NY Mayor Michael Bloomberg Endorses Obama for "Climate Change", NY Governor Cuomo Wants Everyone to Chip In to Make Up For Lost Revenues "in the World's Financial Hub"

The very predictable meme of "Hurricane Sandy was caused by global warming (now morphed into "climate change" for many, as in the case of Mayor Bloomberg)" has quickly spread, and now it's the reason for presidential endorsement. And everyone outside New York should pay for the lost economic revenue in New York.

First, NY Mayor Michael Bloomberg's Op Ed piece (11/1/2012):

A Vote for a President to Lead on Climate Change

The devastation that Hurricane Sandy brought to New York City and much of the Northeast -- in lost lives, lost homes and lost business -- brought the stakes of Tuesday’s presidential election into sharp relief.

The floods and fires that swept through our city left a path of destruction that will require years of recovery and rebuilding work. And in the short term, our subway system remains partially shut down, and many city residents and businesses still have no power. In just 14 months, two hurricanes have forced us to evacuate neighborhoods -- something our city government had never done before. If this is a trend, it is simply not sustainable.

Our climate is changing. And while the increase in extreme weather we have experienced in New York City and around the world may or may not be the result of it, the risk that it might be -- given this week’s devastation -- should compel all elected leaders to take immediate action.

Here in New York, our comprehensive sustainability plan -- PlaNYC -- has helped allow us to cut our carbon footprint by 16 percent in just five years, which is the equivalent of eliminating the carbon footprint of a city twice the size of Seattle. Through the C40 Cities Climate Leadership Group -- a partnership among many of the world’s largest cities -- local governments are taking action where national governments are not.
Leadership Needed

But we can’t do it alone. We need leadership from the White House -- and over the past four years, President Barack Obama has taken major steps to reduce our carbon consumption, including setting higher fuel-efficiency standards for cars and trucks. His administration also has adopted tighter controls on mercury emissions, which will help to close the dirtiest coal power plants (an effort I have supported through my philanthropy), which are estimated to kill 13,000 Americans a year.

...One sees climate change as an urgent problem that threatens our planet; one does not. I want our president to place scientific evidence and risk management above electoral politics.

Of course, neither candidate has specified what hard decisions he will make to get our economy back on track while also balancing the budget. But in the end, what matters most isn’t the shape of any particular proposal; it’s the work that must be done to bring members of Congress together to achieve bipartisan solutions.

Presidents Bill Clinton and Ronald Reagan both found success while their parties were out of power in Congress -- and President Obama can, too. If he listens to people on both sides of the aisle, and builds the trust of moderates, he can fulfill the hope he inspired four years ago and lead our country toward a better future for my children and yours. And that’s why I will be voting for him.

(Full article at the link)

Governor Andrew Cuomo wants the federal government to pay for the expected 6 billion dollar economic damage because of Hurricane Sandy. What damage?

From Yahoo News quoting Reuters (10/31/2012):

Governor Andrew Cuomo said he is asking fellow Democrat, President Barack Obama, to pay 100 percent of the estimated $6 billion bill, at a time that state and local government budgets remain constrained by a weak economic recovery.

... Cuomo said in a letter to Obama that "initial estimates project up to $6 billion in lost economic revenue in the greater metropolitan area and the state" due to disruption to business in the world's financial hub.

Yes, the world centers around New York, and Wall Street. Everyone should worry about the well-being of New York and Wall Street. Indeed, Hank Paulson and Ben Bernanke successfully threatened the Congress to authorize $700 billion TARP money in 2008 fall to bailout the US and international financial institutions.

Meanwhile, some New Yorkers are busy dumpster-diving for scraps of food, as partisan pundits ridicule Romney for trying to collect and distribute relief goods instead of collecting money for Red Cross so that Red Cross can buy stuff. So, where's Red Cross, distributing food?

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TARP Inspector General Neil Barofsky Resigns

That's too bad.

From CNN Money:

NEW YORK (CNNMoney) -- Neil Barofsky, the special inspector general of the Troubled Asset Relief Program, informed President Obama on Monday that he is resigning from his position, effective March 30.

