It's been pretty busy the past few days in the MSM and on the blogs with regard to commentary about Wall Street and our economic bailout. Herein, I hope to provide a little clarity for those believing everything they're reading. There's a lot of misinformation being spewn...and from some of the highest levels, too.
But, as the saying goes, "The Truth Is Out There." In fact, it's right here!
So, without fanfare, here are "Nine Bailout/Economy Lies and Deceptions We're Hearing Right Now:"
Lie #1: "The Banks Were Profitable This Quarter." (Technically, this is not a lie; but it's what's omitted from the comment that makes it a deception.)
The Reality: From Zero Hedge via NakedCapitalism.com...
...the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were 1) one-time in nature due to wholesale unwinds of AIG portfolios, 2) entirely at the expense of AIG, and thus taxpayers, 3) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, 4) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary.
For banks to proclaim their profitability in January and February is about as close to criminal hypocrisy as is possible. And again, the taxpayers fund this "one time profit", which causes a market rally, thus allowing the banks to promptly turn around and start selling more expensive equity (soon coming to a prospectus near you), also funded by taxpayers' money flows into the market. If the administration is truly aware of all these events (and if Zero Hedge knows about it, it is safe to say Tim Geithner also got the memo), then the potential fallout would be staggering once this information makes the light of day.
Lie #2: "The Government's Engaging In A Public-Private Partnership To Bailout Wall Street."
The Reality: I've blogged about this, extensively, complete with plenty of links in my other diaries, but here's someone else's take on this: "Citi and Bank of America Continue to Loot the Taxpayers."
It's really nothing more than a joke--and the joke's on us--since the truth is that Wall Street is gaming these latest programs as much, if not moreso, than all of their other outrageous moves put together. They put up as little as 2.5% of their own funds, and they get to play with as much as 97.5% of our money, while being virtually and totally covered for any downside. The NY Post had somewhat of a scoop on this earlier last week, demonstrating how Wall Street is managing to make the government pay them twice for the same paper: "Double-dippers."
There are other websites in the blogosphere that go into much greater detail on the many ways by which Wall Street is gaming the taxpayer right now. Given the hundreds of billions involved here, this makes the outrage elicited by public knowledge of the AIG bonuses look like just a tepid warm-up.
Lie #3: "The Current Efforts By Treasury Secretary Geithner and Federal Reserve Chair Ben Bernanke Are Designed to Remove 'Toxic Trash' From Wall Street's Books."
The Reality: This is just scratching the surface. The banks have another hidden $5.2 trillion in "off-balance-sheet assets," as Bloomberg's David Reilly just reminded us in: "Banks' Hidden Junk Menaces $1 Trillion Purge."
It's far from a stretch to speculate that there's another $1 trillion, or more, in toxic trash within that pile of crap referred to as "off-balance-sheet assets." (Why do you think they're off the balance sheets in the first place?) So, as soon as we're done with this next trillion of bailout money, it's not to be unexpected that another trillion in bad paper will take its place as the banks bring those nightmares back onto their books.
Just in case we found out about this charade, the Financial Accounting Standards Board, or "FASB," is about to change the definition of "Net Income," among other things, so it'll be--aside from totally fictitious--perfectly legal to totally hoodwink the public, too. Here's even more detail on the absurd realities of this travesty: "The Public's Buy-In to the Accounting Brothel."
And, as of tonight if you thought trillions weren't enough, the Treasury Secretary is saying we're going to need even more money to bailout Wall Street: "Geithner Says Some Banks to Need `Large Amounts' of Assistance."
(Meanwhile, allocations of additional stimulus funds for Main Street are not even on the table, in terms of actual legislation drafts.)
Lie #4: "Credit Liquidity Will Be Returning to the Marketplace Soon."
The Reality: Don't hold your breath. There are a myriad of reasons why this is not going to happen, and you may read about a lot of them right here: "Optimistic Spin Belies Simple Truths About Credit Logjam."
The banks have had no desire to lend money for the past six months, at best. They've gutted many of the channels by which they've lent money to the consumer public in the past. The four largest banks, alone, have cut more than $1.5 trillion in credit lines to the public. And, President Obama has all but told us that, despite comments from officials during the last three months of the Bush administration, there was really no intent to bring liquidity back to the public behind the purposes of the Wall Street bailout(s) up until now; the sole purpose of the bailout, to date, was to pump money into the banks, with no expectation of them cooperating, in terms of providing liquidity to the marketplace as a byproduct of our government's largesse. (It's all substantiated in the the link, and the links from that link, from the previous paragraph.)
Lie #5: "The Stock Market's Rallying. Life Is Good. The Administration's Plans Are Already Working!"
The Reality: Again, don't hold your breath. First of all, it's way too early for the Obama administration's efforts to have delivered much, if any, of a positive effect. The truth is, many are of the opinion that this is nothing more than a "sucker's rally;" which is also referred to as "bottom-bouncing" in a bear market. But, I'll let Wall Street guru and demigod Alan Abelson, from Barron's Magazine, tell you the facts of life, directly from Barron's Website: "In Dante's Footsteps."
