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Will BofA vs. the SEC Ultimately Be Uncle Sam vs. Aunt Samantha?

Posted by Larry Doyle on September 15th, 2009 12:44 PM |

Will the ruling highlighted in my initial post this morning, “Judge Jed Rakoff  Indicts the Wall Street-SEC Incest”, ultimately pit one arm of Uncle Sam against another, or to coin a phrase, pit Uncle Sam vs. Aunt Samantha? How so? Would Bank of America CEO Ken Lewis under oath put former Secretary of Treasury Hank Paulson and Fed Chair Ben Bernanke on the hot seat and implicate them as the driving forces behind the BofA takeover of Merrill?

If Lewis plays that card under oath, Judge Jed Rakoff may be put in a position to adjudicate on the culpability of Paulson and Bernanke in this financial fiasco vs. the judgment of the SEC in imposing the $33 million fine against BofA.

You know that every party involved in this mess, with the exception of BofA shareholders, is cringing at the prospect of this case going to trial.

Bloomberg aptly describes the precarious nature of the predicament facing these parties in writing, Bank of America Ruling Leaves SEC with Few Options:

Now the SEC is in a jam, said Peter Henning, a former SEC attorney who teaches law at Wayne State University in Detroit. Regulators could dismiss a case in which the bank is accused of breaking the law. They could try the case and risk that the bank has strong defenses. Or they could file a new lawsuit against individual executives or lawyers after saying earlier that they lacked sufficient evidence to do so.

“In a sense, the SEC has painted itself into a corner,” Henning said in an interview.

Human nature dictates that individuals backed into a corner will often resort to desperate measures. How desperate is the SEC to save face rather than upholding its mission to protect investors? Bloomberg offers more grist:

“The parties’ submissions, when carefully read, leave the distinct impression that the proposed consent judgment was a contrivance designed to provide the SEC with the façade of enforcement and the management of the bank with a quick resolution of an embarrassing inquiry,” Rakoff wrote.

Rakoff rejected the bank’s arguments yesterday, saying he still doesn’t know why executives or their lawyers weren’t sued. He said a trial in the case, which neither side wants, would start on Feb. 1.

“The judge’s not-so-implicit message is that he wants people named and he wants those people to pay the penalties,” Anthony Sabino, a business-law professor at St. John’s University in New York, said in an interview. “The bottom line is that there have been very pertinent and important questions asked and the answers have not been very forthcoming.”

Could this scenario play out that Mary Schapiro as Aunt Samantha is compelled to make a case which implicates Hank Paulson and Ben Bernanke as Uncle Sam for improperly compelling a bank executive, Ken Lewis, to violate shareholder rights?

The twists and turns on this stretch of our economic landscape are getting ever more interesting.

LD

Related Sense on Cents Commentary:

Did Big Ben Bernanke and Heavy Hank Paulson Break the Law in Buying Ken Lewis’ Silence? (April 28, 2009)

Judge Jed Rakoff Indicts the Wall Street-SEC Incest

Posted by Larry Doyle on September 15th, 2009 9:24 AM |

Will the American public ever truly know what happened in December 2008 when Bank of America shareholders’ interests were neglected by BofA’s management in completing its takeover of Merrill Lynch? Capitalism took a back seat to the supposed needs of financial expediency as defined by then Treasury Secretary Hank Paulson and Fed Chair Ben Bernanke.

How could the SEC pretend to uphold its mission and protect the BofA shareholders’ interests which were clearly violated last December? The SEC imposed a $33 million fine against BofA in hopes that the courts and American public could once again be duped in the process. The $33 million fine is chicken feed for an institution such as BofA that had received $40 billion in taxpayer bailout money.

Against this backdrop, I wholeheartedly commend and endorse U.S. District Judge Jed Rakoff for throwing out this contrived agreement between the SEC and BofA. The Wall Street Journal provides further details this morning in writing, Judge Tosses Out Bonus Deal:

A federal judge threw out the Securities and Exchange Commission’s proposed settlement with Bank of America over its disclosure of controversial bonuses paid to Merrill Lynch employees, in an unusual ruling that casts doubts about how the agency handles probes of major U.S. companies.

The order, by U.S. District Judge Jed Rakoff, came as the New York State attorney general was weighing civil-fraud charges against Bank of America Corp. executives. Charges could be brought against the bank’s chief executive, Kenneth Lewis, and Chief Financial Officer Joseph Price, according to a person familiar with the investigation.