"I believe that it is the right time for me to step down and pursue other opportunities," Barofsky wrote in his resignation letter.

Barofsky said he has fulfilled his goals related to TARP since his nomination by former President Bush on Dec. 8, 2008. These goals, he said, were "to build a robust law enforcement agency to bring to justice to those who sought to profit criminally from TARP" and "to ensure transparency in the operation of TARP."

He said he also achieved the goal of providing "effective oversight over the government's decision-making process to minimize instances of waste, fraud and abuse."

He said that he had only one co-worker when he started the "SIGTARP" job and was "working out of a small office in the basement of the Main Treasury building." Since then, he said the position has grown to 140 auditors, investigators and attorneys, with offices in Washington, New York, San Francisco, Los Angeles and Atlanta.

The team is now being led by Deputy Special Inspector General Christy Romero who will continue its mission.

Rep. Darrell Issa of California praised Barofsky for his "extraordinary commitment to public service" but he said the work that he begun is not finished.

Issa said the next Inspector General needs to demonstrate Barofsky-style "vigilance, courage and commitment" in dealing with the 150-plus TARP recipient banks that have missed their regulator dividend payments.

Issa also said the next Inspector General needs to deal with the Home Affordable Modification Program, which "has fallen short of its goal to preserve home ownership."

Barofsky did not say what he plans to do next.

Just don't go work for Goldman Sachs or PIMCO.

I don't know whether Ms. Christy Romero will become the next Inspector General or not, but we shouldn't be expecting much from her. Her resume shows she worked for Mary Shapiro and Christopher Cox at the SEC before she came to SIGTARP.

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Federal Reserve Dumps $3.3 Trillion Bailout Data

from December 2007 (now official start of the recession that supposedly ended in June of 2009) to July 2010.

And who were the lucky winners of near-free money?

A lot of financial sites are busy crunching the numbers released by the Fed. I'll wait for them to finish the work, but here's one of the early results from Zero Hedge on the question of "cui bono?" in the Fed's purchase of MBS:

The answer to the question: European banks.

From the Fed's press release which re-writes history, the bailout was about helping Americans:

The Federal Reserve Board on Wednesday posted detailed information on its public website about more than 21,000 individual credit and other transactions conducted to stabilize markets during the recent financial crisis, restore the flow of credit to American families and businesses, and support economic recovery and job creation in the aftermath of the crisis.

Well, the Fed has failed so far; "the flow of credit" isn't flowing to families and businesses, unless it's to the families of big business execs and to the big businesses on Wall Street and Main Street.

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Obama Wants to Ban Proprietary Trading

as expected. But wait, there's more. He also wants to ban investment in hedge funds by the banks. The stock market dives. Thank you Mr. President.

In the statement released by the White House this morning:

The proposal would:

1. Limit the Scope - The President and his economic team will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.

2. Limit the Size - The President also announced a new proposal to limit the consolidation of our financial sector. The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.

The number 2 item is interesting. I'd love to see the detailed proposal. How is he going to limit the size of liabilities, other than levying a 0.15% tax which he already proposed this month? When does a growth become "excessive"? Who's to decide? Paul Volcker?

If Obama really wants to "put an end to the risky practices that contributed significantly to the financial crisis", he should first fire Ben Bernanke and Timmy Geithner, shut down Fannie and Freddie, stop making subprime loans via FHA, and reign in his runaway spending.

Cynics are saying that Obama wouldn't do anything that would anger one of his biggest sponsors (financial industry, particularly Wall Street banks), and this proposal was already agreed to by Wall Street.

I am not so sure. If Obama had gone to Larry Summers or Timmy Geithner and come with the proposal, that's one thing. But he went to Paul Volcker, whom he hadn't bothered to consult much till this issue. Volcker may genuinely believe that banks should go back to the ways he knew when he was the Fed chairman (1979 to 1987), before all the innovations (like algo trading) and proliferation of hedge funds took place (more later).