...Skeptics, grouchy types like us, haven't been able to let the poor souls who have endured so much have their moment. No denying this has been one really big bear-market rally. But, given that this has been one really big bear market, why should any one expect an attendant pee-wee rally?
Contributing to the sharp gains in equities have been a tide of short-covering (shorts after a steep decline, like longs after a sharp swing higher, have a tendency to press their luck and overload their positions). And, after two miserable opening months, portfolio managers of funds large and small were feeling the heat of their investors' displeasure. Fearful of withdrawals, desperate for performance and with quarter's end drawing ever nearer, these stalwarts piled into stocks, and typically into severely beaten-down shares which promised the biggest bang for their buck.
On this score, the jolly commentator of First Global notes that the big winners have been "the banks, the brokers, the autos, the insurers, the home-builders...all sectors given up for dead and brought to temporary life on hopeful chatter...Quality has suffered. Junk has rallied." And that dichotomy is true, he says, not only in our fair land but also in the irrational exuberance exhibited in bourses around the world. Alas, this almost universal investor feeding frenzy, he warns, "is looking extremely treacherous. There's every chance you'll be let down badly in this little fling."
Fair warning.
Why is this a lie? Because we have pundits trying to spin stock market performance into a conflated correlation with the state of our economy. Even one or two of our better-known Progressive bloggers on the economy have been playing headgames with some blogs about these facts. But, it's a deception, because any economist will tell you that market performance has little or nothing to do with the actual state of a given economy. And, I'm not providing any links to this last comment, because I don't wish to call out anyone on this; you'll just have to connect the dots or do your own research.
But, as the following "lies and deceptions" will demonstrate, there's really little rational reason--other than spin--for the markets to be up right now.
Lie #6: "The U.S. Can Print Money Without Repercussions"
The Reality: "[http://www.bloomberg.com/...
Treasuries Decline for the Week as Supply Overwhelms Fed Buys.]"
Bloomberg Media
By Dakin Campbell
March 27 (Bloomberg) --
"...The price action this week has been somewhat disappointing as we've given back half the gains we made after the Fed announced quantitative easing," said Martin Mitchell, head of government bond trading at the Baltimore unit of Stifel Nicolaus & Co. "Most of the weakness was because of the $98 billion in supply."
--SNIP--
Government securities headed for the worst start to a year since 1996 as President Barack Obama's administration sells record amounts of debt to battle the recession and traders increased bets inflation will accelerate. Treasuries slid 1.9 percent this quarter, the most since losing 2.3 percent in the first three months of 1996, according to Merrill.
--SNIP--
The Fed "can in the short run force yields down with brute force but I do worry this comes with a cost down the road," said Jay Mueller, who manages about $3 billion of bonds at Wells Fargo Capital Management in Milwaukee. When economic growth returns, the Fed will be selling U.S. debt at the same time as the Treasury, Mueller said.
The article tells us that Treasury notes fell this week while the government sold a record $98 billion in paper. Another comment in the piece pointed us to statements from Goldman Sachs, where they estimate that planned government debt sales in 2009 are at the $2.5 trillion mark.
Lastly, when the Fed's buying Treasury paper at this level, it's not a good thing, no matter how you spin it.
Lie #7: "Unemployment's At 8.1%."
The Reality: Taking real facts and practical reality into consideration, unemployment will be somewhere around 17%-18% as of the first week of April (next month).
The US Labor Department's Bureau of Labor Statistics' ("BLS") "U.3" unemployment rate is at 8.1%. In a few days, per projections based upon a reliable consensus of economists, that number's going to jump significantly, again, to 8.5%. It's all here: "[http://www.bloomberg.com/...
Joblessness Probably Rose to 25-Year High: U.S. Economy Preview.]"
Joblessness Probably Rose to 25-Year High: U.S. Economy Preview
By Bob Willis
March 29 (Bloomberg) -- The U.S. jobless rate climbed in March to the highest level since 1983 and manufacturing shrank, putting the recession on the brink of becoming the longest in seven decades, economists said before reports this week.
Unemployment jumped to 8.5 percent from 8.1 percent in February, according to the median estimate of analysts surveyed by Bloomberg News before the Labor Department's April 3 report. The figures may also show payrolls fell by 660,000 workers, bringing total job losses since the contraction began to 5 million.
The "U.3" statistics only tell us about a modest portion of our nation's unemployed. It is the government's "U.6" unemployment numbers which provide a much more accurate read of reality. And, right now, before this month's official unemployment numbers are formally announced, our U.6 rate is around 15%. But, even the BLS' U.6 rate doesn't fully acknowledge all of our nation's unemployed.
Rather than provide a lot of paragraphs here, I'll let President Obama's closest economic advisor, Austan Goolsbie, explain why you must add another two or three points to the 15%/U.6 rate in: "Goolsbie Explains Why Unemployment is Actually 17%-18%."
