--Some things you may not know (or that some may not want you to know) about all those AIG counterparty payments.
--An outrageous new proposal by the Financial Accounting Standards Board (FASB) which would impress even Aesop, himself; nonetheless, a perversely distorted definition of "Net Income" may be in place for all in just days--just in time to spin the U.S. into oblivion.
--The concept of the Wall Street bailout being a public-private deal is little more than an outright lie to the U.S. public. What else can one say about a deal which is 80%-90% funded by the U.S. government and virtually encourages the purchase of all of these cents-on-the-dollar assets at 100 cents on the dollar?
--This morning, we're told to brace ourselves (again) for Geithner's full plan for all those toxic assets; and the TALF, TLGP and the FDIC will all handles piles and piles of toxic trash, expending hundreds of billions (if not trillions) in taxpayer funds, contrary to some bloviations in the blogosphere to the contrary (especially concerning TALF). Remember Paulson's plan for a "bad bank?" With Geithner it's three or four "bad banks," instead.
In September, 2008, AIG--knowing that the value of their clients CDS' and CDO's were diminishing by the day--was all but forced into federal receivership. Hours later, or weeks and months before, depending upon how thick that tinfoil hat is that you're wearing, Wall Street demanded that our government--AIG's new owners--pay them 100 cents on the dollar for the toxic trash that they had insured via AIG. Despite screams from the public for transparency, the government responded by providing just that (and in some cases, then some), eventually to the tune of $173 billion, but also by obfuscating this truth from us, even up until now.
Thanks to the NY Times' Gretchen Morgenson, and others, we've recently learned of the identities of the recipients and some of the amounts of those pass-through AIG funds. But, even now, few are aware of the reality that even though this pile of cash was paid to these entities via that AIG conduit, these Wall Street counterparties actually kept those toxic assets for which they were compensated (i.e.: the collateral), too. And, thanks to new mark-to-make-believe accounting "guidelines" just proposed by the Financial Accounting Standards Board (FASB) last week, these recipients of our government's largesse will soon be enabled to valuate that toxic paper that they're still holding at 100% (or whatever they wish) of their face value--just in time to offload it to us--instead of their cents-on-the-dollar, true, mark-to-market worth.
This coming week, much of this Wall Street debauchery will reach a crescendo with the masses when Tim Geither, finally, supposedly, provides us with his "plan" which actually represents little more than just another $2 trillion-plus giveaway to Wall Street, much like the first $2 trillion tranche which is being concluded now. A totally distorted picture of this upcoming event is being provided throughout the blogosphere based, in part, upon today's Wall Street Journal: "U.S. Sets Plan for Toxic Assets."
Meanwhile, folks like Nobel Laureates Joseph Stiglitz's and Paul Krugman's advice--to nationalize these entities and focus upon Main Street's needs--goes unheeded. Downright ignored, IMHO. (Plans for additional stimuli have been put off to some unknown future date.) And, as for the mythical concept that these entities are "too big to fail," Gretchen Morgenson has clearly explained how we simply wind-down the derivatives market--those Credit Default Swaps (CDS) and Commercial Debt Obligations (CDO's)--and get on with our lives. (All to deaf ears.)
But first, a little more history.
AIG's 100%-PLUS PAYMENTS TO COUNTERPARTIES
So, AIG takes the fall. (And, yes, they should be burned in hell just like every other Wall Street thief, but they're no worse than any of the other major Wall Street players; perhaps just a little more transparent to the public than most, however.)
By definition, most targets of convenience are more transparent than those around them. That's why they're the target. That's the way the game's played.
Like a grandiose game of musical chairs, the music with the mortgage meltdown lyrics and melody started playing in 2007 (actually much earlier, according to folks like Joseph Stiglitz); everyone got up from the table and started marching around it; and when the music stopped in September, 2008, AIG was left standing with everyone else in the room sitting down.
Now en masse, we misdirect our focus onto $165 million in AIG bonuses, something like 00.02% of the money the government has provided to that ghost of a company, which we also now know is only the first of many conduits designed by our Treasury Department to obfuscate these massive welfare-for-the-rich giveaways to dozens of the world's leading financial services players.
The story repeated itself, many times over during the Fall of 2008 and through the first quarter of 2009, a period which is concluding as we speak.
