Denniger's Plan (and rant)'

[Master Shake]

We have no trust in the markets today. None.

I cannot value anything in this market. Absolutely nothing. And this sort of lie is part of the reason:

Feb. 19 (Bloomberg) -- U.S., U.K., and European regulators are in talks to jointly regulate the $28 trillion credit-default swap market, the Federal Reserve said today.

Regulators including the Fed, U.K.’s Financial Services Authority, German Federal Financial Services Authority and European Central Bank met today to discuss a possible information sharing agreement, the Fed said in a statement on its Web site. The goal would be to apply consistent standards to the market and provide support across jurisdictions, the Fed said. "

This was supposed to be done last year, remember? By the end of the year we were supposed to have an implementation plan to get this done with the infrastructure in build-out going on right now.

Instead we have The Fed lying again about the issue.

Why?

Because Bernanke knows - these contracts cannot be covered as the people who wrote them have ZERO, or close to it, in capital!
How do we know? Because AIG still hasn't been forced to disgorge and close their CDS book, despite over $100 billion in direct support. Why not BEN? Is it because AIG's liability under those contracts might be several hundred billion more, and if you net them and then close the book you'd have to make good on it or default them, and the guys on the other side are your banking buddies?

That's right - the truth is almost certainly that firms like JP Morgan, Goldman and Morgan Stanley (along with Bank America and others) are, to no small extent, the people who are long those contracts from AIG. If they're netted and then the book is closed the fact that these contracts are worth zero would be revealed and that could cause every one of these firms to detonate at once.

But the fact of the matter is that these contracts are worthless, unless "someone" is going to pony up their face at AIG! And since AIG doesn't have the money, and it all links back to The Fed, what it comes down to is the taxpayer doling out another half-trillion to these banks - and even then, it might not be enough.

Then we have Geithner who we were promised would deliver a "detailed" proposal to "save the banking system." He failed to do so.

Our media doesn't explain why, but The Times over in London does!

"At the heart of the internal battle inside the Treasury Department is what to do with the estimated $2 trillion of toxic and mostly mortgage-related debt that is threatening to topple the entire banking sector – the bedrock of US capitalism.

When Mr Geithner announced his plan to stabilize the financial sector last week it was received badly because it was so short on detail. The heart of the strategy – his prescription to remove the bad debt off the banks' books – was to entice private investors to buy up the toxic assets. He gave no firm proposals, however, about how the loans would be valued and how the private sector would be co-opted.

It has now emerged that Mr Geithner was deliberately vague at his press conference because he had a change of mind and suddenly began to pursue a different course.

He decided that his original plan to use government funds to buy up the toxic assets was too expensive and exposed taxpayers to too much risk, and that using the private sector was the best option.

So let me see if I get this right.

The man who engineered the takeunder of Bear Stearns (through what I would argue was capricious and outrageous actions including yanking their credit line they believed was committed, along with failing to disclosure they would have access to the Discount Window just 24 hours later!), the man who sat back and said he had "no legal authority" to do anything about Lehman Brothers, the same man who has had nearly a full year to examine the books of these institutions as the primary intermediary and counterparty to every major broker/dealer on Wall Street (since Bear blew up) at the point where he was supposed to announce a plan he didn't have one?

ONE YEAR later?

This is what the market DID as a direct and proximate consequence of Geithner's and President Obama's actions (or rather, their inability to come to the table with anything approaching an actual plan)


That's a decline of 87 S&P "handles", or about ten percent in less than two weeks.

But that's not all. Have a look at the BKX, the banking sector:

That's a decline of thirty percent in the banking index in the same two week period.

THIRTY PERCENT.

Folks, this is the very definition of "no confidence." A thirty percent loss in two weeks, in the very sector that we were promised would be "saved" by our new President, and that two weeks has passed without one iota of a plan being actually released.

How much lower can it go?

I have it on good authority that there is very strong support of stock prices at zero, and if you look at charts of Bank of America (closed under $4 today), Citibank (closed under $2.50), Wells Fargo (closed at $12.01), Fifth-Third ($1.21), SunTrust ($6.70) along with dozens more you will find that all of them are in fact racing directly towards that very heavy support right at that zero boundary. Many of these stocks have been cut in half or more in the last two weeks.

Mr. President, you cannot come to Washington and write checks with your mouth you are unable to cash, and expect the market to put up with it. The market is bigger than you, or any other President, as you have just learned.

You also cannot expect any bank to be able to raise capital with a stock price measured in fractions of a penny, and that's exactly where they are all going in the here and now unless you and Tim Geithner get up on stage tomorrow and put a stop to this foolishness.

Your inept and outrageously incompetent handling of this mess has led to the destruction of one third of the equity value of banks in the United States in less than two weeks. Your ineptitude is in fact greater than George Bush and Hank Paulson, who managed to take a third off the BKX but they took more time to do it than you did.

In short your and Timmy's policies thus far are an abject failure and we are now sitting on the abyss in the market with a literal potential for a waterfall selloff that initiates tomorrow and translates into Monday exactly as happened, and as severe, as in 1987.