The Rakoff ruling undermines one of the most high-profile cases against alleged corporate wrongdoing conducted under SEC chief Mary Schapiro, who took the job in January. It puts new pressure on the agency to show it is fighting for investors in the wake of the controversies over its policing of the financial industry during the Wall Street boom and its failure to catch Bernard Madoff’s massive fraud despite several red flags.

In a rare scuttling of an SEC settlement, Judge Rakoff said the $33 million fine levied on Bank of America “does not comport with the most elementary notions of justice and morality” (LD’s highlight) because the company’s shareholders — the victims of the alleged misconduct — are the same people being asked to pay the fine. He set a trial date for Feb. 1.

While Wall Street professionals, government regulators, and even media analysts would define this particular case as a ‘one off’ or ‘dealing with exceptional circumstances,’ I beg to differ. I strongly believe this case is a perfect example of the incestuous relationship between Wall Street and those charged with protecting investors, namely the SEC and FINRA. How often are investors’ interests neglected at the expense of the financial industry? More often than investors could possibly imagine.

The Wall Street Journal’s editorial, Rakoff Rakes the SEC, strikes a similar chord in writing:

The judge had other complaints, but broadly the deal “suggests a rather cynical relationship between the parties: the SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger; the Bank’s management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all of this is done at the expense, not only of the shareholders, but also of the truth.” The parties will go to trial in February.

We look forward to it, especially in light of the recent news that Fed and Treasury knew all about these bonuses and stayed mum. Judge Rakoff has done a public service by exposing the political point-scoring that drives far too many regulatory actions. (LD’s highlight)

America needs more judges with the courage and integrity of Jed Rakoff. I salute him.

LD

Bank of America Credit Cards Less Than Prime

Posted by Larry Doyle on August 24th, 2009 3:20 PM |

Why are banks tightening credit to the extent that they are extending credit at all? The mere fact that so many of their current loans and credit lines are increasingly delinquent and defaulting. Of the largest credit card outfits, one bank stands out as holding the worst performing credit card portfolio. Who might that be? Bank of America.

In fact, by banking standards Bank of America’s credit card portfolio would be considered sub-prime. Bloomberg highlights this development in writing, Bank of America Shuns Sales of Card Debt, Ducks Subprime Label:

Bank of America Corp., saddled with the worst credit-card default rates among its biggest rivals, is shunning the asset-backed securities market it tapped for $13.7 billion last year.

JPMorgan Chase & Co., Citigroup Inc. and American Express Co. are among issuers that sold $21 billion of card-backed debt this year through the Term Asset-Backed Securities Loan Facility, a Federal Reserve lending program to spur bond sales. Bank of America, the only major card-issuer that didn’t sell any, lacks enough quality loans in its credit-card trust to sell TALF bonds without being labeled a subprime issuer.

“I don’t doubt that Bank of America would like to re- engage that market,” said Michael Nix, who helps manage $600 million, including shares of the lender, at Greenwood Capital Associates in Greenwood, South Carolina. “The credit-card securitization market is starting to thaw, but there still isn’t a lot of demand, so the cost of issuance may be higher than the bank thinks is worthwhile.”

Christopher Feeney, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment.

Bank of America’s 13.82 percent credit-card default rate in July, the highest among the biggest lenders, helps explain why loans in its credit-card trust are shy of the threshold that would allow it to sell debt through TALF and be labeled a prime issuer

Why is BofA’s credit card portfolio so much worse off than its major competitors and what are the implications of this reality? (more…)

Can We ‘TRACE’ JP Morgan’s Business?

Posted by Larry Doyle on July 17th, 2009 9:09 AM |

On Wall Street, information is everything!! Access to the information is invaluable. Why? Given the speed with which markets move, any early hint of developing news is priceless in terms of the ability to transact quickly and profitably.

Why is ‘high frequency program trading’ viewed with such skepticism? Select participants with advanced computer programs gain access to market flows prior to other participants and are able to act on it. That playing field is not level. I shared my disdain for this practice in writing, “Why High Frequency Program Trading Smells.”

What other battles are being waged by Wall Street firms looking to defend their turf at the expense of consumers and investors? Credit cards and credit derivatives. Which Wall Street firm has the greatest combined exposure to these businesses? None other than JP Morgan Chase.