Eventually, looking back at more than two trillion dollars in government funds expended in 2008 or committed during that time to be expended at a later date, as the smoke clears (in the "room" where all of the other firms still sit at their chairs), it's now a matter of official record that hundreds of billions of dollars in taxpayer funds were wasted. We were told by our leaders that they were attempting to reinstill consumer credit into the marketplace, when, in fact, that "waste" was little more than a premeditated effort--at least to anyone with an IQ higher than air temperature--to enrich Wall Street at the expense of Main Street.
The government's now acknowledging that restoring credit to the marketplace wasn't the intent of their actions over the past few months despite their bloviations during the past six months to the contrary. And, the banks have openly stated that they had--and still have--no intention of returning consumer credit to any semblance of the levels the public had experienced through the Summer of 2008 either, although our leaders on all things economic would infer otherwise. (NOTE: I don't think things should "return" to how they were; but, Wall Street has completely turned their backs on the consumer public, not that they ever gave a damn about us in the first place.)
Now the status quo continues to turn many truths into something that they're not to play us for much, much more in the upcoming week.
"THE ACCOUNTING BROTHEL"
The next mangled truth relates to the definition of solvency, at least as far as it concerns all that toxic trash still being held by our various Wall Street players.
You see, like jonesing alcoholics before we started pouring trillions of dollars down their gullets, we could at least play the insolvency card as somewhat of a gun to the head of the Wall Street beast while telling them: Either we do this or we will shut you down.
What many didn't realize at the time, however, was that the depth of Wall Street's insolvency was far worse than most imagined.
Wall Street's still holding a couple of trillion dollars--at the very least--in toxic trash, and that's after the smoke's already cleared the room once.
After everything was said and done through 2008, pundits like Stiglitz, Krugman, and many others, were still saying most of the major U.S. banks were insolvent.
So, if you're a Wall Street player what do you do? You figure out ways obtain more taxpayer money, and along the way to doing that, you change the definition of the term, "insolvency," so it no longer applies to you!
Wherein, the entire accounting industry is now being officially sanctioned to misrepresent the balance sheets of its clients.
And, that's just what happened over the past week: "Accounting Brothel Opens Doors for Banker Fiesta"
Accounting Brothel Opens Doors for Banker Fiesta
Commentary by Jonathan Weil
March 19 (Bloomberg) -- The banks demanded that the accountants give them leeway in how they report losses to investors. The accountants responded by giving away their souls.
This week, the Financial Accounting Standards Board unveiled what may be the dumbest, most bankrupt proposal in its 36-year history. If it stands, the FASB ought to change its name to the Fraudulent Accounting Standards Board. It's that bad.
Here's what the board is floating. Starting this quarter, U.S. companies would be allowed to report net-income figures that ignore severe, long-term price declines in securities they own. Not just debt securities, mind you, but even common stocks and other equities, too.
All a company would need to do is say it doesn't intend to sell them and that it probably won't have to. In most cases, it wouldn't matter how much the value was down, or for how long. In effect, a company would have to admit being on its deathbed before the rules would force it to take hits to earnings.
The banks want unfettered license to value their assets however they see fit, and to keep burgeoning losses out of their earnings and regulatory capital. The FASB had been holding its ground, for the most part. Now, though, the board has assumed the fetal position.
The banks want unfettered license to value their assets however they see fit, and to keep burgeoning losses out of their earnings and regulatory capital...
Bold type is diarist's emphasis.
Jonathan Weil goes on to tell us how the FASB has been under "assault" by members of Congress "owned" by the banking industry, such as Democratic Rep. Paul Kanjorski, who "beat (FASB Chairman) Robert Herz like a dog at a House Financial Services Committee hearing last week."
As Weil's story continues, the primary takeaway is that the public should now ignore all net income statements from financial services entities (actually all entities). In short, they're little more than fiction.
Jonathan Weil also authored a great piece a few weeks ago all about how "Citigroup Hides Mystery Meat in Balance Sheet." Even today, Citi is a "too big to fail" bank light years beyond insolvency. They've received over $310 billion in federal bailout funds over the past 12 months, yet their most recent balance sheet is nothing less than a running joke, still. (I'd venture to guess that they weren't buying their derivative insurance from AIG.)
So, while few will be aware (or reminded) of these realities as we're hearing them in pronouncements from banks now and going forward, much like many of the government's Bureau of Labor Statistics numbers on unemployment that we now hear reported, too, the truth remains that (assuming the new FASB requests are authorized) virtually all "net income" figures you hear form companies going forward will be little more than pure unadulterated bullshit.
