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Archive for the ‘Bank Nationalization’ Category

Why Should The Banks Be Broken Up?

Posted by Larry Doyle on January 14th, 2013 9:54 AM |

As much as I detest the involvement of the government in what are supposed to be free markets, I can appreciate the need for Uncle Sam’s stepping in to save our banking system in late 2008.

Now going on five years hence, it is time that we move to save capitalism. How do we do this? We need to break up the banks. Why so? Here’s a handful of reasons why:  (more…)

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!!


“IMF Puts Financial Losses at $4.1 Trillion”

Posted by Larry Doyle on April 21st, 2009 9:57 AM |

The FT provides in depth analysis as IMF Puts Financial Losses at $4.1 Trillion. The IMF had forecast these losses earlier this month. The actual report is no better than the initial warning. The simple fact is the world is awash in excessive debt. This debt can be restructured, defaulted, and/or devalued. Each of these respective approaches will take time and money. While the IMF has a checkered reputation, I had the good fortune of working at JP Morgan with John Lipsky, current First Deputy Managing Director at the IMF, and hold him in very high regard. Lipsky is often the public face to the markets for the IMF given his reputation.

The FT report is fairly comprehensive, although I still question the relative amount of losses outside of the U.S., Europe, and Japan. Is there anyplace in the world to truly hide in the face of these losses? Can China single-handedly be the economic engine for the global economy? The FT does a great service in shedding light on this report. (more…)

How Long Can You Tread Water?

Posted by Larry Doyle on March 26th, 2009 11:10 AM |

The other day, I provided a cursory overview of the details embedded in the recently proposed Public-Private Investment Partnership, Will Banks Truly Sell these Toxic Assets?

The main point I tried to highlight in that piece was the need for true price discovery for these toxic assets. A loyal reader provided tremendous insight in highlighting that the PPIP needs to assure that sellers are truly at arm’s length from buyers to insure that the price discovery process is real and fair.

There are potential concerns with this price discovery process highlighted in my piece Send in the Clown. Are the bank portfolios, located within the largest banks needing to sell toxic assets, attempting to prop the market higher? (more…)

Financial Logic and Morality

Posted by Larry Doyle on March 22nd, 2009 12:26 PM |

I am a proud graduate of the College of the Holy Cross, a Jesuit institution in Worcester, MA. The strength of a Jesuit education lies in the principles of Logic and Morality. While I fully appreciated my classes in Economics, German, Philosophy, and others, my classes in Logic and Morality made the greatest impact on me. Those classes forced me to think, not make rash judgments, take positions, and defend them.  

Fast forward to 2009 and a banking industry facing hundreds of billions, if not trillions, of unrealized losses. How do we most effectively, efficiently, and expeditiously address the health of this banking system so that our economy and population can regain its footing and prosper?  Let me revert back to the late ’70s and early ’80s and the principles instilled in me by those Jesuits.

 My Logic class utilized “decision trees.” My Morality class was based on the principle of “the greatest good for the greatest number.”

What have we learned over the last 6 months, as well as the last 16 years, to help us chart our way forward? (more…)

The Truth May Hurt…

Posted by Larry Doyle on March 10th, 2009 11:19 AM |

I very much appreciate reading material written by people whom I perceive as having no agenda. I have tried to bring people like this (including Ray Dalio, Paul Keating, Bob Rodriguez, Steve Rehm, Kevin Doyle, Vaclav Klaus, and many others) to Sense on Cents because I firmly believe we all become more educated and informed in the process. Please let me know if and when you perceive me, any of the pieces to which I link, or radio guests on NQR’s Sense on Cents as not dealing totally in the truth. Constructive criticism is always appreciated and will make for a better site.

Along with the aformentioned, I have also previously remarked on my high regard for John Mauldin, one of our Economic All-Stars. John himself possesses an insightful global perspective and has a circle of friends and confidantes that are simply off the charts.

In John’s weekly Outside the Box, he shares with us the perceptions of Michael E. Lewitt. Mr. Lewitt writes at length on topics we have covered here previously, but his level of detail and thoughtful analysis are well worth the read.

Topics covered include: (more…)

Shake Hands With Uncle Sam

Posted by Larry Doyle on February 27th, 2009 5:30 AM |

uncle-samWhen trading bonds on Wall Street, I always wanted to know what the largest accounts were doing. A handful of these accounts were so massive that in order to make a meaningful change in their portfolio they had to execute trades of monstrous size. In executing trades with these clients, there was enormous risk. That said, if I did not provide enough liquidity to the accounts then we would stop seeing their inquiry. Information is everything, so not seeing their business was even more dangerous than printing some of it. Given this balancing act, I would try to pick and choose my spots. Amongst these clients is the largest bond manager in the country, Pacific Investment Management Company, otherwise known as Pimco, headed by the legendary Bill Gross (one of our Economic All-Stars highlighted in the lower left sidebar).   

Bill offers his thoughts on a monthly basis. Anybody with even passing interest in the markets should read his remarks. I will offer an overview: (more…)

Going “All In”

Posted by Larry Doyle on February 26th, 2009 10:59 AM |

The government yesterday released the specifics of the Bank Stress Test to be undertaken by the 19 major banking institutions in our country. Those details in conjunction with the testimony provided this week by Treasury Secretary Geithner and Fed chair Bernanke provide a very clear signal as to the government’s approach to our economic problems. In my estimation they are clearly indicating they are going “all in!”

Before we get to the market reactions, allow me to share insights from a highly regarded bank analyst and then comment myself. 

Most analysts and economists view the government’s worst case scenarios under the bank test as not much more severe than what many already expect. I’m an optimist by nature but live by the mantra of hope for the best, prepare for the worst. The market will discount the government’s worst case. (more…)

Looking Back and Looking Forward

Posted by Larry Doyle on February 24th, 2009 2:41 PM |

John Mauldin, one of our Economic All-Stars (see sidebar on left), provides personal insights and perspectives that are truly cutting edge. Additionally, John has relationships that provide real clarity. 

John Mauldin recently published commentary from Paul McCulley of Pimco and former Fed chairman Paul Volker. I had the good fortune of working with Mr. McCulley in the late ’90s at Union Bank of Switzerland. He is a true gem. Mr. Volker, like him or not, is regarded as one of the world’s leading central bankers. Their comments are both comprehensive and understandable as we look to navigate the economic landscape!

Mr. McCulley looks backward and reviews the following:

  — the basics of our banking system
  — a review of the “unregulated” shadow banking system
  — the deleveraging process
  — questions on the implementation of the government backstops, including the Term Asset-Backed Lending Facility to restart the consumer lending markets, and the public-private partnership. (more…)

Breaking News…Citi “National Bank??”

Posted by Larry Doyle on February 22nd, 2009 10:24 PM |

UPDATED from late last night . . .

I just proposed on LD’s Dollars and Sense the idea that the markets would force Citigroup into the government’s hands. I thought it would occur within a month.  In just checking the WSJ newswire it appears that executives from Citi are negotiating with the government as I write this. The fact that Citi is looking to broker a transaction currently is effectively an admisson on their part that they are technically insolvent. While the U.S.  Eyes Large Stake in Citi, the common shareholders in Citi would be seriously diluted.  How would creditors be treated? At this stage I would guess that creditors will be untouched. I would imagine that if this transaction occurs, other banking shares will trade down in sympathy.

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