrate her ignorance to an even larger audience than normal.
Erin. Banks would not have been able to pay bonuses to any staff if not for the capital injections from taxpayers. Stop with your nonsense about seperate pools of capital. Every single one of the large banks is insolvent: 30:1 leverage on shit assets is indeed a bitch. The taxpayer bailout via the Fed and Treasury is a morphine drip. The real action is yet to come. All the biggies will be effectively nationalized within 12 months.
Chris Whalen said it long before anyone else, predicting early last year that all the large banks would be owned by taxpayers by the end of '09. Speaking to NBC news producers: why wasn't Whalen the financial guest this weekend. Why did you waste our Sunday morning debate time with the thoughts of someone who reads a teleprompter all day.
So Erin, your argument is specious and smacks of being too far up Jamie Dimon's ass. Remove it, and study pooled capital before we decide to target you. Cuz it won't be pretty. We're an independent news site with no advertising so we can pretty much say whatever the hell we want.
Read my newest pieces:
The Taxpayer Shithole That is AIG
David Walker Says Government Immorality Will Lead to Federal Bankruptcy
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Here is the Adam Green piece on CNBC's problem with Erin. Below is the Chris Whalen interview, and here is Chris' most recent article, 'America vs. the Big Banks'.
And a bonus pic of Bat girl if you made it all the way down here.
Monday, February 2, 2009 at 5:07PM
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Reader Comments (22)
your point is so basic it goes without mentioning. we are forced to accept the technical insolvency of all banking instituions as a normal course of business under fractional reserve lending.. it was a comment aimed at the mis-marking of the assets on the books and how if correctly(honestly) marked then insolvency would be the result based on the wiping out of Tier 1 capital. And this doesn't even get into the quality of existing tier 1 capital at many banks. Look below to see that Citi uses billions of DTAs Deferred Tax Allowances as Tier 1 capital. That's previous losses COUNTING as legit Tier 1 Capital. Are you kidding me? In this environment of $0 in expected 12 month future profits, it's also technically in violation of accounting standards. You must have a reasonable expectation of profits in the next 12 months in order to count these DTAs as capital.
It's all insane. I can't believe the regulators let them get away with it. Seriously read the following link. Read it closely. Citi is a steaming pile of shit and the governments want our kids to eat it.
http://dailybail.com/home/2009/1/14/citi-will-never-stop-asking-for-your-money-ever.html
Also see this piece from blodgett today on the pricing problem. it gets right to the heart.
http://clusterstock.alleyinsider.com/2009/2/geithners-secret-plan-to-screw-you-explained
"The same crap asset that the government will buy on your behalf has four different values:
The carrying value: $0.97. The dreamy hallucination that the bank that is stuck with the assets is telling its shareholders it is worth. The fact that there is almost no scenario that would lead to the crap asset actually being worth this much is why no one trusts banks anymore.
A third-party assessment of value: $0.87. S&P's sharp analysts, the ones who almost certainly rated this security AAA when it was first dumped on unsuspecting buyers, say it is worth more than 10% less than the bank says it is worth.
A conservative third-party assessment of value: $0.53. What S&P estimates the crap asset is worth if the economy doesn't immediately rebound, which is about half of what the bank says it is worth.
The market's objective assessment of value: $0.38. Unlike the bank and S&P, markets have no incentive to misrepresent the true value of an asset (or to look at it through rose-colored glasses). And the market says the asset is worth about a third of what the bank says it is worth.
So what price will the goverment's "Bad Bank" pay for that crap asset on your behalf? The details have yet to be announced, but the signs aren't encouraging.
Sheila Bair has already suggested that the government knows better than the market does what these assets are worth. Translation? We're going to overpay for the crap assets and secretly recapitalize the banks at taxpayer expense."
My own preference is to offer the deadbeat homeowner similiar terms to what the banks were originally offered. A 5 year 'bridge loan' , if you will, and a refi. Using the Indymac terms as a reference it seems most homeowners who can be helped need about $425/month in debt relief to stay in their house at current mortage rates and at the original purchase price. This comes down to around a $25,000 loan for 5 or so
years or, put another way, a new car. Extrapolating this to the 2 million or so homeowners likely to default in the next year, offering a $25,000 bridge loan to each of them comes to about $50 billion. Double it if you go two years out. The advantage- you stop the flood of foreclosures and write downs of impaired loans devastating bank balance sheets. In effect, you buy time for the salvageable banks and homebuyers to repair their finances. The government also take a lien on the property for the balance and could apply any tax refunds due homebuyers to the loan.