Remember all those comments you heard from Wall Street over the past week about Citi and Bank of America being profitable this quarter? (Not exactly a lot of dots to connect on that one.)
THREE OR FOUR BAD BANKS INSTEAD OF ONE BIG ONE. "SPIN INSTEAD OF SPINE."
Next week, the sentiments of the Progressive wing's most notable advocates on the economy, dead and alive, will officially be ignored.
Who's being ignored? That'd be John Keynes, and his neo-Keynesian disciples, including: Nobel laureates Joseph Stiglitz and Paul Krugman, former Federal Reserve Chair Paul Volcker (on my list of noted advocates for the Progressive cause...who woulda' thunk it, although it is a stretch to put Volcker on this list), as well as many other prescient economists, including: Dean Baker, Robert Kuttner, Nouriel Roubini, former US Labor Secretary Robert Reich, and even some folks in and around the White House, including Obama economics advisor Austan Goolsbie and Vice President Joe Biden's chief economic advisor Jared Bernstein.
The government's exceptionally flawed plans for our economy, led by implementers-in-chief Treasury Secretary Geithner and White House economics advisor Lawrence Summers, are pretty much now set in stone. And, make no mistake about it, this is what's being done, and there's not too much we can do about it other than pounding the phones and email.
This story running on today's Wall Street Journal's website which is the lead on their front page, as well: "U.S. Sets Plan for Toxic Assets."
U.S. Sets Plan for Toxic Assets
Wall Street Journal
By DEBORAH SOLOMON
WASHINGTON -- The federal government will announce as soon as Monday a three-pronged plan to rid the financial system of toxic assets, betting that investors will be attracted to the combination of discount prices and government assistance.
But the framework, designed to expand existing programs and create new ones, relies heavily on participation from private-sector investors. They've been the target of a virulent anti-Wall Street backlash from Washington in the wake of the American International Group Inc. bonus furor. As a result, many investors have expressed concern about doing business with the government in this climate -- potentially casting a cloud over the program's prospects.
The administration plans to contribute between $75 billion and $100 billion in new capital to the effort, although that amount could expand down the road.
The plan, which has been eagerly awaited by jittery investors, includes creating an entity, backed by the Federal Deposit Insurance Corp., to purchase and hold loans. In addition, the Treasury Department intends to expand a Federal Reserve facility to include older, so-called "legacy" assets. Currently, the program, known as the Term Asset-Backed Securities Loan Facility, or TALF, was set up to buy newly issued securities backing all manner of consumer and small-business loans. But some of the most toxic assets are securities created in 2005 and 2006, which the TALF will now be able to absorb.
Finally, the government is moving ahead with plans, sketched out by Treasury Secretary Timothy Geithner last month, to establish public-private investment funds to purchase mortgage-backed and other securities. These funds would be run by private investment managers but be financed with a combination of private money and capital from the government, which would share in any profit or loss.
The spin now is that the shadow banking sector (it's not a mythical term; it really does exist; if you bother to click on the link to the left you may learn more about that portion of our financial services sector which actually controls more money than the formal banks on Wall Street now) is apprehensive about participating in these programs due to congressional (and public) uproar over AIG. Oh noes! Quick, everyone panic! (Forget everything we've been told about avoiding "fear" for a moment, too!)
'You. Must. Do. Exactly. What. Wall. Street. Wants. Or. Die.'
(So much for avoiding fear, huh, Mr. Summers? I guess fear's okay as long as it's applied to further your agenda.)
THE BIGGER REALITIES
I blogged about much of this three days ago, especially as it related to the TALF program, at which point a segment of the DKos blogging community tried to explain to me how wrong my conclusions were, when in fact, the writing had been on the wall for many weeks, if not months (based upon public statements in the press from Geithner, Bernanke, Bair...and even Hank Paulson), that this was exactly where everything was heading.
In that diary, I said the following about the Term Asset-Backed Securities Loan Facility, or (TALF), one of the three or four programs (vaguely mentioned by Geithner in today's WSJ story) all bearing various functional similarities to the lone "bad bank" that was discussed at length both in the MSM and here on the blogs over many of the past months--which comprise Secretary Geithner's so-called bailout now.
