Fiatch

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The Market Ticker writes:

At 5% of non-performing loans a bank is at risk of being insolvent.

But the entire banking system in the United States had its non-performing loan ratio increase from 5.58% in the first quarter to 6.49% in the second, a record, and higher than the 5% level at which the survival of a bank(ing system) is threatened with collapse.

Hmmmm….  So should we take from this that the entire US Banking System is about to collapse?

This much we know for certain - you’re being screwed - systematically - to cover the sins of these banksters who made loans to people who they had no reason to believe could pay…

This is the problem with allowing the blatant and outrageous fraud in our system to continue: Those who are prudent, who have done only good and not bad things, get reamed repeatedly and are forced, at gunpoint, to pay for the sins of those who committed that fraud.

Yet we, as Americans, permit this…

Folks, wake the hell up.

Read the whole thing.

Emmanuel Goldstein captured the dynamic well.  What happens if “Don’t Tread on Me” becomes “Come and Take It?”  What happens if it doesn’t?  Federal power apparently knows no other bound.

What builds trust?  What destroys it?  What store of value is safe?  What if the ideas of the Austrian economists are correct?

“Officials have taken the view that the exact use of the federal aid cannot be tracked because money given to a bank is like water poured into an ocean.”

“Bailout Overseer Says Banks Misused TARP Funds” via the WP

[photo source]

With Jamie Dimon becoming poster boy for the James-Taggart type of banker, where is our Midas Mulligan?

See also “President Obama’s Favorite Banker” via Robert Wenzel.

[photo source]

And part 2.

Bill Moyers recently spoke with WIlliam Black, former bank regulator and author of The Best Way To Rob A Bank Is To Own One.  Here is part 1.

This man is still employed.

This man is still employed.

76 years ago today, President Roosevelt signed into law a bill passed by the US Congress that outlawed gold held by citizens.  Keep in mind that private ownership of gold was not decriminalized until the 1970’s.

Here is an excerpt from Wikipedia on the Emergency Banking Act of 1933:

The Emergency Banking Act (also known as the Emergency Banking Relief Act) was an act of the United States Congress spearheaded by President Franklin D. Roosevelt during the Great Depression. It was passed on March 9, 1933. The act allowed a plan that would close down insolvent banks and reorganize and reopen those banks strong enough to survive.

On March 5, 1933, the day after Roosevelt’s inauguration, he called a special session of Congress which instituted a mandatory four-day bank holiday. This act provided for the reopening of banks after federal inspectors had declared them to be financially secure.

The bill also gave the Secretary of the Treasury, William Hartman Woodin, the authority through an amendment to the Trading with the Enemy Act to confiscate the gold of private citizens, excluding dentists’ and jewelers’ gold and “rare and unusual” coins. These citizens received an equivalent amount of paper currency which was subject to later devaluation with relation to gold. Ultimately, the US dollar was devalued by approximately 40%, ending the deflationary spiral the American economy was experiencing.

Within 3 days of the act’s passage, 5,000 banks had passed inspection and were reopened. Roughly two-thirds of U.S. banks quickly reopened under this act, and faith in banking institutions was somewhat restored.

This act was a temporary solution to a major problem. The 1933 Banking Act passed later that year presented elements of a more permanent solution, including formation of the Federal Deposit Insurance Corporation (FDIC).

For additional info, see also:

• LAT reports “Roosevelt Closes All Banks; Congress Meet Thursday” from March 5, 1933.
• WSJ reports “Bill Seeks to Let FDIC Borrow Up To $500 Billion” from March 6, 2009.

What if the government is disobeying law?  What if this whole show is an illegal farce? What is worse than failure?

Consider “The Underlying Fraud In Banking” from The Market Ticker. Lest you mistakenly assume this article presents fringe conspiracy theory, check the intro:

Ok tinfoilers, this is not what you think it is; I’m sure many of you came here and started to read because you thought I was going to rant about fractional reserves or the lack of “sound money.”

Sorry, no dice.

No, I’m going to talk about the inherent fraud over the last five or so years in the housing (and other lending) markets, and it is NOT where you think it is.

