Hello friends and colleagues,
On April 14, I received a daily email that included this article about the bankers’ demands to keep secret their shell game with the Fed over themoney. It’s an article that you may have seen if you have Bloomberg News. If the Fed didn’t have bloody hands over how it had mishandled itself as the supervisor for Bank Holding Companies, perhaps it could wiggle out of an abuse of power ruling against it which it would well deserve.
While writing this email, turbulence suddenly hit my system, can you believe, through my dial-up connection, eating 2 hours of my time. Then it crashed and I had to reboot!
Whatever has the power to harass people through the web, I won’t name which 3 letter federal no such agency tends to do that, but that I’m being harassed supports what I’m saying. There is fear and desperation. It’s war in their minds to their wallets in whatever way they perceive that. Whatever fears its idyll being exposed, and exposure would deprive these pawns and squires from their Valhalla, that which has had some power to protect the maggotry actions of the BigFinancials, and it’s not in reality about the bail-out, because that’s only a little more than pocket change to agency that runs the BigFinancials and their patsies in government.
Again, it’s about the Money – the way agency has been able to get away with their billions in bogus earnings. The inflated earnings and accruals of all the bogus mortgages underwritten on inflated real estate, and at higher terms because these were more risky mortgage product also producing higher fees and when having to be marked down because it went non-accruing, those hits further deepened the loses.
But bottom line, the alleged record earnings or the sham of earnings – were based a great deal on de facto and direct fraud. Meanwhile the bailout flushed liquidity into fraud laden balance sheets with management wanting the voters/shareholders/depositors to continue to bear the burden for that – no fault management – and its future fools’ gold activities that made the pretense of real revenues, when all they were was flipping bogus paper that was legitimized.
Given the BigFinancials want to hide their ways after they’ve taken public money to bailout out their ‘inflate-collapse’ cycle that Chris Dodd says will happen again even with his draft, but considering these big miscreants after threatening to ‘take-out’ mainstreet …the little guy, and then agency getting a congress-treasury bailout to flush their balance sheets and bonuses, and these BigFinancials which also take depositor money, investor – pension, 401(k), endowment, and trust fund money, meanwhile they’ve continued to engage in their behavior and practices that produced their liquidity crisis in the market correction – which if you think about it – what would the stock market have to do with bank liquidity…
Speaking of liquidity, I’m curious about what the double-leverage ratios are saying about the demands parents (bhc) are making on underlying depository institutions. With the depositors’ wallets and deposits serving to flush the pockets of management at the BigFinancials, they’ve been robbing cash-liquidity from their underlying depository institutions as well as feeding at the Fed window while underwriting their OTC derivatives barter activity without wanting to disclose or make transparent how larcenous their activities are.
These activities also are redolent of the enrons and other slick ways that agency crafts to move the money to cover for their inside marginal activities that have been lining their own pockets. In this case they’ve got a financial alchemy going to get a pass at any and every level to turn a counter-party contract that should have had capital behind it to provide the institutionally legal framework for that contract, to go the distance to grease the ‘wheel’ to get it recognized as an instrument that can exchange clear-trade.
If you think about what sorts of instruments exchange clears such as a common stock, or an commodity options or futures contract which from one contract to the next in their respective types or classes are THE SAME, OTC derivatives aren’t that at all. And even after establishing the ‘clearing’ house, the ‘exchange clearing’ mechanism, an expert admitted these instruments are STILL BILATERAL CONTRACTS. Now, recall a common stock share is not that, nor is a bond, nor even a commodity options exchange issued and cleared contract. Only derivatives that have gotten traction with the loophole to OTC trade, these all still are bilateral contracts and do NOT belong exchange trading at all. They do not belong trading at all. They do not survive the tests that common stock and other exchange traded instruments survive. But OTC derivatives are the BigFinancials’ fools gold they’ve been able to use to unlock the goldvault-money printing press in the system.
Consider all – ALL – OTC derivatives are unique. Even that $25T to which they’re said to net, isn’t a clean net like a common stock wash trade. The $25T is an estimate net, given that these $625T in notional instruments all are unique and none off-set perfectly. Not even the “standardized” off-set perfectly and don’t let them badger you that they do or that they’re ok or that they can standardize, etc. That’s how desperate that agency drive is for that financial garbage to get legitimized and the toxicity spread for society to bear its burden. I call it letting the financial version of uranium 257 to run around without a lead suit, spreading its toxic blow back through the financial system, and all because Ruben feared the legal problems of forcing transparency that accompanies the exchange clearing and trading that common stock technically survives, but OTC derivatives do not. But unless you’d seen quotations or heard his testimony before the Congressional panel appointed to examine what is the problems and breakdowns in the system, you’ll be in darkness over how we’re drowing in financial toxic waste and it’s on your wallet and mine, without anywhere near the comp blankfein and dimon and the others are taking out of their fiefs.
Ah, we’re seeing the financial 21st century alchemy version of turning lead into gold. And in mentioning this which Commissioner Georgiou suggested at last week’s Financial Crisis Inquiry Commission to one of those testifying, it’s even more of a stretch than thinking using BBB tranches to over-collateralize AAA tranches under an assumption that the BBB tranches had the cash-flows when in this cycle those tranches didn’t have cash-flows. During other interest rate cycles that may have been the case, but not in this inflate-collapse cycle that agency was producing – and partly to get their piece of the pie while continuing to collapse the US economy to meet the G20 constraints for the US.
