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HomeBanks Cooking a Second Course
Posted by Larry Doyle on June 4th, 2009 2:15 PM |
I am of the strong opinion that the relaxation of the FASB’s mark-to-market accounting standard is nothing short of an allowance for banks to “cook their books.” Well, it now appears that the banking chefs are whipping up a “second course.” The Wall Street Journal opens the door to the kitchen and reports, Banks Try to Stiff-Arm New Rule:
The financial-services industry is taking steps to delay an accounting rule that would force banks and others to bring some of their off-balance-sheet vehicles back onto their books next year, which could force some to raise additional capital.
A group that includes the Chamber of Commerce, the Mortgage Bankers Association, and the American Council of Life Insurers and others sent a letter on June 1 to Treasury Secretary Timothy Geithner, regarding the off-balance-sheet accounting-rule change, saying it should be adopted “cautiously and seek to minimize any chilling effect on our frozen credit markets.”
The letter was signed by 16 industry associations, many of which were part of a group known as the “Fair Value Coalition,” which was formed earlier this year with the goal of changing mark-to-market accounting rules. Mark-to-market accounting rules set guidelines for banks on when they are required to reflect market prices in the values they assign to hard-to-value securities and other assets.
Please recall that the massive leverage within the banking industry was largely housed within these off-balance sheet vehicles (SPVs, special purpose vehicles). The lack of transparency of these vehicles allowed banks to leverage their assets to greater than a 30:1 ratio. Regulators and rating agencies were totally remiss in fully exposing these vehicles and protecting investors. We have all paid for it.
The banks and Washington jointly conspired to pressure FASB to relax the mark-to-market accounting rule so the industry could alleviate the pressure of raising capital. I detailed that “course” just yesterday in writing Wall Street-Washington: “Pay to Play.”
We hardly had time to digest that “inedible” piece of meat and now understand our chefs are working to continue the lack of transparency within the industry. Regrettably, our Congressional watchdogs have been more than happy to accept perfunctory campaign contributions and lobbying dollars to facilitate this charade.
The WSJ takes a whiff of what is simmering and reports:
Some accounting experts say they aren’t surprised by the banking industry’s latest effort. “Here we go again. They will get out their checkbooks and go to the Hill,” says Lynn Turner, the Securities and Exchange Commission’s former chief accountant.
At what point do the patrons get some representation, drop these meals in the garbage, fire the chefs and staff, and hang out the “Condemned: Department of Health” sign?
LD
Wall Street Buys Albany
Posted by Larry Doyle on April 18th, 2009 1:00 PM |
The “pay to play” game in which municipal, state, or federal officials solicit or accept kickbacks in turn for directing government business is regrettably deeply embedded into our political and financial industries. As much as authorities and regulators talk about cleaning it up, without aggressive deterrents in place to truly punish parties on both ends of a transaction, these corrupt activities will continue.
As we follow the money once again, we see that it leads to a firm named Quadrangle, recently headed by Steven Rattner, the current car czar. Associates at Quadrangle have been implicated in providing kickbacks to individuals who manage the allocation of funds from the New York State pension.
This scenario has all the sordid details of a B-rated movie or a tawdry teenage novel. While the characters involved may be cheap in terms of character and integrity, the cost borne by taxpayers and society is very dear. If one allocation of funds from the pension is polluted by kickbacks, it would be naive to think that many dollars emanating from the New York State pension is not similarly polluted.
Why is it that President Obama selected Steven Rattner for the high profile position of car czar? To be perfectly honest, I would imagine that Secretary Geithner and Larry Summers selected Rattner. Geithner and Summers know how to play the Wall Street game and have benefitted from it. (more…)
Mum’s the Word
Posted by Larry Doyle on April 10th, 2009 12:40 PM |
The movie Goodfellas provides a wealth of material for comparative analysis of the markets. The “insider activity,” the “fooling around,” “the payoffs,” and “the gambling” all make for great drama on the screen. Truth be told, one does not have to look all that hard to find striking similarities to certain activities in the world of Wall Street, and for that matter, Washington.