The Financial Times highlights how JP Morgan Chief Hits at Credit Card Rules:

Jamie Dimon, chief executive of JP Morgan Chase, on Thursday hit out at strict rules on US credit cards, saying they would cost the bank’s lossmaking card unit up to $700m next year.

While Mr. Dimon is railing on new legislation aimed to protect consumer interests in the credit card space, he conveniently avoids mentioning how both JP Morgan Chase and Bank of America are already implementing procedures to skirt that legislation. How might these financial behemoths do that? Shift from fixed rate credit cards to variable rate. I exposed this maneuver a few weeks back in writing, “Banks Build Better Mousetrap.”

Dimon continues his defense of JP Morgan’s franchise:

He singled out the credit card provisions, which from February (2010..LD’s edit) will constrain lenders’ ability to raise rates for risky borrowers, and rules that propose to move most derivatives trading on to exchanges as two contentious areas.

The tough stance by JPMorgan reflects Wall Street’s new-found confidence in lobbying regulators and the government. After keeping a low profile during the crisis, many of the banks that repaid the bail-out funds are becoming more aggressive in Washington.

In regard to derivatives activity, JP Morgan has a dominant position in the market. Why? Their strong capital position, enormous balance sheet, and strong credit rating make them an attractive counterparty for customers. Make no mistake, JP Morgan has a license to ‘print’ money, and a lot of it, across the entire derivatives platform.

While Washington will tout how they are increasing regulation of the derivatives space, this business is truly multi-pronged. There are plain vanilla derivatives in more highly liquid sectors of the market. These ‘standardized’ derivatives will most certainly move to an exchange to create total transparency. Value added for customers will be minimal only because these markets are already fairly well defined and exposed. JP Morgan and other Wall Street firms will cede this ‘standardized’ space while they fight tooth and nail to maintain their enormously advantageous position in the area of ‘customized’ derivatives.

There is little to no transparency in the world of customized derivatives and as a result the bid-ask spreads are very wide. Cha-ching, cha-ching. Jamie and his friends on Wall Street are working extremely hard to keep it this way.

In their defense, it is likely not functionally feasible to move many customized derivatives to an exchange. What should regulators compel them to do? JP Morgan and every other financial firm on Wall Street should have to report every derivatives transaction to a system known as TRACE, which stands for Trade Reporting and Compliance Engine.  This system currently only covers transactions within the cash markets and not derivatives.  What does that mean for investors? No transparency and price discovery for investors in the customized derivatives space. As such, Jamie and friends can keep those bid-ask spreads nice and wide and ring up huge profits in the process.

I won’t make many friends on Wall Street, and perhaps lose some of my current friends, but TRACE should be implemented across all product lines. For those involved in the markets, please access the TRACE system to gain a wealth of pricing data while keeping your brokers and financial planners honest!!

LD

Uncle Sam:Geppetto as Citi and BofA:Pinocchio

Posted by Larry Doyle on July 16th, 2009 1:32 PM |

If you did not think we are entering into a Brave New World of an Uncle Sam economy, then today is a day which should help change your mind.

Independent Wall Street firms, such as Goldman Sachs and JP Morgan, would like a return to business as usual. Their outsized profits are nothing more than “to the victors go the spoils.” They will fight and lobby to make sure they get to take home these profits in the form of compensation.

Meanwhile back in the toy shop, Geppetto (in the form of Uncle Sam) is pulling the strings and watching Pinocchio (in the form of Citigroup and Bank of America) dance along.  While Geppetto has been exceptionally busy, the taxpaying public has been kept very much in the dark. We see evidence of Geppetto’s ‘dark workroom‘  on three fronts today.

1. The Wall Street Journal offers Lawmakers Spread Blame on Merrill Deal:

House lawmakers lambasted former Treasury Secretary Henry Paulson and Bank of America Corp. Chief Executive Kenneth Lewis on Thursday, suggesting officials looked the other way as major mistakes at the bank required a $20 billion bailout of the firm at the expense of taxpayers.

“While all of this was going on, the American people, investors and the Congress were kept in the dark,”(LD’s highlight) said Rep. Edolphus Towns (D., N.Y.), suggesting negotiations over the bank completing its deal for Merrill Lynch & Co. was a “good, old-fashioned Brooklyn shakedown.”