If Taxcheating Timmy is unable or unwilling to discharge his duty as Secretary of the Treasury, I'll do the job. You probably wouldn't like how I'd do it, but I'd do it. Here's my prescription:

1. The memo goes out in the AM to every bank in America: No more lies. If you lie, even once, your bank gets seized and you will be criminally charged personally. Period. I am particularly interested in Mr. Lewis' claims on national television (CNBC) that Bank America had a "great" January. That sounds an awful lot like Dick Fuld who said he was going to "burn the shorts" and was "well-capitalized". Oh by the way, I'd refer Mr. Fuld's statements over to Justice immediately, along with everyone else who said something similar (Bear Stearns anyone?)
2. I would then amend OTS and OCC rules: All bank examinations are public data. All examinations must either have every asset marked to the market or the full model and data inputs must be disclosed, without exception.
3. Next, I would take the stage and give every bank in America 72 hours to disclose their current Tier Capital numbers under those rules. They have 'em in the possession of their Risk Manager. Let's have it. In public. You publish it, we print it. Everyone who is under-capitalized and has been hiding it - your shares are suspended. We'll get to you.
4. For those who are under-capitalized: If you have sufficient capital in your debt to be crammed down, that's what happens. Your common equity is gone. Preferred is crammed down, if that's insufficient it is gone. Next we do subordinateds, and repeat until sufficient capital is restored. End of discussion.
5. For those who cannot be crammed down we seize you. Your deposits and good assets are auctioned off to sound institutions, spread among the physical locations of those assets and deposits so no concentration of more than 5% in one bank occurs. The rest of the assets go the FDIC and are run down or auctioned off as they deem appropriate.
6. Any bank with more than 5% of the deposit base has 12 months to reduce it to under 5%. This affects fewer than 20 institutions.
7. No bank may transact in any instrument that is (1) not a whole loan or (2) is not traded on an exchange. Period. Any such "assets" currently held must be disposed of within six months. No exceptions. I recognize that this makes banks a "utility" - entities that take deposits and make loans. So what? Its a good and profitable business, has been for hundreds of years, and forces proper underwriting since you must retain the risk.
8. Any bank that finds (7) onerous (and most will) is free to split itself into two firms, one a bank and the second a non-bank affiliate held by the parent. The affiliate may not utilize depositor capital or otherwise be cross-contaminated with bank assets and support, but is of course free to raise money via debt offerings in the marketplace such as it is. Said non-bank firm may trade in whatever it would like, however, it will not receive any government support of any kind. Cross-contamination of any sort between a regulated bank and a non-bank sub will be treated and prosecuted as bank fraud. Any existing "affiliate" bank credit lines must be extinguished within 90 days and "23A letters" are explicitly disallowed.
9. Reserve ratios are set at 8% with no exceptions.
10. Bernanke will do as the above directs without complaint or I will exercise my lawful and Constitutional authority to issue United States Notes, bypassing The Fed entirely. Ben and The Fed work under my direction, not the other way around. End of discussion.
11. Any bank that does not want TARP money may repay it immediately. If you keep it, no employee may receive total compensation exceeding that of the President of The United States, without exception and in all forms, including stock, options as valued under Black-Scholes, deferred compensation, benefits and cash. Period. You are working for us, therefore we set your salaries.

There 'ya go. Cards on the table, face up. No bullshit. If you're broke, you're broke. We'll protect depositors and everyone else can twist in the wind. Those who are bankrupt must be recognized as bankrupt so the system can clear and the market can function.

End of discussion.

Whatever your plan is Mr. President and Mr. Geithner, and I presume it is NOT what I outlined above, I recommend that you get it out in the public right now. Overnight, with enough time for it to sink in - and certainly NOT 30 minutes before the market opens tomorrow morning for Options Expiration as Bernanke thought he'd do in August of 2007. We've had enough liquidity destroyed due to government game-playing - we can't afford to have any more traders carried out on their shields that provide necessary liquidity in the markets.

PS: If the market crashes tomorrow and into Monday due to your lack of a plan you own it - and the economic destruction that comes from it - Mr. President. Your StimUseless bill will be dwarfed - a crash into next week will easily cost America five million jobs within six to twelve months. You can bet I wil call you on it in public and print up T-Shirts with a nice chart of the index along with your name and a great big FAIL emblazoned on it, just as I did for Paulson and Bush after the EESA was passed.

Good luck sirs.

I think you're gonna need it.

http://market-ticker.org/archives/81...n-On-Deck.html

[vanvaley1]

Re: Denniger's Plan (and rant)'

http://jessescrossroadscafe.blogspot.com/ has some interesting things to say today bout the banking system and which direction it should be taking. Don't know why Volcker is on the outside when he has the inside trac on what to do.

There's also an interesting comparison between how the US invests its funds and how China invests theirs if ya scroll down a bit.

Then there's that comedian who suggested that hanging a couple of banksters in the trading pit might get a positive result bout reform. He was way out of line, of course. Ya'd need more than just a couple.

[c1ue]

Re: Denniger's Plan (and rant)'

Shake,

It is unrealistic to expect the Rubin/Summers/Geithner team to slam dunk Citicorp.

It is also unrealistic to think that Lewis at BofA didn't get at least implicit, if not explicit guarantees as to government support should BofA 'save' Countrywide and Merrill Lynch.

While Obama wasn't around then, Bair and Bernanke were.

So while Denninger's solution sounds attractive, it ignores these two very salient issues.