The author meticulously outlines fraudulent lending practices and securitization schemes as well as regulatory failures, all apparently against the law. Read all these details for yourself. This is important stuff.

After walking through the mortgage-securitization-oversight mess, the author continues:

Got it?

This is really pretty simple - there must be a leverage limit and the OTS, OCC and FDIC must enforce that limit to insure that banks do not fall into being undercapitalized.

Further, no bank may make a capital distribution (pay a dividend) or pay a management bonus if before or after doing so it would be undercapitalized.

Where has this supervision been?

Note that Geithner and President Obama have continued this nonsense, and Geithner is one of the people personally culpable for ignoring the law in the first place.

What will stop this blatant lawlessness?

Certainly not Congress. Ben Bernanke was before Congress this last week and guess what: Not one question about the law compelling him (and the other regulators) to act before banks become insolvent.

Now President Obama has released his budget which provides for even more bailouts - a potential $750 billion “second round.”

Yet the law under which we are supposed to operate in this country makes clear that this sort of policy decision is directly contrary to statute; instead, the law by its black letter requires banks to be taken into receivership before they become insolvent.

And oh by the way, the regulators are not allowed (by that law) to ignore off-balance sheet obligations either. Uh uh - they are required to take action before the insolvency occurs irrespective of how - and they did not.

In fact the banks have self-declared their non-compliance with that statute as noted in The Ticker right here (“Our Tier 1 Ratio Is Strong!”) once again last night!

This “self-declaration of insolvency” in fact goes back to Washington Mutual’s original1Q 2007 report that set me off and started me writing Tickers back in April of 2007!

We are in fact talking about what amounts to nearly two years of this nonsense to date, and through the fall of 07 into the early part of 08 the MLEC garbage (and friends after it went down in flames) makes clear that regulators, including Treasury and The Fed knew exactly what the state of these firms was and willfully ignored it.

There is not a policy “decision” allowed here guys and dolls - this is black letter statutory language that compels a certain set of actions - statutory language put in place after the last time we were here (the S&L crisis) that was intended to prevent the damage ($150 billion) that was done to our nation the last time!

This time around we’re at $750 billion with another $750 in “placeholders” in the budget - that is, fully ten times as much damage, and yet the black letter law of the land says that this approach is directly contrary to the statute.

What are the implications of this allegedly criminal behavior?

..the underlying reason we have seen a market collapse is not due to economic recession.

Recessions are not “abnormal”; they come about due to the human condition - people are both too ebullient and too fearful. “Animal spirits” include both reaching for a brass ring and cowering in the corner, contrary to the Wall Street myth that such is only a “positive” thing.

No, we have seen this collapse because “The Bezzle” has reached into literally every corner of our financial system and government and nobody has been held to account.

When the S&L crisis happened only a few people went to jail, even though thousands committed felonies. When the Internet Bubble blew up only a few went to jail even though it is trivially easy to identify thousands who flatly lied about growth metrics - and that’s just one place they were lying in their annual and quarterly reports.

As we have continued to tolerate “The Bezzle” it has become clear to people in all financial areas that they can lie and get away with it. That the odds of being caught, say much less prosecuted, are so trivial that it’s definitely worth the risk.

So how does it end?

This - up and down the line - from the intentional lack of prosecution to willful refusal to follow the law to utter stupidity in criminal sanction - is the essence of “The Bezzle” and it is why capital has fled.

It also, however, points out an essential truth about any future recovery in our economy and banking system - it won’t happen until “The Bezzle” is muzzled to a significant degree.

It is too much to expect that we will ever get rid of “The Bezzle” entirely. That’s simply not going to happen - there will always be cheats, liars and frauds.

However, until those who commit such crimes and blatantly ignore the black letter of the law are held to account on a consistent basis, thereby destroying the belief that this sort of criminal activity is “free of material risk”, there can be no meaningful recovery of economy progress.

We can either demand and obtain this change in policy and attitude now as Americans, or the market will do it for us by continuing to tank and forcing these firms and examples into the open where they are destroyed. The unfortunate reality, however, is that the latter course - refusing to face this and allowing the inevitable market implosion to do that which we refuse to through law enforcement - will also take down tens of thousands of sound companies who also see their capital base removed while their obligations remain.