Rep. Dennis Kucinich (D., Ohio), citing internal Federal Reserve documents obtained by the committee, said Mr. Paulson and Fed Chairman Ben Bernanke ignored evidence that bank management had withheld material information from shareholders, as well as indications that Mr. Lewis’s management of Bank of America “was seriously deficient.”

While Paulson is being grilled, there is little doubt that he believes he did what was in the best interest of the country and the economy – – if not necessarily the interests of Bank of America shareholders. Paulson offered that he was not qualified to provide a legal opinion on his engagement with Lewis.

2. If there were ever any doubt about Geppetto’s lack of confidence in Ken Lewis (aka Pinocchio), it is brought to bear today by news of a ‘secret regulatory sanction’ imposed upon him and the BofA board. The WSJ highlights U.S. Regulators to BofA: Obey or Else:

Bank of America  Corp. is operating under a secret regulatory sanction that requires it to overhaul its board and address perceived problems with risk and liquidity management, according to people familiar with the situation.

Rarely disclosed publicly, the so-called memorandum of understanding gives banks a chance to work out their problems without the glare of outside attention. Financial institutions that fail to address deficiencies can be slapped with harsher penalties that include a publicly announced cease-and-desist order.

The order was imposed in early May, shortly after shareholders of the Charlotte, N.C., bank stripped Chief Executive Kenneth Lewis of his duties as chairman. Bank of America faces a series of deadlines, some at the end of July and others in August, these people said.

3. In the final act of today’s puppet show, we also learn from the Financial Times Citi Close to Secret Deal with Regulator:

Citigroup is close to a secret agreement with one of its main regulators that will increase scrutiny of the US bank and force it to fix financial, managerial and governance issues.

The proposed agreement requires, among other things, that Citi strengthens its board and governance, improves asset quality, better manages expenses and provides more information to regulators on its capital and liquidity, these people added.

The regulator’s action highlights concern over Citi’s financial health, governance and the strength of its management team, led by Vikram Pandit, chief executive. The FDIC is known to be frustrated with the slow pace of Citi’s “toxic” assets sales, its losses and the lack of commercial banking experience at the top.

What are we to learn from all of these developments? Very simply, do not accept anything at face value at this stage in our new economy. There is a reason why Geppetto is working in the dark. That is, the embedded losses in these institutions would sink these firms if not the entire economy.

Historical measures of value and economic behavior need to be looked at in the context of how Geppetto is pulling the strings!!

Enjoy the show!!

LD

Banks Build Better Mousetrap

Posted by Larry Doyle on July 9th, 2009 7:54 AM |

Is there truly any reason to trust financial institutions these days?

Developments within the credit card space have exposed the true colors of these institutions . . . not that there was ever any doubt. Recall how consumer outrage at rapidly rising interest rates on credit cards pressured Washington to rein in the usurious business practices of the financial industry.

New legislation was badly needed as banks clearly utilized abusive business practices. The Wall Street Journal highlighted these developments in writing on May 21st, Credit-Card Fees Curbed:

“Credit cards are a tremendously valuable and useful tool for consumers, providing them with relief during critical moments,” said Senate Banking Committee Chairman Christopher Dodd. “This is a very important industry….We just want it to work better.”

The legislation marked a major defeat for the credit-card industry, as lawmakers complained that consumers are being hit with tricks and traps on their cards.

Well, while the legislators were in the front room having the photo ops, the bankers were in the back room building a new and better mousetrap, at least from their perspective.

The Los Angeles Times sheds light on how Credit Card Firms Try End Run Around New Federal Rules:

Banks are quietly changing the terms of millions of credit card accounts as they brace for a tough new law that will limit rate hikes.

The law would restrict interest rate increases unless a credit card has a variable rate. So at least two major lenders are switching their cards with fixed rates to — you guessed it — variable rates.

“It’s completely unfair,” said Linda Sherry, a spokeswoman for Consumer Action. “It’s an end run around the intent of the new law.”

That law is the Credit Card Accountability, Responsibility and Disclosure Act, which President Obama affixed with his signature in May. Its various provisions will be phased in between next month and February.