One of my favorite scenes in the movie occurs after the boys make the big heist. Immediately, the word is put out to keep your mouths shut and no indications of newfound wealth.
Back to reality. In terms of “putting the fix” into the world of our major money center banks, isn’t the relaxation of the mark-to- market the “newfound wealth”? Isn’t the “keep your mouths shut” the equivalent of the Treasury telling the banks not to comment on results of the Bank Stress Test? Speaking of the Bank Stress Tests, Bloomberg reports:
The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.
The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month.
Clearly the Fed and Treasury are trying to keep their “boys” quiet and lay low while the real regulators of the market, that being honest investors, are walking the beat.
If any of the boys talk, then the leaders of the family won’t be able to coordinate the stories and hoodwink the public.
Whatever happened to, “as long as you tell the truth, you don’t have to worry about having a bad memory”?
It seems we are operating much more in the realm of, “well, I can tell you but . . . ”
The Goodfellas: Henry Hill, Jimmy Conway, Paul Cicero, and Tommy DeVito
Henry . . . Jimmy . . . Paulie . . . Tommy . . .
Please let me know who in our government and world of finance are most appropriate to play each of these individuals? Let’s have some fun.
Games of Chance: TALF, PPIP, TARP, FDIC, FASB
Posted by Larry Doyle on April 7th, 2009 2:40 PM |
In thinking about the economy, markets, and our banking system, my memory brings me back to my early days in New York. While working my way along 8th Avenue back to my apartment in Hell’s Kitchen, I would happen upon numerous versions of the classic NYC “hustle.” The shell game (also 3 card monte) was rampant in NYC in the ’80s. Mayor Giuliani cleared out this game, along with a host of other street scenes. For those not familiar with this game, there was a constant need for new players with new money to keep the game alive.
Why do these games remind me of our current banking system? The similarities are scary. Let’s access the most recent piece from John Mauldin’s site to “view the games.”
Mauldin’s guest, John Hussman, comments on these various “games” (TALF, PPIP, TARP, FDIC, FASB), in which taxpayers bear the brunt of the risk in the government’s engagement with financial institutions. Hussman writes of the PPIP:
this is a recipe for the insolvency of the FDIC and an attempt to bail out bank bondholders using funds that have not even been allocated by Congress. The whole plan is a bureaucratic abuse of the FDIC’s balance sheet, which exists to protect ordinary depositors, not bank bondholders.
In 30 Minutes, Join NoQuarter Radio’s “Sense on Cents with Larry Doyle”
Posted by Larry Doyle on April 5th, 2009 7:30 PM |
Join me from 8:00 to 9:00 p.m. ET on NoQuarter Radio for Sense on Cents with Larry Doyle. These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! With the stock market near 12 year lows, what is driving the flows? What is truly going on in the economy? Where are markets headed? What came out of the G-20? What is happening in Washington and how is that impacting Wall Street? So much to cover.
Tonight I will be speaking with Phil Trupp, a journalist/author with more than 30 years of professional experience writing for several prestigious newspapers and magazines in the world. Over the years, his investigative reporting and columns have led to congressional hearings on coal mine safety, corruption in the trucking industry, poverty in America, environmental hazards, and global warming, among other controversial issues. Trupp’s financial journalism background includes a seven-year stint as Washington correspondent and assistant bureau chief for Fairchild Publications, and as a reporter at the Washington Evening Star.
Phil Trupp is currently writing MONEY ON ICE: How Ordinary Investors Beat the Biggest Fraud in Wall Street History. It is an exposure of the Auction Rate Securities scandal in which 146,000 investors have been bilked out of $336 billion.
The developments in the markets, economy, global finance, Wall Street, and Washington are occurring at breakneck speed. I will try to slow things down a bit and provide a sense of perspective. What did we learn in the markets over the last week and month and what do they mean for the weeks and months ahead? What is happening overseas and how does that impact us here at home? What is happening in the municipal sector and how will that impact the markets and our personal finances?
