Monday, March 12, 2012

March, Monday 12, 2012

DOW + 37 = 12,959
SPX + 0.22 = 1371
NAS – 4 = 2983
10 YR YLD -.01 = 2.03%
OIL +.28= 106.62
GOLD – 12.70 = 1701.80
SILV - .71 = 33.71
PLAT + 11.00 = 1699.00

For the NYSE, relative to the previous 30 session average, volume was -17.48% below the average. For the SPX, the day's volume was 76.2% of the average daily volume for the last year. Volume was 85.5% of the last 10 day average and 87.6% of the previous day’s volume. Today marked the lowest trading volume of the year.

Last week you will remember there were solar flares. There was some speculation the solar storms might cause damage to the electric grid, possibly damaging electronic gadgets, possibly interfering with radio signals. Turns out it is far, far worse than imagine. The reality is that the earth has been knocked from its orbit around the sun; we are now hurtling through the cosmos with no set path. You want proof?
O.K., Louis Freeh is the former FBI Director and current trustee for the MF Global bankruptcy case. Freeh has announced plans to pay $1 million in bonuses to Bradley Abelow, MF’s chief operating officer, Laurie Ferber, the general counsel and Henri Steenkamp, chief financial officer; they could make more if salaries and other incentives are approved. You may recall that MF Global lost more than $1.6 billion in customer funds that were supposed to be segregated, and completely safe. Nobody has been able to find the money. The last we heard was that the money just vaporized – pffffff. Now it isn't easy to make $1.6 billion dollars disappear; it requires enormous incompetence or gross negligence or truly evil intent. Meanwhile, Louis Freeh, used to run the FBI, and you wouldn't think the man was a blithering idiot, but apparently he is. Apparently the entire system has been so thoroughly and totally corrupted that we just can't fathom the possibility of common sense.

The simple truth is that the earth is still on its normal orbit around the sun, but everything else is a little crazy. Financial institutions are stealing and pillaging, and regulators have become facilitators. It is happening almost everywhere. The prevailing theme is that financial institutions have been gaming the system, and corrupting the marketplace.

A criminal investigation into suspected manipulation of benchmark interest rates is being conducted by the U.S. Government; this is according to a letter to a federal judge in Manhattan; that letter was made public last week, and it is the first public acknowledgment by the Justice Department of the criminal investigation of benchmark lending rates such as the London interbank offered rate, known as Libor.
The judge denied a request for documents related to the investigation by investors suing Credit Suisse and Bank of America and other companies over claims they artificially suppressed Libor.
According to the letter signed by lawyers from the fraud section of the Justice Department's criminal division and its antitrust division:“The Department of Justice is conducting a criminal investigation into alleged manipulation of certain benchmark interest rates,” including those for “several currencies” on the Libor exchange.

Here's another example: a state court judge in San Francisco just ruled that Goldman Sachs and Bank of America need to make public documents that had been deemed confidential in a lawsuit filed by
The case involves a 2007 lawsuit by Overstock, an online retailer, claiming that the banks manipulated its stock from 2005 to 2007, causing its shares to fall. The judge dismissed the case on Jan. 10, ruling that the conduct took place outside of California. Overstock appealed, and also asked the judge to make public those documents he put under seal. Overstock claims that large portions of its stock was the subject of naked shorting, where investors sell shares they don’t own in anticipation of making a profit by paying for the stock after its price has fallen. The clearing operations at Goldman Sachs and Merrill Lynch, the brokerage acquired by Bank of America in 2009, intentionally failed to locate and deliver borrowed shares for clients, allowing the firms to earn fees and interest on phantom securities transactions, lawyers for Overstock said in court filings. Overstock sought millions of dollars in damages against Goldman Sachs and Merrill Lynch.
Remember last week when we talked about nearly 200 banks that repaid their TARP bailouts with funds from other federal programs.
And what about the situation in Europe, where more than one-and-a-half trillion dollars have been handed over to Euro-banks in order to resolve the debt problem with Greece; kind of like using a bazooka to swat flies.
But wait, there's more!
Remember the $25 billion dollar multi-state mortgage settlement? It was officially filed in court today. HUD Secretary Donovan claimed he had investor approval to do the mortgage modifications that are a significant portion of the value of the settlement. We’ll eventually see what is actually in the settlement, but early on, Donovan claimed that “no less than $10 billion” of the $25 billion headline total was to come from principal reductions. Modifications of mortgages not owned by banks, meaning in securitized trusts, are counted as 50% and before Donovan realized the math didn't add up, he said he expected 85% of the mods to be from securitizations, so that means $17 billion.
Bear in mind that investors, analysts, and commentators have objected to the very premise of this arrangement. A settlement involves a release of liability, and in anything other than the through-the-looking-glass world of rule by banks, the party that did the bad stuff is the one that pays for the settlement. But that doesn't happen anymore. Ever since the meltdown of 2008, the banks realized that profits were private but losses could be socialized, they could slough off all sorts of trash on the general public and we wouldn't do anything.