Who are these two major lenders? Bank of America and JP Morgan Chase. Given the size of their operations, watch every other credit card issuer set the same trap. (more…)

Rep. Edolphus Towns on Bernanke’s Testimony: “Something Rotten in the Cotton”

Posted by Larry Doyle on June 26th, 2009 11:05 AM |

Rep. Edolphus Towns

I commend Rep. Edolphus Towns (D-NY), Chairman of the House Committee on Oversight and Government Reform. Rep. Town’s closing statement at yesterday’s Congressional hearing culminated some riveting theatre. That said, this is not a one act play. Rep. Towns highlights the need to dig deeper in exposing what truly happened in the midst of the Bank of America takeover of Merrill Lynch. Towns finished the hearing with this Closing Statement:

At the outset of this hearing, I said that it’s time to shine some light on the events surrounding Bank of America’s acquisition of Merrill Lynch.

At this point, I would say we’ve gotten a peek, but we don’t have full sunshine yet.

I would make three observations:

1. There are significant inconsistencies between what we have been told today, what we were told two weeks ago by Ken Lewis, and what the Fed’s internal emails seem to say.

2. It is still unclear whether Bank of America was forced by the Federal government to go through with the Merrill deal, or whether Ken Lewis pulled off what may have been the greatest financial shakedown of all time; and

3. As a result of this hearing, we have learned that the SEC and FDIC played a role in this transaction.

Former Treasury Secretary Hank Paulson has agreed to appear before this Committee in July and I look forward to that hearing.

But we also need to hear from the FDIC and the SEC, so that we can better understand what happened during the dark days of last December.

Will Congress and the Obama administration look to pursue these ‘inconsistencies?’ Will the parties to these conversations collectively be brought together so these inconsistencies can be addressed? Will the American public once again be subjected to an accusation by one party to a conversation claiming the other party misremembered?

In true Joe Friday fashion, Rep. Ed Towns echoes my sentiments:

The immediate reaction to Bernanke’s testimony is less than positive. The Bank of America-Merrill Lynch ‘play’ could very well be a preview to the Fed as the uber-regulator for systemic risk. Sense on Cents strongly believes the Fed should not occupy that role. Why? Throw any concept of an independent Federal Reserve right out the window. Bloomberg addresses this prospect in, Bernanke Grilling May Weaken Case for Expanded Powers:

Bernanke failed to resolve some lawmakers’ questions on whether the Fed bullied executives and stepped over other regulators in the name of financial stability in a three-hour congressional hearing yesterday.

Criticisms by members of both parties are likely to diminish support for the Obama administration’s plan to make the Fed the single agency responsible for the largest and most interconnected financial institutions.

“There’s something rotten in the cotton here — no ifs, ands or buts about it,” Representative Edolphus Towns, a New York Democrat who chairs the House Oversight Committee, told reporters after the hearing. “There was a forced situation, a shotgun wedding” and “we’re just trying to find out who had the shotgun.”

Will it be business as usual in Washington or will the American public truly learn if Ben Bernanke and possibly Hank Paulson abused their powers.

Don’t recall? Misremembered? Just the facts, please!

LD

Is Ben Bernanke a Well-Intended Crook?

Posted by Larry Doyle on June 25th, 2009 9:12 AM |

Do the ends ever justify the means? Does being well-intended preclude one from committing a criminal act? If our legislative bodies do not possess the heart and courage to ask these difficult questions, can we assume they are implicitly approving them? Oh, what a tangled web trillions of dollars in financial losses will weave.

The intrigue behind the acquisition of Merrill Lynch by Bank of America may never be known. Will Congress pursue total transparency and integrity to compel all pertinent parties to be fully forthcoming? Would Congress go so far as to appoint an independent investigator with powers to subpoena Ben Bernanke, Ken Lewis, John Thain, Hank Paulson, Larry Summers, and Tim Geithner? Does the rule of law apply in our country only when convenient? Bloomberg provides a peek into this intrigue, Republicans Say Fed Set Late Report of Merrill Loss:

House Republican staffers said the Federal Reserve tried to control the timing of disclosures of rising losses at Merrill Lynch & Co. in the weeks leading up to its takeover by Bank of America Corp., according to a memo obtained by Bloomberg.

The memo, prepared by staffers for Republican lawmakers at a House Oversight Committee hearing tomorrow, cites what it identifies as excerpts from internal Fed e-mails to support the conclusion. Fed Chairman Ben S. Bernanke is scheduled to testify at tomorrow’s hearing in Washington.

The e-mails show that the Fed “engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other Federal Regulatory agencies,” Representative Darrell Issa, the panel’s senior Republican, said in an e-mailed statement.

