The Royal Scam was a great song written and sung by one of the greatest bands ever—Steely Dan. We have currently taken to have this song realized and absorbed into our daily lives. And, not by choice! I believe many Internet pundits have caught on. I went into it in my last posting, “The Team Obama Rip-off”.
The story told in the last posting suggesting that the banks would be able to dump their toxic mortgage debt into a shell investment facility created by them is very likely. Now, as stated in the previous post, the FASB (Financial Accounting Standards Board) has re-written the rules allowing the mega-banks to decide what the toxic mortgage debt is worth (a self-determined value) when they decide to make a deal with Treasury. It appears that Geithner is ready to offer inflated values two to three times the actual mark-to-market street value.
This would be like if you paid $200,000 for your house but now, it has dropped to $100,000, but you were allowed to reassess it yourself placing the value at $250,000, and then proceeding to be able to borrow off of that new value. That stuff just does not work for those living in the Real Economy.
Treasury has $2T available to them to make these deals, which will eventually get laid upon the taxpayers to pay it off. But here is the rub, it is estimated that what the 5 mega-bank’s want for their mortgage debt is likely to be around $4T or more!!! What is Geithner going to do? Will he let one or more of these banks hit the wall and fall into receivership, or will he tell the Wall Street Crime Syndicate, “hey boys, I only got a stinkin’ $2T for ya. I will have to offer you the stress-tested price.” OOHH. These guys aren’t going to like that because they might not end up with a positive balance sheet. There might be significant write-downs, and a big fall in their stock values. There will be blood. Here are the opinions of other experts.
Karl Denninger, the trader and entrepreur, as well the sole contributor to market-ticker.denninger.net wrote in his 4-9-09 informative piece called “Tired Of Getting ROBBED America?” the following:
“You are seeing near-zero (or actual zero) interest earned on money you loan to the bank (when you make a deposit or buy a CD you are loaning money to the bank) and yet when you go to borrow money you're being screwed with record-high spreads that the bank is pocketing [200 basis points, he claims- broker (and direct bank) mortgage pricing vs. Fannie and Freddie bond pricing] - in mortgage and credit card interest rates charged. How much does this add up to? About $4,000 in extra profits per mortgage on top of the "usual" $1,000 profit. That's right - the banks are making five times the "usual and customary" profit per loan, and it is coming right out of your hide. I've been hollering about this for months (as has Mish Shedlock) but it appears that both our intrepid lawmakers and the mainstream media simply refuses to talk about it.
When does this stop? When you, America, are tired of being ripped off and demand that it stop. Remember, the mantra of both government and The Banks is "never waste a crisis”."
This is what another verse of that great song The Royal Scam sounds like.
Mr. Denninger went on to say in his daily entry, “Jamjob-Wells Fargo and more”, “So Wells comes out this morning and says they're going to make a "record" profit, claiming an expected 55 cents (vs. mid 30s expectation). It must be nice to be able to keep loans on the books at whatever price you feel like, receive billions of taxpayer money including "assistance" in rolling up Wachovia, and then turn out to not need it, right?
That is, if these numbers are accurate. Wells pre-market is ramping from $14.89 at the close yesterday and now trading pre-market at $18.10, up over $3 or some 30%.
This leads one inescapably to the following:
Either, Wells [Fargo] is lying (obfuscating losses through unrealistic marks, etc), OR
these "bailouts" were no such thing - they were a simple and transparent
looting operation by the banks that is now showing up directly in "earnings"
(and will shortly show up in the bonuses of executives too!)
So which is it folks?
Are the banks really that healthy? Because if they are, you've been robbed to the tune of tens of thousands of dollars per person in this country, and it is long past the time that you act to stop it.”
We will have a chance on April 24 to see what their first-quarter reports will reveal.
Professor Simon Johnson, former IMF chief economist, and currently Professor of Entrepreneurship at MIT's Sloan School of Management, wrote on his baselinescenario.com site “What Is Next For The Banks” (4-9-09) “The latest credit default spreads data for the largest banks show a speculative run underway. As the system stabilizes, it becomes more plausible that a single bank will fail or be rescued in a way that involves large losses for creditors. This would like[ly] trigger further speculative attacks on the other banks...The government’s own policies are facilitating these attacks because as the Fed and Treasury make progress towards easing credit conditions, this makes it easier and cheaper for the large hedge funds and others to take larger short positions. And keep in mind, the underlying loss of confidence is self-fulfilling: as you lose confidence, you want to go short, and selling the credit causes further loss of confidence- and banks are forced out of business.”
And now, Larry Summers, President Obama’s economic advisor, came out and said that the economy has now ceased to be in free-fall. “The economic free-fall could end in the next couple of months.” I guess he had not looked at the figures defining unemployment, under-employment and those no longer able to find any work(15%). Or, he missed the number of foreclosures now over 4M, with 2M waiting in the wings. Or, he has missed how consumers continue to feel their incomes are extremely unstable, but we are no longer in free-fall according to Larry Summers. I think someone credible needs to advise him!
If you have not read the post below, I encourage you to do. This is an extension of the last one.
As I write this on Good Friday, I realized that Abraham Lincoln had been assassinated 144 years ago. President Lincoln said this on the economy, "What has once happened, will invariably happen again, when the same circumstances which combined to produce it, shall again combine in the same way."
President Obama needs to read this over and over again.
Thanks for reading, jerry. Also, don’t forget to check out the video collection.