Recall how sanctimonious Timothy Geithner has been about not breaking contracts, such as the AIG credit default swaps agreements and employment contracts with AIG staffers. Do you remember how pay czar Ken Feinberg excoriated bankers for the bonuses they took out of firms they blew up but refused to try to claw back pay, because it might lead to lawsuits. Now the railroading of investors may not seem all that important to many of you. But you are in fact all exposed. This is a direct subsidy from taxpayers to the banks. And more important, if investors are for the most part, too afraid, too compromised, or too plain lazy to take action against banks, and will sit passively as their contracts are violated, what hope is there for ordinary, less well connected citizens?
The multi-state mortgage settlement and the MF Global bonuses and the short-selling speculation all lends credence to the idea that contracts in America have become decidedly one-sided affairs. The banks take advantage of every trap, and then they heap abuse on top of abuse. After vaporizing $1.6 billion dollars, the executives of MF Global pile on the abuse with a request for a million more. The banks and the authorities seem remarkably unaware of what they are doing in undermining the rule of law, which is critical to resolving disputes peacefully in a complex and combative society. They are likely to find that undermining the protective role of the judiciary will leave them more exposed than they could possibly imagine.

On Friday we had two big economic reports; the monthly jobs number and the trade deficit – they're connected actually. The headline news on the jobs front was that the economy added 227,000 jobs in February. We've talked about the birth/death model for calculating jobs. We know the numbers get skewered one way and twisted another because the numbers are based on assumption. We know that the number on Friday was probably off, How much? Was it 20,000, 50,000? We simply do not know. So, we stick with the official number and an uneasy feeling about the veracity of the number.
Let's look now at the kind of jobs that were created. Of the new jobs reported by BLS, 92% are in services. Of this 92%, only 7% could possibly relate to exportable services -- architectural, engineering, and computer systems services.
Of the reported new service jobs, 29% are in health care and social services. The categories that account for the health services jobs are ambulatory health care services and hospitals. Waitresses and bartenders account for 20% of the reported new jobs.
Employment services account for 29% of the new reported jobs. Transportation and warehousing accounted for 5% of the reported new jobs, despite a loss of 60,000 jobs in general merchandise and department stores.
In other words, the vast majority of the new jobs are low paying jobs, except for a few truck drivers.
Other conclusions that we can draw are: the US has nothing to export to reduce its massive trade deficit, which has, sooner or later, disastrous implications. In the 2010 recovery, 93 percent of the gains were captured by the top 1 percent. That’s because top incomes grew 11.6 percent in 2010, while the incomes of the 99 percent increased only 0.2 percent.
That gain is particularly painful because it comes after an 11.6 percent drop in income for the 99 percent, the largest such fall over a two-year period since the Great Depression. That decline more than erases the income gains since the last downturn. We may not yet be a lost generation, but we have certainly experienced a lost decade.
It is understandable, given the number of times green shoots have been seen since the downturn began in December 2007, that there might be some skepticism about claims the recovery is finally under way. The question is - what does it imply for policy? Does it mean we can be more relaxed about the demands for austerity? Or that the US Federal Reserve should start paying more attention to inflation, and begin contemplating raising interest rates? Even if this is not one of the many green shoots that soon turn brown, the economy will almost certainly need more stimulus if it is to return to full employment any time soon.
This is the inevitable conclusion from looking at the state of the labor market today. It is a shambles. Today the American economy faces at least four big risks. First, a steeper European downturn, as a result of the excessive austerity and the euro crisis; even if we can avert a meltdown there is still the long, hard slog of a euro-depression. Second, complacency that the economy will recover on its own. Every downturn comes to an end, that should not be of much comfort. We need to take definite steps to dig ourselves out of the hole we're in – and that generally points to investing in ourselves. The third risk is that we accept that an unemployment rate above 7 per cent is inevitable; this is incredibly risky. High unemployment  must never be accepted; this is not the path to prosperity. And the fourth risk is that we start to think that some people are above the law; in other words - we have to throw some bankers in jail.
The simple truth is that money will go somewhere; it will either be thrown at the bankers and they will use it to gamble, and they will waste it and destroy it, or we can see that a great part of the capital of the country goes to the hands that will make the most advantageous use of it, and will employ that capital with productive purpose and without special privilege.
Our financial system is broken. Too many banks have been behaving badly for too long. We need to stop talking about Mitt's dog, and Newt's wives, and Rick's contraceptives, and Barack's hugs. We need to be talking about how we can tear down the U.S. Banking system and replace it with something that works.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.