'Government Bank Bailout Was Profitable' Myth Receives Another Nail in the Coffin

Bravo to Jonathan Weil of Bloomberg, who uses the U.S. Treasury's own footnotes and figures to dispel the myth that the bank bailouts were profitable to taxpayers here.

Too Crooked to Fail

With the vampire squid having been dealt perhaps the long awaited, but much need mortal PR blow this week, the Rolling Stone's Matt Taibbi has transitioned his sights on Too Bigger to Fail Bank of America:

At least Bank of America got its name right. The ultimate To Big to Fail bank really is America, a hypergluttonous ward of the state whose limitless fraud and criminal conspiracies we'll all be paying for until the end of time. Did you hear about the plot to rig global interest rates? The $137 million fine for bilking needy schools and cities? The ingenious plan to suck multiple fees out of the unemployment checks of jobless workers? Take your eyes off them for 10 seconds and guaranteed, they'll be into some shit again: This bank is like the world's worst-behaved teenager, taking your car and running over kittens and fire hydrants on the way to Vegas for the weekend, maxing out your credit cards in the three days you spend at your aunt's funeral. They're out of control, yet they'll never do time or go out of business, because the government remains creepily committed to their survival, like overindulgent parents who refuse to believe their 40-year-old live-at-home son could possibly be responsible for those dead hookers in the backyard.

The rest here.

Video: Michael Lewis on 'Financial Innovation'

Buffet Badmouthing Gold is Like Geithner Talking Up U.S. Dollar

Lebron hasn't been taking financial advice from this guy, I hope? 

The fact that Warren Buffet is not a gold fan is old news.

I can't help but think about how, similar to the notion that it's never a positive sign for the currency when a finance minister feels compelled to publicly defend it, that perhaps it's a bullish signal for gold whenever Buffet feels the need to diss the yellow metal.

If you've studied Buffet you know that he chooses his words with extreme care. His financial empire is also so entrenched in the global economy that the only real risks he faces are existential ones. Such as the semi-quiet, steady run which has been taking place on the U.S. dollar since the turn of the century, when gold began its secular move upward.

Oh how it must just eat at the Oracle to know that a rock has been outperforming his precious equities for well over a decade!

Buffet was arguably the biggest single beneficiary from the 2008 government bailouts, a fact which hasn't received much airtime from Buffet-friendly business journalists (I'm talking about you, Becky). The steady devaluation of fiat currencies, like the U.S. dollar, against gold is something that this blog projects will continue. It is also something which clearly Warren would like to see slow down by badmouthing gold.

Greece Just Publicly Threatened Its Trump Card

Greece just decided to start 2012 off by significantly upping the ante:

"The bailout agreement needs to be signed otherwise we will be out of the markets, out of the euro," spokesman Pantelis Kapsis told Skai TV.

 Here's my previous piece explaining why in the European sovereign debt crisis Greece holds all the cards.

The Fed's $1.2 Trillion in Secret Bank Loans

Interactive chart detailing previously secret Federal Reserves loans to each bank here. Bloomberg deserves an award for their doggedness and reporting on this issue.

Eurozone Debt Crisis is the IMF's Responsibility, Not the ECB's

Marc Chandler hits the nail on the head.

The IMF, which is funded by other sovereign countries, was invented precisely for dealing with problems like the current Eurozone debt debacle. The IMF is the proper lender of last resort to sovereign countries, not the central bank.

Central bank lending to sovereigns often ends in debt monetization and hyperinflation. There are sound reasons behind German stubbornness against turning the ECB into a 'bazooka'.

More on this topic, including why the 'experts' with near unanimity are calling on the ECB rather than the IMF, here.

Recommended links

1. Why is Greece turning down the “bailout” (Tyler Cowen)

2. Circular commitments lead to a Ponzi economy (Letter to the FT). Here's the key quote:

If governments stand behind banks and banks stand behind governments and the central bank lends freely to both and also underwrites financial markets, then financial asset prices become completely detached from economic reality. In this “system”, the central bank implementing more quantitative easing is no different, in economic terms, from Bernie Madoff marking up his client accounts every month.

