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Behind the Scenes . . .

Posted by Larry Doyle on April 9, 2009 7:14 AM |

A mixed bag of items you may have missed in the midst of some of the daily noise and pandering:

1. Bloomberg reported this morning that the government (Treasury and Federal Reserve) expects ALL 19 banks undergoing the Bank Stress Tests to pass!! Wahoo!! Bloomberg further reported, however, that certain banks may continue to need ongoing capital injections. Would the proctors of the exam please release the questions so the FDIC can provide a more thorough review? What a SHAM.

Please review, Bank Stress Tests: Major Sham?

2. The Federal Reserve yesterday released the minutes of its March 18th meeting. The Fed revised its projection for a bottoming of unemployment to mid-2010 from the end of 2009. Additionally, they lowered their projections for a turn in the economy. Lastly, in regard to the Fed’s purchases of government and mortgage-backed securities, they had differing opinions as to how to approach these purchases. The FT reports:

one Fed policymaker wanted to stick to buying mortgage-related securities. Another wanted to add only more Treasury purchases. Buying both was a way to keep everyone happy and hedge the Fed’s bets in the light of uncertainty as to which type of asset purchase might prove effective.

“Several members noted that working across a range of assets and instruments was appropriate when the effects of any one tactic were uncertain,” the minutes say.

Michael Feroli, an economist at JPMorgan, said the “uncertainty rationale” was novel. It added up to an experimental, portfolio-based approach to policy rather than one driven by strong conviction.

For what it is worth, on the day of the Fed’s announcement to buy both government and mortgage-backed debt, rates rallied close to 40 basis points, a truly historic move. Since then, those rates have totally reversed. While the Fed is buying, obviously somebody else is selling. Who may that be? The U.S. Treasury for one. I mean, the Treasury could literally walk the government notes and bonds down the street in Washington to the Fed and put these securities in their vault while the Fed simultaneously puts cash deposits into the Treasury vault.

Do you get the sense, though, that Fed officials are winging it to a large extent? I do.

3. The WSJ reports 10 states are reportedly ready to announce tax increases. Which states and which taxes?

A free fall in tax revenue is driving more state lawmakers to turn to broad-based tax increases in a bid to close widening budget gaps.

At least 10 states are considering some kind of major increase in sales or income taxes: Arizona, Connecticut, Delaware, Illinois, Massachusetts, Minnesota, New Jersey, Oregon, Washington and Wisconsin. California and New York lawmakers already have agreed on multibillion-dollar tax increases that went into effect earlier this year.

Fiscal experts say more states are likely to try to raise tax revenue in coming months, especially once they tally the latest shortfalls from April 15 income-tax filings, often the biggest single source of funds for the 43 states that levy them.

Does this make you want to revisit discussions about fiscal discipline and living within one’s means? Does this make you want to revisit the necessity of certain “special interest” programs propagated as payoffs for local pols?

4. Costco is a store which should do well in a challenging economic environment. Discount prices on quality goods never go out of style. Bloomberg reports this morning that traffic at Costco stores increased by 4% last month. However, total sales at Costco declined by 5% to the weakest level since last November. Consumers continue to get squeezed.


  • fiscalliberal

    Re stress tests – Elizabeth Warren asks, is the government doing the test or are the banksters. Are they still using the VAR software?

    So the same people who got us in this mess are making the stress test. Gee – is that rational?

    The key question is – who continues to need govt bailout with the rules of executive pay. Those are the guy’s in trouble.

  • Mountainaires

    This stunning report raises a host of questions…but it’s well worth the read, for deep background.

    The Mitchell Report
    Email Exposes Short Seller Plot to Destroy a Public Company
    February 17th, 2009 by Mark Mitchell

    This is Part 3 of an ongoing series.

    A few years ago, a clique of influential journalists went to extraordinary lengths to cover up the problem of illegal short selling. In the face of indisputable data and evidence, the journalists insisted, over and over, that “naked” short selling (hedge funds manipulating stock prices by flooding the market with phantom stock) rarely occurred. And they said short sellers (who profit from falling stock prices) don’t set out to destroy public companies.

    Moreover, if a person were to criticize illegal short selling, the reporters would smear that person’s reputation with a savagery that was almost without parallel in contemporary journalism.

    Read the 3 part series:

    Mark Mitchell previously worked as an editorial page writer for The Wall Street Journal in Europe, chief business correspondent for Time magazine in Asia, and as an assistant managing editor responsible for the Columbia Journalism Review’s online critique of business journalism. He holds an MBA from the Kellogg Graduate School of Management at Northwestern University.

    Note: As you read this complex [and lengthy] recounting by Mitchell, keep in mind that Madoff Whistleblower, Harry Markopolous has asserted that Madoff was involved with the Mob, and that Markopolous had evidence of other players in corruption scandals; Markopolous testified that he feared for his life. Markopolous warned that, while the SEC is incompetent, the securities industry’s self-policing organization, the Financial Industry Regulatory Authority, is “very corrupt.” FINRA was headed until December by Mary Schapiro, President Barack Obama’s new SEC chief.

    In Mr. Markopolos’ opinion, while the SEC is incompetent, the NASD and its offspring FINRA are CORRUPT!!! FINRA is in bed with the industry. He recommends that FINRA read his report. He references that the regulators missed a number of failed and fraudulent practices including the Auction Rate Preferred market. Perhaps Mr. Markopolos also read FINRA’s 2007 Annual Report which highlights that FINRA had investments in Auction Rate Securities. When Mr. Markopolos remarks that FINRA is in bed with the industry, is he referencing that they are invested in hedge funds, fund of funds, and private equity?

    Our new SEC chair, former FINRA chair Mary Schapiro, should be compelled to answer these questions!!!

    • Larry Doyle

      Thanks very much for the link. I look forward to reading it.

      Very interesting times. Makes one wonder what’s real and what’s not.

      • Mountainaires

        I can assure you. When you read this series, you’ll think you’ve fallen down the rabbit hole, into Alice’s alternative reality. I did. Much of it is recounting the Milken/Boesky days, but it links up. It’s a complex story, but you’ll probably see the big picture…

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