Also, John Williams helps us fill in the real unemployment picture over at his Shadow Stats website.
Lie #8: "We're Beginning to Hear About Some Favorable Numbers from the Government."
The Reality: Something I've known for quite some time is that most of the numbers you hear from our government are grossly distorted. This is quite extensively described in great detail over at John Williams' Shadow Stats website.
But, today, we have Wall Street oracle and Barron's Magazine guru Alan Abelson telling us the same thing as he parses Merrill Lynch's David Rosenberg:
The misleading figures cut across a wide swath of the economy, encompassing housing, manufacturing, employment -- you name it. The leading agent of deception, unintentional or otherwise, has been that old sly villain, seasonal adjustment. As it turns out, the seasons don't need adjustment as much as the adjustors need seasoning...
--SNIP--
...the official keepers of the books have been unusually aggressive in constructing seasonal adjustments for February's economic data.
--SNIP--
To illustrate, the seasonal adjustment for new-home sales was the strongest since 1982; for durable-goods orders, the strongest since they were first released in 1992; the retail-sales figures for February were flat (or, as David says, flattering) after such adjustment, but unadjusted fell 3%, the biggest drop on record. He also notes dryly that the 40,000 raw non-seasonally adjusted housing-start total for February "all of a sudden becomes a headline-adjusted annual rate figure of 583,000."
Which makes David think that come the inevitably sharp downward revisions of such distorted data, first-quarter real GDP is likely to suffer a 7.2% drop. Which, together with the 6.3% skid in the fourth quarter of 2008, would be the worst back-to-back contraction in the economy in 50 years.
Another example would be John Williams, who pointed out to his readers that our government has, over the past 15+ years, taken on the habit of providing much rosier stats (in general), only to "adjust" them the following month to what may only be described as a much more severe reality. It was via his observations that I learned that in 23 of the past 24 months, the government has significantly revised (to a more severe reality) unemployment figures upward for the previous month, but in a manner that may only be explained as "buried "in their coverage of the current month's unemployment statistical announcements.
Lately, Mr. Williams has put his readers on alert to anticipate--as Williams has been up until now--even more spin as we navigate through tough times ahead. And, apparently, today's, supposed monthly Durable Goods Orders Report is no different as far as this trend is concerned.
Generally, the best indicator as to how an economic series is performing is to look at the pattern of its year-to-year change. Such mutes much of the impact of revisions and eliminates a number of problems with seasonal-factor adjustments. Such an assessment of this morning's (March 25th) durable goods report shows little reason for market elation.
Mr. Williams' most recent pronouncements are available via subscription, only; however, most of what he's written prior to the most recent few months' reports is available to all on his website.
Let me share some facts from one of his latest "Shadow Stats Flash Updates:"
--the government reported a 3.4% month-to-month increase in Monthly Durable Goods Orders comparing January '09 nos. to February '09 nos.
Mr. Williams tells his readers that this latest number is "of little significance." He reminds us that last month's announcement was originally a report of a contraction of 5.2% for this same measurement. and this was just "revised" to 7.3%.
His analysis continues to explain that new orders were down 28.9% from February, 2008, setting a record for this entire reporting series, which goes back to 1992. (Citing the old "revision" meme, he reminds us that January's annual drop for this indicator was "revised" to 27.9% from 26.4%.)
He also points out that "net of revisions," year-over-year, February "nondefense capital goods' orders" were down a whopping 35.5%.
Williams is by no means perfect, but he is clearly non-partisan, and as much a historian as he is an economist and investigative reporter. And, I do think he goes a bit off the deep-end when it comes to his warnings with regard to hyperinflation. That being said, the guy's pretty damn spot-on with regard to everything else.
So, since this now "goes against the flow," and while Progressive bloggers far and wide have cited his stats as being sublime prior to January 20th, 2009, I would anticipate that he'll be placed in the same category with Paul Krugman in the eyes of many around these parts soon enough.
As for me, I'm going to renew my subscription to Shadow Stats.
Lie #9: "We Live In A Democracy, Wall Street Doesn't Run Our Government."
The Reality: Most of what we think we know about who runs our country, and as far as who's actually calling the shots with regard to our economy, is false.
(Yeah, that's a pretty intense thing to say, huh?)
But, after reading this "The Quiet Coup," you may be inclined to concur with my statement, a couple of lines above. (Tinfoil hat not required.)
Every once in a blue moon, someone pens something which is so overwhelmingly powerful that to add any further commentary to it would be to detract from its existence.
So, checkout Simon Johnson's mini-masterpiece, linked above. Here's a tiny preview:
The Quiet Coup
Atlantic Monthly May, 2009
Simon Johnson
...the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.
Typically, these countries are in a desperate economic situation for one simple reason--the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit--and, most of the time, genteel--oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon--correctly, in most cases--that their political connections will allow them to push onto the government any substantial problems that arise.
As DKos' own McJoan wrote earlier today about this: "It's...fucking scary!"
Yes. It is.