As a stick to prevent many underwater homeowners from walking away from their purchase, the government might also offer an amnesty for any prior loan application fraud. Anyway sorry to have used your forum as a soap box but this, to me, seems the cheapest way to stabilize both the banks and the underlying residential real estate calamity.
I agree, it is a Hobson's choice... the deadbeat bank or the deadbeat homeowner. I would choose the deadbeat homeowner over the deadbeat bank any day of the week. Banking staff have a fiduciary duty qualitatively different than a debtor and the resources to identify and prosecute fraud. This is not to excuse the fraud on the part of the many speculators. I just think Bankers have the greater responsibility and have caused the greater harm.
While I think anyone willing to engage in fraud or live excessively beyond their means to repay debt obligations deserves the full consequences for their actions as a means of correcting that bad behavior, I am willing to concede and support your solution if for no other reason than utility. These bad actors should still be marked with a "Scarlett Letter" of some sort to warn future employers/creditors of the risks of a business relationship with them.
Your solution of bridge loans, government liens, tax refund garnishment, and "limited" amnesty for prior loan application fraud is one of the more sensible approaches I have heard put forward. I say "limited" amnesty, b/c I think the degree and circumstances of the fraud should be taken into account. Someone who took out $5 million for multiple rental condos in Florida vs. someone who took out $500K for a single owner-occupied cracker box in San Diego are different situations entirely.
However, even with bridge loans, I think home-debtors will still walk away simply b/c they overpaid by up to 50% on an "investment" that is unlikely to recover and may continue to depreciate for years. It has nothing to do with affordability. If you took out a loan on a Cessna Citation as an "investment" (used aircraft, unlike automobiles, generally appreciate) for $5 million and you suddenly realized you could only resell it for $2 million this week, and potentially less years into the future, would you keep making payments? What if the bank offered to lower the interest or extend the loan term to 100 years? That would not make any business sense unless you were able to monetize use of the Citation to subsidize your losses and sell it when you are were longer upside down. It is a purely ethical consideration to honor your word - you have promised to repay the loan without regard to depreciation of the asset (unless you had some very savvy lawyers, but I doubt any bank would ever agree to those terms). Such a scenario is compounded when (1) dept payments on a single asset are a significant portion of your total liabilities and (2) circumstance make those dept payments increasingly difficult to make.
Apologies for being off topic.
They didn't call her out, but I think their silence was DEAFENING! I have a feeling they were thinking "What the F$%@ are you talking about?"
Look, the banks aren't insolvent until we say they are. The economy will recover, and will recover much faster than any of you are willing to admit. People can't take the boredom of not buying and spending, it's too tedious. I am old enough to remember a number of these, and this isn't the worst by a long shot. The assets will recover because the economy will recover. And the banks (at least most of them will survive.)
Capitalism is still alive and healthy. Read Moynihan's book. We've been "managing" this capitalistic economy for 50 years. This is all part of the game. It would have been nice not to have to drop $700b, but then, what exactly was the alternative?
As for the taxpayer, please tell me how the taxpayer is paying for any of this? Did you get an assessment tax last fall? The treasury prints what they want. You didn't pay for any of it and you never will. Tax rates in this country are still low comparatively, and should be lower. But taxes have absolutely nothing to do with this. Our government spends what it wants. Nothing ever balances nor does it need to balance.
And Sherman is dead wrong. The last fucking thing we need is more government intervention.
It cracks me up to heat the vitriol of those who "Know" everything. How are those job interviews coming along?
Not sure if you are smoking green shoots or what?
I guess you don't pay attention to Roubini or David Rosenberg or Meredith Whitney or Soros or Stiglitz or even Krugman. We are now Japan. Get used to the idea of this malaise lasting for a decade. We have guaranteed a slow burn.
Read what the Citigroup real estae prez said just today:
http://www.reuters.com/article/newsOne/idUSTRE55L1VP20090622?sp=true
This is a big story.
"As for the taxpayer, please tell me how the taxpayer is paying for any of this? Did you get an assessment tax last fall? The treasury prints what they want. You didn't pay for any of it and you never will."
Is this a joke. So much debt being floated that the dollar and treasuries will tank. Eventually. We are on an unsustainable path.
And by the way total committments are $13.9 trillion. $700 billion was just TARP.