FRONTLINE: Ten Trillion and Counting

Friday, March 27th, 2009

In case you missed it, you can view last week’s PBS FRONTLINE, Ten Trillion and Counting, here:

Summary courtesy of PBS.org:

All of the federal government’s efforts to stem the tide of the financial meltdown have added hundreds of billions of dollars to an already staggering national debt, a sum that is expected to double over the next 10 years to more than $23 trillion. In Ten Trillion and Counting, FRONTLINE traces the politics behind this mounting debt and investigates what some say is a looming crisis that makes the current financial situation pale in comparison.

The journey begins as FRONTLINE correspondent Forrest Sawyer takes viewers to a secret location: the Treasury’s debt auction room, where the U.S. government sells securities backed by the “full faith and credit of the United States.” On this day, the government is auctioning $67 billion of Treasury securities. The money borrowed will be used to fund services and programs that the government cannot pay for through tax revenues alone.

Observers warn that the United States’ reliance on borrowing to fund essential programs is a dangerous gamble. For the first time, investors are beginning to question the ability of federal government to meet its growing financial obligations, and fading confidence can have dire consequences. “You might have a situation where there is one day when the government says we need to sell several billion dollars of bonds, and nobody shows,” Economist reporter Greg Ip tells FRONTLINE. “No money to pay the Social Security checks, no money to give to the states for their Medicaid programs. Cut, cut, cut, cut, cut.”

Yet more borrowing is exactly what the Obama administration plans to do: hundreds of billions to bail out the banks and other financial institutions; tens of billions more for the auto industry; $275 billion for homeowners and mortgage lenders; and a giant $787 billion stimulus package to jump-start an economy spiraling downward. Just like the Bush administration before it, Obama and his team are going to borrow big. “That’s the paradox of the situation that we’re in now,” observes Matt Miller, author of The Tyranny of Dead Ideas. “Government has got to run big deficits to stimulate the economy, deficits that would have been unthinkable … because government’s the only entity with the wherewithal to prop up a demand in the economy when businesses and consumers are all pulling back.”

Tags: Auction Room, Auto Industry, Billion Dollars, Dangerous Gamble, Financial Institutions, Financial Meltdown, Financial Obligations, Financial Situation, Forrest Sawyer, Full Faith And Credit, Medicaid Programs, Mortgage Lenders, National Debt, Pbs Frontline, Secret Location, Social Security Checks, Stimulus Package, Tax Revenues, Time Investors, Treasury Securities
Posted in Bonds, Credit Markets, Economy, Markets | No Comments »

Wall Street’s ‘Coup d’État’

Friday, March 27th, 2009

This past week’s Rolling Stone magazine presents a hard-hitting in-depth investigative article, a Wall Street expose, The Big Takeover, by Matt Taibbi. This lengthy ‘can’t stop reading this’ article presents some widely held and not-so-widely held allegations about Wall Street’s inner sanctum.

Here are some excerpts:

The global economic crisis isn’t about money - it’s about power. How Wall Street insiders are using the bailout to stage a revolution.

“It’s over - we’re officially, royally f—-d. No empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline - a corporation that got rich insuring the concrete and steel of American industry in the country’s heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.”

“The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history - some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That’s $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG’s 2008 losses).”

. . .”People are pissed off about this financial crisis, and about this bailout, but they’re not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d’état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.”

“The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — “our partners in the government,” as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.”

. . .”The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders - people who wear seat belts and build houses on high ground - and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people’s money would make his dick bigger.

I. Patient Zero

That guy - the Patient Zero of the global economic meltdown - was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP.”

. . .”In a span of only seven years, Cassano sold some $500 billion worth of CDS protection, with at least $64 billion of that tied to the subprime mortgage market.”

. . . “The CDS was popularized by J.P. Morgan, in particular by a group of young, creative bankers who would later become known as the “Morgan Mafia,” as many of them would go on to assume influential positions in the finance world.”

. . .”Cassano’s outrageous gamble wouldn’t have been possible had he not had the good fortune to take over AIGFP just as Sen. Phil Gramm - a grinning, laissez-faire ideologue from Texas - had finished engineering the most dramatic deregulation of the financial industry since Emperor Hien Tsung invented paper money in 806 A.D.”

. . .”When Morgan presented their plans for credit swaps to regulators in the late Nineties, they argued that if they bought CDS protection for enough of the investments in their portfolio, they had effectively moved the risk off their books. Therefore, they argued, they should be allowed to lend more, without keeping more cash in reserve. A whole host of regulators - from the Federal Reserve to the Office of the Comptroller of the Currency - accepted the argument, and Morgan was allowed to put more money on the street.”

Read this whole, must-read, article here.

Source: The Big Takeover, Matt Taibbi, Rolling Stone, March 19, 2009

Matt Taibbi is a jounalist and political writer, and columnist for Rolling Stone magazine.