Currently, Dow Jones Industrial is down more than 220 points (over 2%) to 10,384 at 2:24 PM EST. Many of the same cynics are saying this is just Wall Street's way of scaring investors and scaring the government so that this proposal won't be enacted, just like Wall Street supposedly did (as they say) in September 2008. Back then, the banks deliberately tanked the market during the TARP discussion in Congress so that Congress would be scared into passing the bailout bill.

One thing these cynics seem to ignore: the market tanked in earnest AFTER the bailout bill was passed.

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Obama Supporter Buffett Is Against Obama Bank Tax

Warren Buffett agrees with me. (But he is invested in Goldman Sachs and Wells Fargo, so he is not impartial, I guess.)

Buffett Says He Can't See Rationale for Bank Levy (1/20/2010 Bloomberg)

"Jan. 20 (Bloomberg) -- Warren Buffett opposes President Barack Obama’s proposed levy on financial institutions because firms including Goldman Sachs Group Inc. and Wells Fargo & Co. already repaid bailout funds.

"“I don’t see any reason why they should be paying a special tax,” said Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., in an interview on Bloomberg Television today. Supporters of the plan to tax the banks “are trying to punish people,” he said. “I don’t see the rationale for it.”

"“Look at the damage Fannie and Freddie caused, and they were run by the Congress,” said Buffett. “Should they have a special tax on congressmen because they let this thing happen to Freddie and Fannie? I don’t think so.”"

I am all for the idea of creating a special tax on Congress for their incompetency and injury they inflict on Americans, intended or unintended.

Buffett also asserts that the rescue was unnecessary for most of the banks that received the TARP money, even though he was on record saying he decided to invest in Goldman Sachs because he expected the government to help financial firms.

If the banks didn't need TARP money, why didn't they say no when they met with then-Treasury Secretary Hank Paulson on October 13, 2008, you might ask? For one, they were closeted in a room at the Treasury Department and were told they couldn't leave the room without first signing a one-page document that stated the amount of "help". It was not like Paulson was holding a gun against their head (although we don't know for certain), but I wish someone (like Wells Fargo CEO) had called the bluff and stayed in that room. I am curious to know what would have happened.

If Obama wants to punish a bank whose bloated ($2 trillion) balance sheet is loaded with assets with dubious quality (agency bonds, mortgage backed securities, even a piece of real estate), who continues to provide loans to bankrupt or near-bankrupt companies (AIG) and who uses those assets to back the liability (US dollar) that many, many people around the world count on as their assets, he doesn't need to go no further than at the door of the Federal Reserve.

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Vanity Fair: "Henry Paulson's Longest Night"

It looks like a campaign is on at CNBC with the help of Vanity Fair to exonerate the former Treasury Secretary Hank Paulson, or at least paint him in a very sympathetic color. According to this video that was posted at Market Ticker, Paulson was very pleased with Nancy Pelosi, and Barney Frank had a high respect for him.

The Vanity Fair writer then reveals that 10 days before he was to present the TARP plan to Congress to buy troubled assets from the nation's banks, Paulson told him that he would use the TARP money to inject capital into the banks.

(Of course) CNBC crew pay absolutely zero attention to what he's just said.

And here's the link to the Vanity Fair article, "Henry Paulson’s Longest Night" (Vanity Fair, October 2009 issue).

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How Much TARP Has Been Spent So Far?

Goldman Sachs is reported to return the TARP money it received on Wednesday, the first major bank TARP recipient to do so.

On this historic occasion, I thought it would be nice to find out how much TARP money has been spent already, and how the money is accounted for. Also, it would be nice to know what is the maximum amount of TARP money that can be spent.

I simply assumed there's a definite data table somewhere at the Treasury Department site, so I went and looked. There was a table, and here's the link.

According to this table (as of June 16, 2009, the most recent),

• Capital Purchase Program (for banks): $197,610,325,000
• Automotive Industry Financing Program: $79,966,778,971
• Automotive Supplier Program: $6 billion
• Targeted Investment Program (Citi and Bank of America): $40 billion ($20 bil each)
• Asset Guarantee Program (Citi): $5 billion
• Consumer and Business Lending Intiative Program (TALF LLC): $20 billion
• Systemically Important Failing Institutions (AIG): $69,835,000,000

Total of roughly $418 billion dollars, counted at par.