3. The Bailout That Busted China's Banks (WSJ)

4. Mr. Hoenig Goes to Washington (Simon Johnson)

5. Bond Dealers See Fed Holding Rate Near 0% at Least Through First Half of 2013 (WSJ)

6. Papandreou Is Right to Let the Greeks Decide (Spiegel)

7. Live European debt crisis coverage (BBC) and (Telegraph)

Photo of the Day: Angela Merkel Sizes Up the Eurozone Bailout

(click to enlarge)

h/t Barry

Video: Nassim Taleb On Occupy Wall Street

Video after the jump:

Interactive Global Debt Clock

Courtesy of The Economist

The clock is ticking. Every second, it seems, someone in the world takes on more debt. The idea of a debt clock for an individual nation is familiar to anyone who has been to Times Square in New York, where the American public shortfall is revealed. Our clock shows the global figure for all (or almost all) government debts in dollar terms. 

Does it matter? After all, world governments owe the money to their own citizens, not to the Martians. But the rising total is important for two reasons. First, when debt rises faster than economic output (as it has been doing in recent years), higher government debt implies more state interference in the economy and higher taxes in the future. Second, debt must be rolled over at regular intervals. This creates a recurring popularity test for individual governments, rather as reality TV show contestants face a public phone vote every week. Fail that vote, as the Greek government did in early 2010, and the country can be plunged into imminent crisis. So the higher the global government debt total, the greater the risk of fiscal crisis, and the bigger the economic impact such crises will have.

h/t zerohedge

No, No, No: Erin Burnett, the Government Bank Bailouts Were Not 'Profitable'

Oh boy.

On location at Occupy Wall Street, CNN's Erin Burnett is perpetuating the myth that government bailouts for banks were profitable for taxpayers.

Here, here, here and here are my previous posts about why this is not true.

In short, it's misleading to claim that the bank, or Wall Street, portion of the government bailouts (called TARP) is profitable without referencing the trillions in other bailouts provided by the Fed, the ongoing support for Fannie Mae and Freddie Mac (which could cost taxpayers trillions), and other taxpayer support which directly and indirectly bailed out Wall Street beyond just TARP. The reason is that the recipients of the government bailouts are intricately connected. Wall Street had (still has?) vast real estate holdings, so the support provided to Fannie/Freddie and the Fed's purchase or mortgage backed securities were second and third bailouts, respectively, for Wall Street on top of TARP.

Erin, it is fallacious to promote a myopic view that the government got its money back and then some on the TARP tranche of the government bailouts.  You need to also look at where taxpayers have not yet received their money back (Fannie/Freddie) or are still exposed (Fed's nearly $3 trillion balance sheet). To do otherwise is to engage in an incomplete, inaccurate and deceptive accounting of the bailouts.

For those interested in more detail line-by-line accounting of the various government bailouts can be viewed here.

"Dexia Has a Problem of Liquidity, Not Solvency"

In a move eerily reminiscent of 2008 Belgium and France have agreed to bailout Dexia, with a French official apparently claiming that Dexia "has a problem of liquidity, not solvency".

Ok, so it looks like Bear Stearns would have made for a better metaphor than Lehman.

But now that it's been decided to backstop the Brussels-based megabank (again) Belgium's caretaker government might have to explain in the not too distant future whether the country itself is having a liquidity or solvency problem. Per the below chart Dexia's assets are almost 200% of Belgian GDP.

(click to enlarge)

(Note: the above chart from ZeroHedge does not appear to include France's GDP in the calculation of Dexia's ratio, just Belgium's. However, it does give a sense of just how big Dexia is relative to the size of Belgium's economy, along with other large banks in Europe.)

AEP on Euro Endgame: "Sorry Deutschland. History has conspired against you, again."

Evans-Pritchard on the Eurozone's Debt Endgame:

The Geithner Plan must be accompanied a monetary blitz, since the fiscal card is largely exhausted and Germany refuses to lower its savings rate to rebalance the EMU system. The only plausible option is for the ECB to let rip with unsterilized bond purchases on a mass scale, with a treaty change in the bank's mandate to target jobs and growth. 