Tags: American Household, Big Takeover, British Empire, Buffoons, Chasing The Shadow, Concrete And Steel, Coup D, Coup D Etat, Death Power, Final Three Months, Global Economic Crisis, Inner Sanctum, Insurance Giant, Investigative Article, Juice Boxes, Laughingstock, Matt Taibbi, National Decline, National Economy, Profound Symbol, Rolling Stone Magazine, Street Insiders, Timothy Geithner, Treasury Secretary
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Risk appetite rekindled on hope of better days

Friday, March 27th, 2009

Following Fed Chairman Ben Bernanke’s “nuclear option” announcement of last week, the action stayed on Capitol Hill with Treasury Secretary Timothy Geithner outlining his Public-Private Investment Program as well as “new rules of the game” for the financial services industry.

Whereas Nouriel Roubini’s reaction to the administration’s new plan to buy toxic assets was surprisingly positive, James Galbraith and Paul Krugman were not impressed. These gentlemen are included in this week’s harvest of video clips, sharing the platform with the likes of Bill Gross, Paul McCulley, John Bogle, Wilbur Ross and Jeremy Siegel.

As stock markets look set for a straight third week of gains, the debate as to the longevity of the nascent rally rages on. The featured video material sees Mark Mobius saying “the next bull market has begun”, Jeff Saut arguing the “odds are pretty good stocks have seen their lows”, but Laslo Birinyi taking a bearish stance and advising to sell stocks that gained in the rally.

The selection starts with a great discussion across the pond on the “future of capitalism” and ends with an educational clip about the ins and outs of quantitative easing.

Financial Times: Future of capitalism - London panel
“Does the financial crisis signal the end of the Reagan-Thatcher model of free markets and globalisation? FT editor Lionel Barber leads a discussion with Howard Davies, director of the London Schoof of Economics, Donald Brydon, incoming chairman of the Royal Mail, and John Studzinski, of US private equity firm Blackstone.”

Source: Financial Times, March 26, 2009.

CNBC: Geithner & toxic assets
“Treasury Secretary Timothy Geithner discusses his plan to deal with financial institutions’ toxic assets, with CNBC’s Erin Burnett.”

Part 1

Part 2

Source: CNBC, March 23, 2009.

Financial Times: Geithner’s toxic asset plan
“The government has given the financial sector what it has wanted for a long time; it will pay investors to take the toxic assets off banks’ balance sheets. But the supercharged political environment could endager the program, says FT’s Francesco Guerrera.”

Click here for the article.

Source: Francesco Guerrera, Financial Times, March 23, 2009.

CNBC: Bill Gross buys in
“Pimco is intrigued by the potential double-digit growth from the toxic asset plan, says William Gross, co-chief investment officer/founder.”

Source: CNBC, March 23, 2009.

CNBC: Market masters wigh in on the Treasury’ plan
“The economy’s performance utimately drives stock prices, with Abby Joseph Cohen, Goldman Sachs, Paul McCulley, PIMCO, John Bogle, The Vanguard Group, and Bob Doll, BlackRock.”

Source: CNBC, March 24, 2009.

PBS News: Toxic asset plan may woo investors, but long-term impact is unclear
“While markets rose Monday on details of the toxic asset plan, critics voiced concern over taxpayer risk and the need for a long-term fix to financial sector troubles. New York Times columnist Paul Krugman and Donald Marron of Lightyear Capital debate the details.”

Click here for the article.

Source: PBS News, March 23, 2009.

Bloomberg: Roubini says Geithner plan won’t stop nationalizations
“Nouriel Roubini, economist and professor at New York University’s Stern School of Business, talks with Bloomberg’s Maithreyi Seetharaman about US Treasury Secretary Timothy Geithner’s plan to remove toxic assets from the books of the nation’s banks. Roubini, speaking in London, also discusses the outlook for the meeting between the Group of 20 leaders in London.”

Source: Bloomberg, March 26, 2009.

Tech Ticker (Yahoo Finance): James Galbraith - Geithner plan “extremely dangerous”, banks “massively corrupted”
“Professor James Galbraith didn’t pull any punches on TechTicker this morning. He hates the Geithner plan, calling it ‘extremely dangerous’. He says the banks may game the plan to bid up the prices for their own crap assets and that getting bad assets off their books won’t get them lending again. Like Paul Krugman, Galbraith thinks the FDIC should just put the banks into receivership and have the banks’ subordinated bondholders pick up some of the cost of restructuring them.

Part 1: Getting crap assets off bank books won’t save economy

Part 2: Massive corruption

Source: Tech Ticker, Yahoo Finance, March 23, 2009.

CNBC: EU politician slams US economic recovery plan
“A top EU official slams the US economic recovery plan, calling it a way to hell, reports CNBC’s Carolina Cimenti.”

Source: CNBC, March 25, 2009.