(more…)
Big Brother
Posted by Larry Doyle on April 4th, 2009 8:45 PM |
Long term financial health and well being is predicated on fiscal discipline, core values, and strong management. These principles are necessary for major corporations and also individual family units. The market has a means of rewarding corporate units that practice these principles and punishing those that don’t. Enter into the world of finance 2009 when a number of financial units (Citi, AIG, Freddie, Fannie) are kept alive despite not practicing those principles.
Both shareholders and employees of these companies bear the risk of being connected to such institutions. It remains a challenge as to how to operate these institutions in the context of truly free and open markets. In light of these challenges, it is no surprise why other organizations would not want to have Uncle Sam as a partner. (more…)
Tea Is Served
Posted by Larry Doyle on April 4th, 2009 4:45 PM |
I strongly believe Congress and the Obama administration know that the American public has no appetite for further government bailouts. This public demeanor presents a challenge for a government that has gotten used to writing big checks for Wall Street, the Stimulus, and automotive companies.
What is the federal government to do for municipalities, insurance companies, commercial real estate companies, or others who may go bankrupt?
Secretary Geithner has laid the groundwork for government takeover of institutions deemed to present systemic risk. How that power is effected or implemented will be very interesting. (more…)
Housing Prices Plummet, Consumer Confidence at All-Time Lows
Posted by Larry Doyle on March 31st, 2009 11:42 AM |
While recent housing data has shown a pickup in home sales and housing starts, albeit from very low levels, data released this morning showed no stability in home prices. The WSJ reports:
Most of the nation appears to remain on a downward path, with all of the 20 metro areas reporting annual declines, and nine… falling more than 20% in the last year,” said David M. Blitzer, chairman of S&P’s index committee. Both composite indexes and 13 of the 20 metropolitan areas reported record year-over-year declines.
As of January, the 10-city index is down 30% from its mid-2006 peak and the 20-city is down 29%. The two indexes have fallen every month since August 2006, 30 straight.
The indexes showed prices in 10 major metropolitan areas fell 19.4% in January from a year earlier and 2.5% from December. The drop marks the 10-city index’s 16th-straight monthly report of a record decline.
In 20 major metropolitan areas, home prices dropped 19% from the prior year, also a record, and 2.8% from December. (more…)
Audio Recording: NoQuarter Radio’s Sense on Cents with Larry Doyle
Posted by Larry Doyle on March 29th, 2009 9:06 PM |
In case you missed LD’s Sunday night radio show, just click on the Play button below for the audio recording. Once the playback has started, you can fast forward or rewind to any portion of the show by clicking at any point along the play bar.
It was a fabulous show, featuring Wall Street veteran and author Michael Panzner. Don’t miss it!
Sunday night, March 29th, 2009
NoQuarter Radio’s “Sense on Cents with Larry Doyle”
Tune in Sunday Evening to NoQuarter Radio’s “Sense on Cents with Larry Doyle”
Posted by Larry Doyle on March 29th, 2009 9:14 AM |
Please join us Sunday evening from 8-9 p.m. ET for NoQuarter Radio’s Sense on Cents with Larry Doyle. With the stock market near 12 year lows, what is driving 
the flows? What is truly going on in the economy? Where are markets headed? Given the Washington political circus, how will new legislation impact the future of Wall Street? So much to cover.
I will be speaking with Michael J. Panzner, a 25-year veteran of the global stock, bond, and currency markets who has worked in New York and London for such leading companies as HSBC, Soros Funds, ABN Amro, Dresdner Bank, and J.P. Morgan Chase.
He is the author of When Giants Fall: An Economic Roadmap for the End of the American Era, Financial Armageddon: Protecting Your Future from Four Impending Catastrophes, and The New Laws of the Stock Market Jungle: An Insider’s Guide to Successful Investing in a Changing World.
He has also been a columnist at TheStreet.com’s RealMoney paid-subscription service and a contributor to AOL’s BloggingStocks.com. In addition, Panzner has appeared on or been quoted byCNBC, Bloomberg, The Wall Street Journal, USA Today, Barron’s Reuters, CNN, MarketWatch, BusinessWeek Online, TheStreet.com, Slate, CFO.com, and other print, radio and television outlets. (more…)
