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Over time, previously unknown, historical bits of factual information slowly reach the surface--if you look really hard for some insights--even when it's amidst a sea of government machinations and sanctioned obfuscations and propaganda about our economy. If you're lucky, real clarity sometimes follows. In this regard, I believe the past 24+/- hours' news cycle has provided us with some especially significant (albeit) shreds of this type of clarity.

The "history we didn't know"--which Harry Truman told us is the only thing we really have to fear--becomes known.

We've slogged through over a year of institutionalized deception and outright stonewalling, where even filed FOIA requests have generated virtually no results, all relating to the same topic: our economy.

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?


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...



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!

Originally posted to on Wed Apr 22, 2009 at 12:58 AM PDT.

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Comment Preferences

  •  Tips: More reality, please! n/t (18+ / 0-)

    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

    by bobswern on Wed Apr 22, 2009 at 01:07:24 AM PDT

  •  they will do *anything* (10+ / 0-)

    to save Goldman Sachs.

    Anything . . . including killing the regionals, and screwing the whole economy, hell, the whole country if necessary.

  •  Reality is Sooo Last Year (13+ / 0-)

    Really well researched and insightful, Bob. I'm off to read more of your links.

  •  I have been following your posts (7+ / 0-)

    Thanks for laying out this information.       The more research I do, the more I am not surprised but disheartened.  I hope people do see what direction we are headed so public outcry can steer us to sustainable solutions and not just makeovers of the status quo.  This is damning stuff.

    Fool me once shame on you; fool me twice won't get fooled again. George Bush

    by ganymeade on Wed Apr 22, 2009 at 02:27:59 AM PDT

  •  yup (10+ / 0-)

    and politically, it would be damn near impossible to tell americans that they're living in a 3rd world debtor country. china's running our IMF game plan, more or less, and trying not to get taken down in the process. tricky business for all concerned.

    surf putah, your friendly neighborhood central valley samizdat

    by wu ming on Wed Apr 22, 2009 at 02:43:05 AM PDT

  •  I am not shocked about the Chinese (9+ / 0-)

    Financial string pulling.
    I'm not even shocked that the books are cooked to save Goldman Sachs and JP Morgan.

    I am shocked that we have funneled 1/4 of the U.S. GDP ($4 trillion) between the Fed and TARP, TALF, PPIP - name your acronym with no exit strategy!

    From your quote:

    If you've got it coming to you it generally comes

    Once the IMF gets involved ... well, we know what happened in Argentina

    The goal of life is living in agreement with nature. - Zeno

    by yellow dog in NJ on Wed Apr 22, 2009 at 03:14:53 AM PDT

    •  Oh, There's an Exit Strategy (7+ / 0-)

      A couple of them. It's a huge gamble, but it's all we got.

      We've been propping up our own financial system (minimally) and social services -- but all the bailout money is being poured straight through to all the central banks of the world (and sovereign funds) that we contaminated. Trillions of dollars.

      The gamble is that, by rescuing the rest of the world and making them whole again -- they, in turn, will bail us out by buying our stuff and loaning us more money. It has to work that way because the US has no assets and only debt, unlike other nations.

      It's very tricky and it's going to take a couple of complete business cycles. Maybe more. Meanwhile, we will slowly lower American's expectations for the future and try to keep too many from dying from neglect. Most of all, we'll give them "hope," which they're going to need when their pension funds are gone.

      Will it work? Not if we lose our reserve currency status.

  •  You should edit your tags to remove "recesssion". (1+ / 0-)
    Recommended by:

    We will soon be in a depression and calling it a recession won't really change anything.

    I voted with my feet. Good Bye and Good Luck America!!

    by shann on Wed Apr 22, 2009 at 05:14:28 AM PDT

    •  I've probably said the exact same thing... (0+ / 0-)

      ...fifty times over the past six my diaries!

      "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

      by bobswern on Wed Apr 22, 2009 at 05:59:34 AM PDT

      [ Parent ]

      •  Wish I could sound more optimistic, but (2+ / 0-)
        Recommended by:
        bobswern, Hens Teeth

        The USA has indulged in bubbles (stock, housing, commodities, bonds, beany babies, etc.), economic engineering (derivatives, CDO's, etc.), and cheap loans (low Fed rates, foreign financing, etc.) for the last 10 years to maintain the American standard of living. These gimmicks are officially over and our standard of living must be brought into line. To make matters worse, payment on these loans is now due.

        I took an early retirement to move to SE Asia for family reasons. We are getting whacked as our exports to the USA go down. You can run, but you can't hide.........

        I voted with my feet. Good Bye and Good Luck America!!

        by shann on Wed Apr 22, 2009 at 07:10:51 AM PDT

        [ Parent ]

  •  More reality, coming right up. (3+ / 0-)
    Recommended by:
    bobswern, Tam in CA, JG in MD

    File this under 'things that make you go hmmm'.

    VIENNA, Va. (WUSA) -- David Kellermann, Acting Chief Financial Officer and Senior Vice President of Freddie Mac, was found dead this morning.

    Fairfax County Police officials tell 9NEWS NOW they responded to his home around 5 a.m. after his wife alerted them to his suicide.

    Kellermann was 41 years old.

    According to Freddie Mac's website, Kellerman was with Freddie Mac for more than 16 years and named Acting Chief Financial Officer in September.


    P.S.  Excellent diary bob.

    "The truth shall set you free - but first it'll piss you off." Gloria Steinem

    Iraq Moratorium

    by One Pissed Off Liberal on Wed Apr 22, 2009 at 05:35:09 AM PDT

  •  More Than I Want to Know (1+ / 0-)
    Recommended by:

    Okay, this knowledge pit is not a place those of us who want to hang onto our sanity want to be. I actually understand what this means.

    Customers and counterparties of the bank subsidiary are senior to the debt holders of the parent BHC.

    Ouch! Double ouch! Somebody please hit me in the head with a blunt instrument and cause amnesia.

    Joe Biden: Get up! Al Gore: Pray, and use your feet! Harriet Tubman: Keep going!

    by JG in MD on Wed Apr 22, 2009 at 06:36:34 AM PDT

  •  Geopolitics of the bailout (3+ / 0-)
    Recommended by:
    jsquared, bobswern, Hens Teeth

    I for one am not at all surprised to read this:

    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.

    I take that to mean that the failure of the US to adequately manage and regulate its financial system does not constitute a reason for China to take a haircut on the value of its US bond assets, in the opinion of China.

    This looks like a serious complication for advocates of the "simple solution" of bank nationalization, whereby banks are put into receivership, stockholders are wiped out, creditors are paid at pennies on the dollar, and the newly cleansed institution is sold back into the private sector. It all works great as long as "creditors" are conceived of as greedy private investors who should have known better, can afford to absorb the loss, and/or are free to rebuild their lives just like the rest of us. But when we realize that the creditors include players of consequential scale, like the government of China or the royal family of Saudi Arabia, who have means of recourse outside of US bankruptcy law, the matter takes on a different cast.

    In other words, the global financial crisis has immense geopolitical implications, and the cost of its unwinding will be paid not just in dollars, but also in a re-ordering of international power relations. Not that this is necessarily a bad thing-- it was always going to happen, some way, somehow, in my view. But there is a kind of bitter irony in the way that the arrogance and folly of US leadership elites, with their dumbass ideologies and love of magical thinking, have brought us now to this pass.

    •  One of my tacit points here, precisely! n/t (0+ / 0-)

      "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

      by bobswern on Wed Apr 22, 2009 at 09:18:52 AM PDT

      [ Parent ]

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