CNBC: Ross: Due diligence integral to success of US plan
“The key issue would be how much due diligence the US government allows private investors to conduct in its toxic asset plan, says Wilbur Ross, chairman & CEO of WL Ross & Co. He speaks with CNBC’s Martin Soong & Sri Jegarajah.”

Source: CNBC, March 23, 2009.

Financial Times: “New rules of the game”
“Treasury secretary Tim Geithner’s regulatory overhaul is ambitious, but the question is whether he can follow through, says FT’s Helen Thomas.”

Source: Financial Times, March 26, 2009.

CNBC: Restoring investors’ trust
“The stress test on banks is an essential step in restoring trust for investors, says Jeremy Siegel, Wharton School at The University of Pennsylvania professor of finance.”

Source: CNBC, March 26, 2009.

CNBC: AIG hearing - Timothy Geithner’s statement
“Treasury Secretary Timothy Geithner says AIG’s failure would have caused catastrophic damage.”

Source: CNBC, March 24, 2009.

CNBC: AIG Hearing - Ben Bernanke’s statement
“Fed Chairman Ben Bernanke discusses the importance of bailing out AIG.”

Source: CNBC, March 24, 2009.

Bloomberg: FDIC’s Bair says goldman should return US aid if able
“Federal Deposit Insurance Corp. Chairman Sheila Bair talks with Bloomberg’s Kathleen Hays about the possible return of government bailout funds by Goldman Sachs Group. Goldman Sachs is talking with US regulators about repaying the $10 billion it received from the government by mid-April, a person familiar with the matter said. Bair also discusses Treasury Secretary Timothy Geithner’s plan to remove toxic assets from the books of US banks.”

Source: Bloomberg, March 24, 2009.

Charlie Rose: An update on the economy with Krugman et al
“An update on the economy with Paul Krugman, Joe Nocera and Andrew Ross Sorkin.”

Source: Charlie Rose, March 23, 2009.

John Authers (Financial Times): Credit market gloom
“Perhaps the greatest cause for concern amid the equity rally is that credit markets, the target of all the rescue operations, are still working on the assumption of absolute disaster, says John Authers.”

Click here for the article.

Source: John Authers, Financial Times, March 27, 2009.

60 Minutes: President Barack Obama
“From the AIG bonuses, to the economic meltdown, to the war in Afghanistan, it has been an eventful two months in office for President Obama. Steve Kroft has the behind-the-scenes interview.”

Part 1

Part 2

Source: 60 Minutes, March 22, 2009.

Bloomberg: Mobius says stocks at beginning of a bull market
“The next bull market has begun and there are bargains in every emerging market following a record slump in stocks, Templeton Asset Management’s Mark Mobius said.”

Click here for the article.

Source: Bloomberg, March 23, 2009.

Bloomberg: Saut says odds “pretty good” stocks have seen their lows
“Jeffrey Saut, chief investment strategist at Raymond James & Associates, talks with Bloomberg’s Julie Hyman about the outlook for US stocks. Saut, speaking from St. Petersburg, Florida, also discusses the Treasury’s Public-Private Investment Program and financial stocks.”

Source: Bloomberg, March 23, 2009.

Bloomberg: Laszlo Birinyi - sell stocks that gained in rally
“Laszlo Birinyi, president of Birinyi Associates, talks with Bloomberg’s Betty Liu about his equity investment strategy. Birinyi, speaking from Westport, Connecticut, says investors who own stocks that rose as the Standard & Poor’s 500 Index rallied 20% since March 9 should consider selling them.”

Source: Bloomberg, March 26, 2009.

John Authers (Financial Times): Reading copper leaves
“Recovering commodity prices may signal that we have reached the bottom of this bear market.”

Click here for the article.

Source: John Authers, Financial Times, March 24, 2009.

Financial Times: Benita Ferrero-Waldner on eastern Europe
“Benita Ferrero-Waldner, the EU’s external affairs commissioner, says eastern Europe is important to the European Union. Ms Ferrero-Waldne also says the EU must re-engage in a broad dialogue with Russia to avoid another energy crisis.”

Source: Financial Times, March 23, 2009.

Marketplace: Quantitative easing
“Now the Federal Reserve has effectively cut the target lending rate to zero, it only has one more weapon in its arsenal. Quantitative easing. Senior Editor Paddy Hirsch explains what this ‘nuclear option’ is, and what the Fed hopes it’ll do.”

Source: Marketplace (via Vimeo), December 2008.

Tags: Ben Bernanke, Birinyi, Cnbc, Galbraith And Paul, Howard Davies, Incoming Chairman, James Galbraith, Jeremy Siegel, John Bogle, John Studzinski, Lionel Barber, Nouriel Roubini, Paul Krugman, Paul McCulley, Private Equity Firm, Risk Appetite, Royal Mail, Timothy Geithner, Treasury Secretary, Wilbur Ross
Posted in Bonds, Emerging Markets, Gold, Markets | No Comments »