However, I got too curious and went to take a look at Monthly Treasury Statements at the Treasury Department. TARP is a line item in Treasury's outlays. According to the Statements since October last year, Treasury Department's outlays of TARP is as follows (cumulative):

• Oct 08: $115 billion
• Nov 08: $191 billion
• Dec 08: $242 billion
• Jan 09: $280 billion
• Feb 09: $290 billion
• Mar 09: $293 billion
• Apr 09: $117 billion (They changed the accounting from cash to net present value to make monthly outlays smaller thus less monthly deficit. The ostensible reason was to account for risk. If it were accounted the same way, it would have been $292 billion)
• May 09: $135 billion ($310 billion, in old way of accounting)

We have about $108 billion gap... There was $30 billion that went to GM on June 3, so this Statement, covering through May 31, doesn't cover that. So we now have $78 billion gap. So, the same department (Treasury) issuing two different numbers for the same event for two different publications. Talk about transparency.

Actually I have one more guess about the amount. Treasury Department has a special account at the Federal Reserve, and that's $199 billion. If I remember right, that's the residual money for TARP. If that's the case, TARP spent is $700 billion minus $199 billion = $501 billion.

And there is this nagging question of "How much of the $700 billion bailout was for TARP?"

The short answer seems to be, "Who knows?" I give up.

With the super regulatory "council" coming our way with the Federal Reserve at the core, probably we simply should not expect an answer. Any answer.

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What the @#$% Happened in September-November 2008: Part II

(This is my 200th post for this blog!)

Here's Part II of What the @#$% Happened in September - November 2008, for your Sunday reading. (For Part I, click here.)

Week of September 22, 2008 was all about Paulson/Bernanke's bailout plan and negotiations in Congress and at the White House. Despite telling the Congressional leaders on Thursday September 18 that there would be no market, financial system left unless they do something very quick, Paulson-Bernanke duo (some Wall St. wags called them Hanky Panky and Helicopter Ben) spent the whole week still talking to lawmakers. Paulson's 2-page bailout memo on Friday September 19 would grow to over 100 pages.

As the Congressional hearings dragged on, overwhelming majority of the US taxpayers were against the bailout plan, and many of them even bothered to write to their Representatives and Senators. People heeded the call like this one and/or they even read what was in the bill. The ratio of For and Against letters/emails received by the members of Congress were reported at anything from 10-1 to 1000-1 Against, totally unprecedented (this one, for example: 99-1 against).

With that in mind, let's go to the headlines of Investor's Business Daily front pages. As before, the indices' numbers are those of the day prior to the date; the same goes for the news headlines.

(And here's the Dow Jones Industrial Average chart during that time again, from my other blog, if you need it as a reference. The link opens a new Window.)

September 23, 2008 (Tuesday)
(S&P 500 Index 1,207, Dow Jones Industrial 11,015, Nasdaq 2,178)

• Congress Demands Conditions, Add-Ons To $700 Bil Rescue; Amid tussle, stocks sink; issues on table include exec pay, homeowner aid.
• 'Crony' Capitalism Is Root Cause of Fannie And Freddie Troubles
• Crude Oil Surges As Dollar Dives: Oct. crude vaulted $16,37 to $120.92. The dollar suffered its worst day vs the euro in 7 years amid uncertainty over the proposed gov't rescue.
• Brokerages, Regulators Rethink Leverage; Goldman and Morgan [Stanley] now commercial banks, accepting Fed's limits.
• SEC Expands List for Short Ban; 96 more companies were added to 799 companies.
• Picture of Rep. Barney Frank telling the reporters "The private sector got us into this mess. The government has to get us out of it." [Right.]