Bluntly put - Congress and The Administration must, right here and now, compel these regulators to follow the law or remove them from their positions of power.

This had to be done two years ago and it still needs to be done.

There is no way to stop the bleeding in our capital markets - both credit and equity - until this occurs. It will happen; we are only choosing the means and where we want to confine the risk to.

If we continue down the path we are on now we are risking the meltdown of the United States Federal Government;

How’s it looking today?

The Fed knows that it is holding a bunch of crap and is threatened by the “value” (or lack thereof.) If they shove that off onto Treasury then the detonation of over $1 trillion in bad debt will occur on the government’s balance sheet, which will (1) cause a dramatic move upward in Treasury interest rates, (2) translate into all other forms of debt and (3) result in exactly the same collapse that happened in the 1930s - but it will be far worse in degree, since we are far more in debt now than then.

As things stand today I have no confidence whatsoever that The Obama Administration has any intention to act according to law any more than George Bush’s Administration did.

As a consequence until and unless the government’s position and actions change my “base case” economic forecast must remain bearish and over time continue to grow more bearish; without the 2/3rds of all capital that is private in our economy, even with supplanting of that capital from the government (to the extent it is able) I believe we are looking at a potential 30% contraction in GDP from top to bottom and unemployment reaching north of 20% on U-6 (broad form), with the very real possibility of a 20% headline number.

We are headed for an Economic Depression worse than the 1930s at Warp Speed folks, and it is not going to happen because of “fundamentals” or even because “the credit markets froze up.”

No, it is going to happen because both the Bush and Obama administrations are intentionally, with malice aforethought, ignoring the black-letter law of the land for the purpose of covering up their own malfeasance and misfeasance, and neither political party or the American People will get off their fat asses and demand that it be stopped.

Your job, prosperity and wealth are on the line America - right here, right now.

This is not some abstract failure in the market - this is a series of actions that have been taken with the full intention of screwing you, by both Democrats and Republicans, so that a handful of robber barons masquerading as capitalists do not have to face the music for their acts.

How bad can it get? Have a look at these charts folks over at Calculated Risk. They’re sobering - and if the lawlessness does not stop we are just getting started.

Is it possible that a theft of this magnitude is being perpetrated right before our eyes in the United States of America?

What builds trust?  What destroys it?  What store of value is safe?  What happens next?

It’s still raining. Hard.

The NYT reports “Latest Citigroup Rescue May Not Be Its Last:”

No sooner did the Treasury Department announce on Friday that it would increase its ownership in Citigroup than the questions began to swirl.

The big question, of course, is this: Will this plan, the third since October, be the one that finally works? Will it shore up this $2 trillion behemoth? Or is the outcome that the banks and the government are so desperately trying to avoid — nationalization, under whatever guise — only a matter of time?

Wall Street’s judgment was swift and brutal. Citigroup’s share price, which a little over two years ago was flying high at $55, plunged 96 cents to a mere $1.50. Other banking shares also fell hard, underscoring the acute anxiety over where this will end and what the government will do next.

The latest Citigroup rescue, experts said, falls short on several fronts. Neither the previous bailouts nor this one, which will increase the government’s ownership in Citigroup to 36 percent from 8 percent, removed the toxic assets that are at the heart of Citigroup’s problems. At best, this third rescue may buy time to devise a solution that allays investors’ fears. At worst, it could allow the problems to fester and eventually cost the government — and, by extension, taxpayers — even more money.

“There’s a vote here every day in the stock market,” Peter J. Solomon, the chairman of a boutique investment bank that bears his name. “The vote every day says ‘You haven’t found a plan, haven’t found a plan, haven’t found a plan.’ ”

Indeed, Citigroup itself proposed the third plan, which involves converting the government’s preferred stock in the company to ordinary common shares, as far back as November — when the second rescue was devised.

With the first two bailouts, the government provided Citigroup with $45 billion. With the third — which won’t involve additional taxpayer dollars — it will become Citigroup’s largest shareholder by far.