This would weaken the euro, giving a lifeline to southern manufacturers competing with China. It would engineer an inflationary mini-boom in Germany, forcing up relative German costs within EMU. That would be the beginning of a solution, albeit a bad one. 

Sorry Deutschland. History has conspired against you, again. You must sign away €2 trillion, and debauch your central bank, and accept 5pc inflation, or be blamed for Götterdämmerung. It is not fair but that is what monetary union always meant. Didn't they tell you?

Full article here. 

Video: Meltdown - Documentary (all 4 parts) on the Financial Crisis

h/t Barry R.

If Not Obama, Who Does Secretary Geithner Take Orders From?

Here's the story about how Treasury Secretary Tim Geithner, perhaps emboldened by his ability to get away with tax evasion, decided in March 2009 to ignore President Obama's directive to dissolve Citibank.

As MIT Professor Simon Johnson and others have pointed out, the most recent financial crisis marked the third time in the last three decades that Citibank has needed a taxpayer financed bailout. In other words, once every 10 years on average Citibank goes bust.

Obama, perhaps aware of this fact, maybe thought it was time to put an end to the joke that Citibank and its lackluster management can stand on its own two feet without government backing. Why didn't Geithner agree with his boss?

Friends of Bob: Summers, Orszag and Geithner

Yves Smith has a theory. Another possibility is that dismantling Citibank would have put an end to the #1 preferred post-government destination for officials looking to cash-in like Robert Rubin, who pocketed hundreds of millions of dollars in compensation as Chairman of Citibank following his position as Treasury Secretary, and Peter Orszag, who left the Obama administration for a similar lucrative position with the megabank.

And what consequences has Geithner suffered for his supposed insubordination? Apparently none based on the fact that Obama purportedly had to beg him to stay on through the 2012 election.

Lehman Part Deux: The Dexia Domino and Belgium’s Caretaker Government

The fear that Dexia, a Brussels-based money center bank, may become the 'another Lehman' thought to be lurking somewhere in Europe was given further credence a few days ago when its CEO resigned suddenly. The surprise departure of a senior executive -- often a grave omen -- turned up the heat up on a stew which had already been simmering for months. 

While both the French and German governments should have enough reserves and borrowing capacity to backstop their banking systems following default by one or more European sovereigns, the Belgians recently broke Iraq's record for being the country unable to form a government for the longest period of time (500+ days and counting). While the political dysfunctionality appears to have been a boon for the local economy it raises questions about what will happen should Dexia need a bailout following what appears to be an imminent Greek default.

Reflecting its regional significance, the Belgian, French and Luxembourg governments injected over 6 billion euros into Dexia during the last financial crisis. But without a Belgian authority to negotiate with, and given that France's banks are coming under significant speculative attack (for good reason. More on 'slippery' accounting at French banks here), there is a very legitimate question of whether a similar regional bailout can be orchestrated again.

Continue reading the full article at SeekingAlpha here.

Video: Banks Should Be Public Utilities

Updated: Greece to Engage in 'Selective' or 'Restricted' Default

Eurogroup head Jean-Claude Juncker

The undeniable fact that a Greek credit event was imminent was prognosticated here in late May. The situation on the ground in Greece, the lack of political will in the Eurozone, and the simple arithmetic all made kicking the Greek debt can much further down the road simply improbable.

Now, at last, we have all but final confirmation from the horse's mouth of what many since last year have known all along: Greece will default.

What happens next?

This is much more difficult to predict and will depend on just how exposed fragile financial institutions are to the ripple effects of default, and how credible the new package which accompanies Greece's default. If contagion spreads uncontrollably to Italy and/or Spain, look out below!

Update: On the newly announced Eurozone bailout program, economist Willem Buiter has a nice quote: “The EFSF has gone from being a single-barreled gun to a Gatling gun, but with the same amount of ammo. It needs to be increased in size urgently.” 

The failure of Europe's leaders to increase the size of the bailout fund speaks to the lack of political appetite in Germany and other northern European countries to support further bailouts, as well as a failure to understand just how big Europe's debt problem is.

Any predictions on the half-life of the latest can-kicking measure before there's blood in the water again?

Video: Niall Ferguson Outlines Possible Collapse of Eurozone

Video here.