September 24, 2008 (Wednesday)
(S&P 1,188, Dow 10,854, Nasdaq 2,153)

• Paulson, Bernanke Defend Rescue Plan To Skeptical Senate, Lawmakers Want To Tinker
• Rescue Debate Rattles Stocks: The market slid for a second straight day as debate over the Wall St. rescue plan continued.
• Good Intentions Paved The Road To Subprime-Stoked Meltdown
• Buffett Takes Stake In Goldman: Berkshire Hathaway is buying a $5 bil stake in Goldman Sachs, getting warrants to purchase Goldman shares at $115 apiece.
• T-Mobile Touts 1st Google Phone [A very unfortunate debut, in the middle of financial mess. No one paid attention.]
• Obama Reins In Spending Plans: Barak Obama said the Wall St. rescue plan will likely force him to postpone or revamp some campaign promises, such as his proposed healthcare overhaul he estimated would cost up to $65 bil a year. [Now that he "won", he seems to completely forgot what he himself once said.]
• Picture of someone taking picture of the new facade of former Lehman Brothers building, now under Barclay's Capital.

September 25, 2008 (Thursday)
(S&P 1,186, Dow 10,825, Nasdaq 2,155)

• Rescue Plan Details In Play As Congress Is Pressed To Act; But $700 bil sticker price could be OK'd in pieces; other restrictions weighed
• McCain Leaves Campaign Trail To Push Rescue Plan Forward
• How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable [1977 Community Reinvestment Act and pursuant rule change in how Fannie and Freddie's lending practices]
• Jitters Pop Up In Debt Markets: The 3-month T-bill yield sank 35 basis points to 0.46%, down from 0.96% Friday.
• N. Korea Nuclear Pact Unravels [yet again]
• FBI Targets Collapsed Lenders (Fannie Mae, Freddie Mac, Lehman Brothers, and AIG) for potential corporate fraud [Whatever happened to this one?]

September 26, 2008 (Friday)
(S&P 1,209, Dow 11,022, Nasdaq 2,186)

• Rescue Deal Near, Key Lawmakers Say; A Few Beg To Differ. Dodd: Major Issues Settled. But a high-profile White House meeting with congressional leaders and presidential contenders failed to reach a final agreement. Dodd told CNN the meeting was a disaster. Sen. Richard Shelby, R-Ala said talk of a deal was premature.
• Banks' Fed Borrowing Surges: Banks borrowed a record $262.34 bil from the Fed's discount window.
• Congress Pushed Fannie, Freddie In Wrong Direction During 1990s
• New-Home Sales at 17-Year Low
• Durable Goods Order Fell 4.5%, 3-year low
• Jobless Claims Hit 7-Year Peak, to 493,000 [wish it was this low, now.]
• Picture of President Bush with congressional leaders at the White House. McCain in the near left, at the far right end is Obama.

September 29, 2008 (Monday, issued on September 27 Saturday to report events on September 26, Friday)
(S&P 1,213, Dow 11,143, Nasdaq 2,183)

• Congress Resumes Rescue Negotiations After GOP Uprising; Bush officials, lawmakers want agreement before markets reopen Monday [meaning before the Asian markets open]. "Negotiations took an unexpected turn Thursday afternoon at a contentious White House meeting in which overwhelming House Republican opposition to Treasury Secretary Henry Paulson's plan became evident." "With polls showing the public opposes the administration's plan by a wide margin, House Speaker Nancy Pelosi wants to make sure that the measure has bipartisan support."
• JPMorgan Rises On WaMu Deal. Regulators seized the savings and loan, the biggest U.S. bank failure ever.
• Citi In Talks To Buy Wachovia?
• 1st Presidential Debate Goes On [Did anyone pay attention to this?]
• Money Markets Remain Tense. Central banks around the world poured billions into the banking systems to meet the demand for cash.
• Picture of House Minority Leader John Boehner warning the opponents, "If they thought they were going to roll over me, they are kidding themselves."

The most salient memory from this particular week is that of CNBC. Talking heads after talking heads paraded in front of the TV camera and told the viewers that "We have to do something", that it would be a disaster if we just let the system collapse (as if that's a given). They were all for Paulson's bailout plan of Wall Street. (Well, their livelihood kind of depends on it, doesn't it?) One female personality kept telling us to just imagine what would happen to the stock market if the bailout bill was rejected.

