Archive for April 20, 2009

DJIA Nosedive

I was listening to the traffic and weather on the way home from work today and, as an aside from the important stuff like which lanes were blocked because police were investigating a possible vehicle bomb (which turned out to be a hoax and, if the inconvenienced drivers get hold of him, his next hoax will be in the great beyond), and that Playboy ranked University of Florida as only #4 in the nation as a party school (which turned out to be the unfortunate truth), I heard the report that the Dow Jones Industrial Average had dropped @290 points today.

Two hundred ninety points? Dang. I thought fleetingly that perhaps some Congress people (the people part is alleged) had been tarred and feathered and hung nekkid from the lamp posts (which is probably against state and local environmental laws because the remains may have been too poisonous to be safely consumed by vultures). Is Botoxed flesh even safe for wildlife consumption? Perhaps a study needs to be done. This could be important for our feathered friends in the near future.

On reflection, I felt that hanging government officials could only make the DJIA rise. I know it would certainly cheer me up to hear the news. So, what could it possibly be? Did people realize that the banking profits were bullshit? What?

According to the Christian Science Monitor, people are realizing that the banking profits are bullshit (although the CSM didn’t actually use that exact term).

From the Wall Street Journal:

Bank of America dropped $2.58, or 24%, to $8.02. First-quarter profit rose to $4.25 billion, helped by the recent acquisition of brokerage Merrill Lynch. Retail and commercial banking, credit-card and mortgage businesses were hurt by defaults, and the bank set aside more money to cover bad loans.

“While BofA’s reported income beat expectations, this was easily overshadowed by dour estimates of rapidly escalating charge-offs for uncollectible loans,” said Dan Cook, market analyst at IG Markets. “As we continue to shed jobs here in the U.S., it is likely that more and more of these loans will continue to default. This is a major concern for not just Bank of America, but all of the major banks.”

While the flood of red ink evidently slowed at banks during the first quarter, questions about their viability in a prolonged recession remain. The New York Times reported the U.S. government may stabilize the financial sector again, this time converting preferred shares in some banks into common stock to provide more capital, much as was done with the last Citigroup rescue.

Speculation about the progress of bank stress tests surfaced in the blogosphere.

Shares of Citi declined 71 cents, or 19%, to 2.94. Traders said many of the gains for Citi recently were linked to a share supply issue after a stock conversion was delayed.

Like BofA, Citi’s credit-card unit was a drag on earnings in the first quarter.

Among other credit card issuers, American Express fell 2.83, or 13%, to 18.98; Capital One Financial fell 4.47, or 25%, to 13.38.

The Dow Jones Industrial Average fell 289.60 points, or 3.56%, to 7841.73, its largest percentage drop since March 5, shortly before it hit its bear-market closing low on March 9. The technology-oriented Nasdaq Composite fell 64.86, or 3.88%, to 1608.21. The broad Standard & Poor’s 500 index fell 37.21, or 4.28%, to 832.39.

Yeah, the blogosphere has been speculating its ass off that the banks failed and failed BIG after this lil’ item appeared in the media:

April 10 (Bloomberg) — 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.

“If you allow banks to talk about it, people are just going to assume that the ones that don’t comment about it failed,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia.

Regulators are using the tests to determine whether the 19 biggest banks have enough capital to cover loan losses during the next two years if the economy shrinks, unemployment surges and housing prices keep declining. The tests are a linchpin of the plan Treasury Secretary Timothy Geithner announced in February to bolster confidence in the nation’s banks and restore financial-market stability.

Geithner has likened the stress tests to those used by doctors to evaluate a patient’s health. They’re designed to mesh with the administration’s effort to remove distressed mortgage assets from banks’ balance sheets. The Fed is overseeing the administration of the tests, people briefed on the matter say.

Progress Report

President Barack Obama is scheduled to get a progress report on the tests today during a meeting with his economic team. Geithner will attend, along with Federal Reserve Chairman Ben S. Bernanke and Sheila Bair, chairman of the Federal Deposit Insurance Corp.

I’m not a treasury official or banking spokesperson and so can only look at this report from a layman/businessperson point of view. If the banks were solvent, the reports wouldn’t be some deep, dark, closely-held secret. It does not seem to me to be possible for the banks to be making profits while simultaneously having their losses accelerate (even with the helping hand from Uncle Sugar who is shoveling truckloads of money into the banking system).

This is covered in more depth in Treasury: Caught Lying Again.

If the banks are really that bad off, the Fed’s efforts to kick the can down the road can be seen as understandable. That, however, doesn’t explain the Democrats completely insane budget where they attempt to ruin any business still producing.

Money and Markets

At yearend 2008, Bank of America’s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank’s was 278 percent; JPMorgan Chase’s, 382 percent; and HSBC America’s, 550 percent, according to the Comptroller of the Currency (OCC). In addition, in the fourth quarter, Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital. Although the banking authorities have not defined how much exposure is considered excessive, Weiss believes that, as a rule, bank exposure to any single risk category should be limited to 25 percent of capital. Goldman Sachs has exceeded that limit by a factor of 42 to 1.

“Equally alarming,” writes Dr. Weiss, “is the fourth quarter OCC data demonstrating that record bank losses are spreading to interest-rate derivatives. Until now, bank derivatives losses have been limited almost exclusively to credit defaults swaps (CDS), which represent only 7.8 percent of the notional value U.S. derivatives held by all U.S. banks. In the fourth quarter, although the CDS losses continued at a near-record pace, we also witnessed record losses in the interest-rate sector, which represents 82 percent of the derivatives market: The nation’s banks lost $3.4 billion in interest-rate derivatives, or more than seven times their worst previous quarterly loss in this category.

“In the face of such enormous risks and losses,” Dr. Weiss continues, “it’s entirely unreasonable to expect the U.S. Government to offset them without unacceptable damage to its own credit, credibility and borrowing power.”


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I Find Myself in Near Total Agreement with Ted Nugent

In U.S. News and World Report:

Good people don’t want the rapist to succeed. We want him dead. We don’t want our homes invaded. We want invaders dead. We don’t like carjackers. We like them dead. We don’t like armed robbers. We like them dead.

We have examined all the evidence we need to know that calling 911 is a joke, unless of course they bring a dustpan and a mop to clean up the dead monster we just shot while protecting our family.

The choice is clear: Gun control as forced by the Chuck Schumers of the world is complicit in every violent crime committed. Conversely, gun control a la Ted Nugent is putting the second shot through the same hole as the first shot, where innocent lives are saved and recidivistic maggots come to a screeching halt, felled by the lovely ballet of good over evil we call the Double Tap Center Mass Boogie. Learn it, know it, love it, shoot it. Good guys should live, bad guys not so much.

H/T Windybon at Gulf Coast Pundit.

I am personally happy to know that there are a lot of law-abiding folks out there doing concealed carry to help protect against the non-law-abiding.

So, what part of Ted’s rant do I disagree with? Well, I have been known to enjoy country and western music.

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