Strong words by Representative Issa.

Cover-up? Who was negatively impacted by not revealing information on losses at Merrill Lynch? Existing Bank of America shareholders, who may very well have voted against this deal.

Hiding details from other Federal regulatory agencies? Such as? The SEC. The OCC. The FDIC, which would assume a significant percentage of losses on assets purchased by Bank of America. How did FDIC chair, Sheila Bair, feel about that prospect?

“Dear Ben, Strong discomfort with this deal at the FDIC, for all the reasons you and I have discussed,” Bair said in a Jan. 14 e-mail, according to the memo. “My board does not want to do this and I don’t think I can convince them to take losses beyond the proportion of assets coming out of the depository institutions.”

Who else was clearly reluctant to finalize this transaction? Bank of America chairman and CEO, Ken Lewis. He testified in February to New York State authorities about being pressured by Bernanke and Paulson. Lewis hedged his statement about Bernanke’s and Paulson’s pressuring him, if not outright threatening him, under questioning by Congress earlier this month.

Will we learn more today from Bernanke or will this chapter close without a full accounting of what truly happened? Will Congress pass the Obama administration’s proposal to make the Federal Reserve the uber-regulator to stem systemic risk? Might shareholder rights be trampled in the process? Do the ends justify the means? Do laws mean anything? Can one be a well-intended crook? So many questions.

LD

Did Big Ben Bernanke and Heavy Hank Paulson Break The Law in Buying Ken Lewis’ Silence?

Posted by Larry Doyle on April 28th, 2009 12:15 PM |

The intrigue involved in Bank of America’s takeover of Merrill Lynch goes well beyond standard Wall Street negotiations. Did Fed chair Ben Bernanke and then Treasury Secretary Hank Paulson break the law in the process of pressuring BofA CEO Ken Lewis to complete this bank merger? Bloomberg’s Jonathan Weil has easily distinguished himself amongst all journalists in aggressively addressing this topic. Weil pulls no punches in writing One Nation, Under Banks With Justice For No One.

Lewis, as CEO of Bank of America, possessed material non-public information about Merrill Lynch and was obligated by law to release that information to his shareholders. Lewis unequivocally maintains Bernanke and Paulson pressured him not to release that information which would have potentially derailed the merger. Why didn’t Lewis get Bernanke’s and Paulson’s position in writing? Did Lewis ask for it in writing?  Did Paulson and Bernanke knowingly avoid  a legal quagmire by not contractually committing in writing to increased government support for Lewis’ acquiescence?

Weil provides a clear expose of this situation. I commend him! He writes:

The spectacle of Ben Bernanke and Henry Paulson running roughshod over Kenneth Lewis and his minions at Bank of America Corp. raises a pivotal question for all Americans: Is the U.S. a nation of laws, or a nation of banks?

Let’s start by examining the facts disclosed last week in a letter by New York Attorney General Andrew Cuomo while taking pains to present the actions of each player in this drama in the fairest possible light. (more…)

Why Is the Market Selling Off Today?

Posted by Larry Doyle on April 20th, 2009 2:30 PM |

The broad equity market indices are down 3+% on the day. Why would that happen when the bulk of company news today was generally positive?  At least on the surface the news was positive:

1. Bank of America posted .44 earnings per share vs. expectations of .04
2. Eli Lilly earnings were up 23% outpacing expectations.
3. Halliburton disappointed with earnings down 35% but that is due to the massive correction in the price of oil from a year ago.
Merger Activity:
4. Oracle is purchasing Sun Microsystems in a $7.4 billion deal.
5. Pepsi is buying two bottling companies for $6 billion.
6. Glaxo is purchasing Stiefel for $2.9 billion.

Leading economic indicators declined by .3 but that decline is offset by an improved reading from the prior month.

Then, why is the market down so much? Two reasons are promoted, but only one of them is getting proper coverage.

Market analysts supposedly are focused today on the ongoing increases in chargeoffs and writedowns on the loan portfolios in the banking industry. These loans consist of credit card loans, residential mortgages, commercial mortgages, and corporate loans.

I don’t buy this line of reasoning for today’s selloff. Increased chargeoffs and writedowns have been widely expected for a while. The level of reserves taken by the banks has been widely panned as being insufficient. Then why is the market down so much? (more…)






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