Taxpayers were increasingly skeptical and, I think, afraid. The amount of $700 billion scared them, because it would have to come from their pockets to save rich bankers and government officials who allowed the excess (in leverage, in lending practice) to go on. Why do they have to pick up the tab? Besides, what's in this bailout package that grew from 2 pages to over 100 pages?

I think more people outside Capitol Hill read the actual proposed bill than the members of Congress. And they didn't like what they saw (here, and here).

I skimmed through the draft bill, close to final draft, I think. I was amused by toy arrows and rums, but what I didn't like at all is mentioned in the second link above:

"The bailout bill also gives the Internal Revenue Service new authority to conduct undercover operations. It would immunize the IRS from a passel of federal laws, including permitting IRS agents to run businesses for an extended sting operation, to open their own personal bank accounts with U.S. tax dollars, and so on... That section had expired as of January 1, 2008, and would now be renewed."

and made permanent. What did it have to do with financial bailout?

But the Democrat- controlled Congress and the White House were pushing the bill forward without much debate. The showdown would be next week. That week will be covered in Part III. Stay tuned.

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What the @#$% Happened in September-November 2008: Part I

For your weekend reading pleasure.

These are the headlines and some snippets from the articles on the front pages of Investor's Business Daily in September, October and November 2008. This is Part I.

I saved the front pages of IBD newspaper which I was subscribing to at that time. Not for any particular reason, but even back then, I felt, as a lot of others did, something was irreparably, irreversibly changing in the U.S. financial market. It felt like the last days of the market, and maybe they were.

(I have a Dow Jones daily chart of September 08 in my other blog's post. It opens a new window.)

Since I'm reading off the physical newspaper pages, the indices' numbers are those of the day prior to the date; the same goes for the news headlines.

September 9, 2008 (Tuesday)
(S&P 500 Index 1,268, Dow Jones Industrial 11,511, Nasdaq 2,520)

• U.S. Takeover of Fannie, Freddie Still Doesn't End Troubled Saga
• Builders And Banks Rally Over Seizure of Freddie, Fannie
• Fannie's stock tumbled 90%, Freddie 83%
• Picture of anxious specialists on NYSE floor
• Lehman Brothers Down On Uncertainty: the stock lost 13%
• Delivery Firms Reduce Speed To Save Fuel: UPS eliminates left turn
• S&P cuts Wamu to junk
• Russian troops were still in Georgia

September 16, 2008 (Tuesday)
(S&P 1,192, Dow 10,917, Nasdaq 2,179)

• Stocks Dive On Wall St. Woes, S&P Off 4.7% to 3-Year Low (1192.70)
• Lehman Failure Tests Limits of U.S. Bailouts, "Moral hazard" seen as driving force behind credit system's excesses
• Picture of a Lehman Brother's Market Maker with her hands over her brow
• (Lehman Brothers filed for bankruptcy on September 15, Merrill Lynch sold to Bank of America.)
• Crude Oil Plunges Below $100: the first sub-$100 since March 4.
• The acquisition of Merrill "creates the premier financial company in the world. It was an opportunity of a lifetime." - Ken Lewis, Bank of America CEO and chairman

September 17, 2008 (Wednesday)
(S&P 1,213, Dow 11,059

• AIG Falls As Rumors About Insurer Swirl; Many Banks Climb
• AIG Falls Day and Night, Goldman Not So Golden
• Fed Keeps Interest Rate Steady at 2% After Pushing $50 Bil To Banking System
• Picture of Presidential helicopter flying over Galveston Texas, after Hurricane Ike
• "The Fed's non-action [not cutting the rate further] suggests that things might have reached a bottom," said Richard Yamarone, Argus Research's director of economic research.