Meanwhile back to the soapbox of late that I’ve been progressing, regarding barter – many of these OTC derivatives don’t realize to cash except for the triggering event. So from one period to the next they’re a swap of one instrument for another. In the next step for agency to legitimize its enronesque larceny, they’ve got their managements in the due process with FASB to heckle the Board to change the definition of Revenue Recognition to a definition that when you’ve got a ‘contract’ (the definition is more under the “Concept 6″ rather than Concept 5 definition for Revenue Recognition if you know anything about US GAAP), but now in revenue ‘recognition’, that on which they can/may claim revenue doesn’t have to realize to cash.
This has been part of the Concept 6 Definition, but I don’t recall if in Concept 6 there was a cash test but we’re seeing this revaluation or non cash exchange in the Fair Value concept to which the FASB has been eroding. We know how the markets can be and have been gamed; it’s a disconnected sort of financial madness to let the markets rule the valuation of the assets and liabilities of an enterprise, and like a bank which with the community banks, much of their balance sheets Do Not trade. They portfolio their commercial/community banking activity.
Keep in mind Fair Valuing the asset and liability accounts bring flux to the Shareholders’ equity – ie, the OWNERS suffer, while also bringing more flux and less cash-flow to the income statement, because of the cheesier, inferior ways that agency gets to pretend it’s got some ‘income’ (comprehensive income or otherwise) to declare because of a valuation change in assets and/or liabilities.
FASB says this sort of revenue can realize to another instrument or contract, rather than to cash, and that that instrument doesn’t have to be a cash equivalent, like a treasury note. This gives the ‘barter’, which is an unfair economic exchange for its goods and services when the enterprise isn’t paid/remunerated in the universally acceptable unit of exchange, ie MONEY. Cash. This is key because this also is LIQUIDITY, which was what froze up their businesses and also was the way Enron’s banks and Enron prospered it’s bankruptcy by using a liquidity crisis. Enron’s energy OTC derivatives and its joint ventures were parasiting cash-flow from other parts of its operations. When Anderson forced Enron to market to market its balance sheet and it’s off Balance Sheet activity, you know the rest of it, meanwhile the market was correcting and it had insufficient cash-flow to support itself.
And we litigated that.
There are more stakeholders in the enterprise than agency, which has made the decision to engage in barter while denying the appropriate compensating financial ‘blood’ to the enterprise and the other resources the enterprise is expending in order to accept the barter exchange.
Barter also is an inferior economic relationship because it ties the counter-parties to each other rather than liberating each other via the exchange of a good/service for the universally acceptable unit of account. You can’t spend your OTC derivative just anywhere, but can spend cash everywhere. So the counter-parties are tied to each other in this dysfunctional financial interaction.
It’s not like a common stock or bond or even an exchange traded options contract. Not even with ‘boot’, is barter an appropriate economic interaction that agency should undertake because agency isn’t the only judge about what compensates the enterprise of what is most appropriately accepted for the enterprise’s goods/services that satisfies the necessary financial blood to meet all the needs of the enterprise that are a part of those goods and services the enterprise provides. And with the BigFinancials showing negative cash-flows in their Cash Flow Statements, it gives me the bully pulpit.
And Hello, did you know that their shill analysts are dissembling to the FASB, which has the Board deliberating about eliminating the requisite Cash Flow Statement requirement for financial institutions? Does some form of contemporary feudalism come to mind when those we ‘trust’ in some position of authority, in this case agency in BigFinancials can call their own shots and have the Fed to partner with their form of moral hazard? And the ‘Little- People’ are to buck-up?
Bob Ruben’s testimony before the Financial Crisis Inquiry Commission gave us this ‘no fault’ management when both he and Greenspan said they don’t know what’s going on (that which they’re doing that produces crisis) when they’re doing their jobs.
That’s shocking that either they think we’re supposed to swallow and accept their deplorable excuses for ‘no-fault-management’ or moral hazard on the voters and depositors backs and wallets, or they believe their own maniacal maggot-mindedness and we’re supposed to put up and shut up. I think they dissembled and play us for fools and anyone who knows better to shut-up, take the money and run. That also is what’s wrong with wallstreet, because it is a duplicit hand with other peoples’ money. If Ruben and Greenspan were in mayberry, perhaps their pathetic, contemptuous excuses would get a pass but they’re men who held roles of significant responsibility and earned significant means while everyone else in our lives has to have credibility, be good for our word, administer our roles in employment, etc with accountability, meanwhile Ruben and Greenspan are saying they can’t be held accountable for what they’ve decided nor was there any way to know when we have management science, economics, and 70 years of Fed history to call these men liars or mindless idiots.
Back to barter – it conflicts interests because the barter relationship in which agency engages overrides the other safety/soundness but in general the other interests to which banks have to respond.
As a result in earlier eras even during the dotcom bubble, when barter in having been rejected as an inferior economic model is engaged by Financials which also have backing by deposit insurance, you do realize the fear of bank runs get traction among bank management and their counsel as one sees below in their fear about transparency.
Consider that also is contributing to the negative cash-flows at many of the BigFinancials and is activity they want to hide because aside from it being no different than enron, it also shows they don’t have the means for the collateral for the OTC derivatives and the technical difficulties of that, nor actually when they have to allocate capital to their commercial banking activities do they have anywhere near the sufficient capital to engage in any sort of OTC derivatives trading and related activities.
And their structured finance also is demanding liquidity to cover for the broken water fall of cash-flows needed for their reps and warranties.
So like all maggotry, they’ll trench fight to keep their garbage, and that which produces their garbage so they can appear as if they’re earning money to give the excuse to justify lining their own pockets. But Adam Smith warned us about agency. Perhaps we should go back to the partnership model to force them to keep their hands in their own pockets. Ruben, Paulson, many many others came from partnerships until only recently and the Peter Principal of elevating them to their next level of incompetency didn’t serve any of us very well.
They’re really insulting prevaricators.
All the best,