My comments about the TALF program from a few days ago pretty much apply to all of the other "bad bank" programs Geithner, et al, are implementing as of this week:
1.) $2 trillion in taxpayer funds with no salary restrictions to recipients.
2.) Shadow Bankers get almost all of their investment money for free, from you.
3.) Shadow bankers will skim administrative fees off the top of $2 trillion, first.
4.) Government has virtually no say in terms of regulating what these entities must do with the money once they give it to them.
5.) In fact, the shadow bankers actually rewrote the government's guidelines for the use of this money.
6.) Shadow Bankers are guaranteed by us that they will not lose any money on their investments.
7.) The hedge fund industry intends to create MORE derivatives (i.e.: CDS' and CDO's) from the toxic trash which they're buying--with our money--from Wall Street.
8.) The very folks that created our economy's meltdown are now running things in the Shadow Banking industry.
9.) We're told that the TALF program is being established to bring credit liquidity back to consumers and small businesses; but that's impossible, since the banks receiving this money are virtually incapable of doing this--or they have no intention of doing this--going forward.
10.) If the TALF program's designed to credit-enable small businesses and consumers why are ANNOUNCED plans already in place, or being implemented, by these very banks to the contrary?
Perhaps even worse than the MSM, we have folks in our own communities "explaining" to us how it's too late, and how we have no choice, despite the fact that certain aspects of the "public-private" program might suck: "The Treasury's Bailout Plan Explained."
The truth is, it's about as much of a "public-private" program as peanut butter is jam. It's 80%-90% underwritten by us. Period. It's nothing less than a giveaway to Wall Street, as much if not moreso than anything we're doing with AIG now, to boot.
Later this past Wednesday, the following article appeared on Bloomberg.com: "U.S. Considers Broadening TALF Program to Distressed Assets."
It confirms much of what I posted in my diary earlier that day.
U.S. Considers Broadening TALF Program to Distressed Assets
By Robert Schmidt and Rebecca Christie
March 19 (Bloomberg) -- The Obama administration may use a new Federal Reserve program designed to spur consumer lending to help remove distressed assets from banks' balance sheets, according to people familiar with the matter.
Officials may meld the Treasury's plan to set up private investment funds to buy frozen assets with the Fed program, known as the Term Asset-Backed Securities Loan Facility, the people said. The Federal Deposit Insurance Corp. may also get a wider role, they said.
Treasury Secretary Timothy Geithner may use an array of approaches to maximize the likelihood of cleansing banks' balance sheets so they can start lending again. The next announcement, which may come as soon as this week, will be critical after Geithner's first unveiling of the strategy caused a sell-off in financial stocks.
"Letting the TALF take on this role would arguably allow" the toxic-debt effort "to be implemented faster as many of its technical details have been worked out" already, said Zach Pandl, an economist at Nomura Securities International Inc. in New York.
The TALF would provide loans to investors and agree to take illiquid debt as collateral, the people said. It would be used alongside the Treasury's planned public-private investment funds.
The reality appears to be more along the lines that Wall Street is about to engage in the biggest looting of the U.S. public in history--after just concluding what will soon be looked back upon as the second-biggest looting of the U.S. public in history--and they want even more than the many trillions of dollars that our Bush-holdovers-cum-managers of our failed economy are quite ready to continue handing over to them on a silver platter, just as they have been for the past year.
The bigger reality, IMHO, that is totally being ignored in all of this, is that if the government simply told Wall Street: 'Either do this or we'll take you down,' the status quo would be forced to cooperate. At that point, Wall Street's only alternatives would be: a.) the threat of regulatory-mandated receivership, or, b.) the introduction and passing of legislation that would disenfranchise these entities, eliminating their ability to conduct business.
That'd require spine, something that's been missing from this country's legislative branch for decades.
But, as much as folks like Stiglitz and Krugman tried, it's not even a part of the discussion now is it? Come to think of it, there never really was much of a "discussion."
So, instead of spine, we have spin. Instead of looking out for the best interests of Main Street, we have another $2 trillion-plus giveaway to Wall Street. Instead of the private sector absorbing the losses, we have pure, unadulterated bullshit spewing forth from the mouths of our leaders telling us all about this "public-private initiative," when nothing could be farther from the truth.
We are being taken for another $2 trillion-plus ride.
(This train makes no stops at Main Street.)