The "history we didn't know"--which Harry Truman told us is the only thing we really have to fear--becomes known.
Are we just now, for the first time as a society, beginning to see things more clearly as far as what's really been occurring behind the scenes?
FIRST, A LITTLE BIT OF CURRENT PHILOSOPHY
Once again, a hat-tip to Yves Smith over at Naked Capitalism for turning me onto yet another occasionally-profound blog, Roger Ehrenberg's Information Arbitrage. Something from Ehrenberg from Monday: "The US Government: Over-engineering for Under-performance."
...the US Government does not believe the US citizen can withstand such pain; they'd rather take the path of least resistance, delay the inevitable, buy time and pray that we - the collective "we" - get bailed out. Unfortunately life seldom works this way. If you've got it coming to you it generally comes: the only question is how quickly you can get it to go away...
...Without a clear requirement to clean up their balance sheets, banks will simply milk the option delivered to them on a silver platter by the FASB. They will wait it out, not lend significant sums, engage in financial engineering to make their capital ratios look good, all with the tacit if not outright support of the US Government. This was not the way it was supposed to work. But if you take the path of least resistance, you generally deserve the least attractive results. Not surprisingly, this is where we've ended up.
The US Governments, past and present, had a clear idea of how they wanted the financial reconstruction to go: stabilize the largest, most troubled institutions; let one go to show that they are still free marketeers at heart; loosen accounting standards to make supporting the largest institutions less costly, at least in the short run; use moral suasion and cajoling to encourage supported firms to lend; and then let time work its magic by enabling broken portfolios to recover in value and for earnings to be rebuilt through "riding the yield curve" and lending with Government-subsidized borrowings. But all did not go according to plan...
SOME NEW BITS OF CLARITY, PAST, PRESENT AND FUTURE
What was that really all about when Lehman Brothers failed last September?
All that urgency this past Fall about how we absolutely, positively had to rescue Wall Street, no matter what the cost?
Buried in a highly-respected (but not exceptionally well-trafficked) blog today we had this little gem, from "Institutional Risk Analytics:"
Can Citigroup Be Restructured Without an FDIC Resolution?
April 17, 2009
One of the evil side effects of the BHC [bank holding company] structure that has been illustrated by the failures of WaMu and Lehman Brothers is the reality that the customers and counterparties of the bank subsidiary are actually senior to the debt holders of the parent BHC. This tension has caused a great deal of delay and confusion in moving forward with a solution to the solvency problems facing the large zombie banks. Foreign bond holders, like the government of China, have reportedly told the Obama Administration that further losses to debt holders of US banks will result in a boycott of US Treasury auctions.
Wow! Yeah, read it again, if for no other reason than to let the full implications of this comment sink in a little more. (As I write this, a couple of other blogs have picked-up this incredible "little" piece of information; I'm sure we'll be hearing a lot more about it, too.) The Chinese, and perhaps others (the Japanese, Saudis and Russians come to mind) threw down the gauntlet!
This quote is from an excellent piece concerning the real issues facing our government as it contemplates the inevitable: the nationalization/receivership of Citibank, Bank of America, and probably a few other major banks. (Yeah, I know, many reading this will say, "No way! Too big to fail." But as I.R.A. tells us via the link above, the government's got to stick a fork in at least one or two of the "big 'uns," for political theater, if nothing else. And, one more thing I.R.A. tells us in their linked story: So much for those telling us William Black was wrong. The guy was and is spot-on! Clearly, the bank holding companies may be attacked right now, too! So, what the hell are we waiting for? (Oh, that's right...the status quo said, "No go!" But, now they're saying: "Oh, no!")
File this under: "Every dog has his day."
As most of you already know, the shit is finally hitting the fan as far as payback's concerned. Trillions of government dollars are made available to Wall Street and extensive fraud ensues. ("I'm shocked! Shocked, I say!") It looks like it really is going to be prosecuted, too! (That actually is a bit shocking!) At the risk of being redundant, I'm really not going to say much more, if anything, about this other than to point you to a couple of my diaries from the past 48 hours. They're no longer "rec-able," so I don't think I can be accused of pimping them:
Bailout Scandal Expands w/20 TARP Fraud Probes
FL's Largest Bank Fails While Bush Treasury Scandal Unfolds
Real leaks about the results of the bank stress tests, due to be announced on May 4th, are, apparently, getting out.
Skeptics had a field day on Monday when tinfoil-hat-wearing, sometime-white-supremacist blogger Hal Turner claimed he had the goods on the stress test results over at his blog posted on Sunday night (not providing a link to it, and no apologies for that, either).
Per the ZeroHedge today:
So The Treasury Was Lying After All?
Posted by Tyler Durden at 2:54 PM
After all the brewhaha yesterday by the Treasury that they had nowhere, nohow released stress test results, the Associated Press (a little more credibility than an alleged white supremacist) has just come out with an exclusive that claims it has seen a Federal Reserve document discussing the stress test implications - yes, Denninger was right, and the Treasury was lying. This seem to lend much more credibility to Hal Turner's disclosure from yesterday.
According to AP, the stress tests "take a harsher view of loans than of other troubled assets. That approach favors a few Wall Street banks while potentially threatening major regional players."
The regulators' focus could spell trouble for big regional banks undergoing the tests. Their portfolios have more individual loans and fewer of the big pools of securitized loans that Wall Street giants specialize in.
Zero Hedge tells us that it looks like they're going to try to nail a handful of large regional banks and let most of the insolvent Wall Street behemoths get a free ride. Can you say: "Copout?"
The methodology "certainly penalizes those banks that are more involved in traditional banking, which frankly have been performing better in recent months," said Wayne Abernathy, a former Treasury Department official now with the American Bankers Association.
He said banks' loan portfolios have lost only about 5 percent of their value so far, whereas the value of complex securities are down 30 to 40 percent.
Bold emphasis is from diarist.
Here's the AP story link, referenced in the Zero Hedge blog: "AP Exclusive: Fed tests harder on regional banks."
So, despite the indisputable fact that the Treasury Department is still lying through its teeth, we can handle the truth; and that means there's still a tremendous amount of corruption and obfuscation (of it) going on. But--per the fraud probes mentioned above--that reality's already biting those folks in the ass.
Hindsight is a beautiful thing...especially when it comes with teethmarks!