Similar uncertainties loom over the rest of the banking industry. Investors are struggling to sort out which banks will be able to generate enough capital on their own to avoid second or third bailouts.

“The government would clearly like to own as little of the common as possible,” said David Bullock, a hedge fund investor at Advent Capital Management. “For most, the real day of reckoning in this regard is in the future.”

The government should get out of the bailout business.  They are clearly terrible at it.

Let the bankrupt go bankrupt — before they bankrupt us all.

‘What Is Worse Than Failure?” — the latest edition from Citigroup via Mish.

Citigroup is in deep trouble. Its share price is $1.95 and the market is recognizing what I said a year ago: “Citigroup Is Insolvent”. Of course it is not just Citigroup that is insolvent, the entire global banking system is insolvent.  Nonetheless, Citigroup pretends otherwise.

To hell with Citigroup. Bust it up and sell it. It’s the best possible outcome for everyone involved.

What builds trust?  What destroys it?

In 1999, Congressman Ron Paul spoke against Gramm-Leach-Briley in particular and the financial system in general, via Congressional Record (hat tip Reason Magazine):

Madam Speaker, today we are considering a bill aimed at modernizing the financial services industry through deregulation. It is a worthy goal which I support. However, this bill falls short of that goal. The negative aspects of this bill outweigh the benefits. Many have already argued for the need to update our financial laws. I would just add that I agree on the need for reform but oppose this approach.

With the economy more fragile than is popularly recognized, we should move cautiously as we initiate reforms. Federal Reserve Board Chairman Alan Greenspan (in a 1997 speech in Frankfurt, Germany and other times), Kurt Richebacher, Frank Veneroso and others, have questioned the statistical accuracy of the economy’s vaunted productivity gains.

Federal Reserve Governor Edward Gramlich today joined many others who are concerned about the strength of the economy when he warned that the low U.S. savings rate was a cause for concern. Coupled with the likely decline in foreign investment in the United States, he said that the economy will require some potentially `painful’ adjustments—some combination of higher exports, higher interest rates, lower investment, and/or lower dollar values.

Such a scenario would put added pressure on the financial bubble. The growth in money and credit has outpaced both savings and economic growth. These inflationary pressures have been concentrated in asset prices, not consumer price inflation—keeping monetary policy too easy. This increase in asset prices has fueled domestic borrowing and spending.

Government policy and the increase in securitization are largely responsible for this bubble. In addition to loose monetary policies by the Federal Reserve, government-sponsored enterprises Fannie Mae and Freddie Mac have contributed to the problem. The fourfold increases in their balance sheets from 1997 to 1998 boosted new home borrowings to more than $1.5 trillion in 1998, two-thirds of which were refinances which put an extra $15,000 in the pockets of consumers on average—and reduce risk for individual institutions while increasing risk for the system as a whole.

The rapidity and severity of changes in economic conditions can affect prospects for individual institutions more greatly than that of the overall economy. The Long Term Capital Management hedge fund is a prime example. New companies start and others fail every day. What is troubling with the hedge fund bailout was the governmental response and the increase in moral hazard.

This increased indication of the government’s eagerness to bail out highly-leveraged, risky and largely unregulated financial institutions bodes ill for the post S. 900 future as far as limiting taxpayer liability is concerned. LTCM isn’t even registered in the United States but the Cayman Islands!

Government regulations present the greatest threat to privacy and consumers’ loss of control over their own personal information. In the private sector, individuals protect their financial privacy as an integral part of the market process by providing information they regard as private only to entities they trust will maintain a degree of privacy of which they approve. Individuals avoid privacy violators by `opting out’ and doing business only with such privacy-respecting companies.

The better alternative is to repeal privacy busting government regulations. The same approach applies to Glass-Steagall and S. 900. Why not just repeal the offending regulation? In the banking committee, I offered an amendment to do just that. My main reasons for voting against this bill are the expansion of the taxpayer liability and the introduction of even more regulations. The entire multi-hundred page S. 900 that reregulates rather than deregulates the financial sector could be replaced with a simple one-page bill.

Whom do you trust?