September 18, 2008 (Thursday)
(S&P 1,156, Dow 10,609, Nasdaq 2,098)

• Stocks Dive Despite AIG Bailout, worldwide stock markets plunged
• Credit Default Swaps At Meltdown's Heart, Everybody's A Suspect
• Congress Consideres Ways To Aid Market And Ailing Economy
• Chart of CDR Counterparty Risk Index showing huge spike on AIG bailout
• Buyout rumors swirl around Morgan Stanley and WaMu
• Fed Maneuvers Fail to Placate World Markets: Who's Holding Toxic Assets?
• Treasury Steps In To Finance Fed: The first auction on Wed netted $40 bil. Treasury officials insisted the Fed isn't short of resources
• Market Woes Whip Up Gold, Oil: gold blasted to its biggest one-day gain ever, vaulting $70 to settle at $850.50
• SEC Clamps Down On Short Sales: new limits on naked short selling

September 19, 2008 (Friday)
(S&P 1,206, Dow 11,019, Nasdaq 2,199)

• Market Takes Heart From Talk of Fund To Hold Bad Assets [That was the beginning of TARP]
• Government May Absorb Banks' Sour Securities; S&L Crisis RTC Is the Model
• Fed Adds $105 Bil To U.S. System, another $180 bil made available to lend to banks [Discount Window]
• Congress Lies Low To Avoid Bailout Blame; Lawmakers fear wrath of voters as cost of crisis soars to $ 1 tril or more
• Gold Surges, Reverses, Crashes on Treasury plan to create RTC-like entity. Gold fell $50 in one hour.
• Shares of Morgan Stanley, Goldman Sachs went free-fall on Thursday, then violently reversed when the news of short sale ban in Britain reached the U.S. Morgan Stanley's share went to $11, ended the day at $22. Goldman Sachs, low $85, closed at $108.
• Putnam's Prime Money Market Fund folded, a day after Reserve Primary Fund broke a buck
• Picture of President Bush, making a statement regarding the Federal Reserve's action

September 22, 2008 (Monday) [but paper was issued on September 20, Saturday, as IBD always does)
(S&P 1,255, Dow 11,388, Nasdaq 2,273)

• Paulson announces bailout plan on Friday, gives few details
• Stocks Buy Into Rescue Plan, S&P Soars 4% as U.S. Acts. Government backs money funds ($50 billion), bans shorting financials (799 of them); big mortgage trust seen.
• Questions Abound Over Bailout; Who, What And How Much? Devil will be in the details; Dems likely to demand aid for ailing homeowners.
• "There will be ample opportunity to debate the origins of this problem. Now is the time to solve it." - President Bush
• "The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy" - Treasury Secretary Hank Paulson
• "We've got to deal with the foreclosure issue. This plan must include that." - Chris Dodd, Senate Banking Committee chairman
• S&P 500 5-day chart titled "From Meltdown to Rebound" [hindsight is 20-20]

How's that for one week and a day?

The day I remember most vividly is September 18, Thursday (the news of the day under September 19, of course). The market was constantly selling off, and the selloff suddenly accelerated around 12:00pm. It was like a dark abyss opened up in front of you. Then, all of a sudden around 1:00pm, it violently reversed, paused for a while, then went crazy when the rumor of financial bailout by the government started to float in.

(I read on the net some time later that when that abyss opened up and Goldman's stock was free-falling, someone somewhere on the Goldman's floor played Star Spangled Banner on the internal broadcast system. Many traders stood up with their hand over their chest. "... and the home of the brave" - the music ended, and suddenly the market started to reverse to the wild cheers from everyone. Too good to be true, perhaps. But this is what I remembered reading.)

The next day, Friday, the market continue to go up thanks to bailout talk and ban on shorting (not just naked shorting) on financials, managed to end the week, up. I remember that day, too. The trading of SKF, double short financial ETF was suspended for several hours. When it opened, it gapped down to $87 from the previous close of $115, although it managed to end the day exactly at $100.

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10 Banks Allowed To Repay TARP

(Update 8:39 am PST) So Tim Geithner released the statement but he didn't name the banks? The banks who have said they are repaying the TARP are (according to Bloomberg):

• J.P. Morgan Chase
• Morgan Stanley
• American Express
• Bank of New York Mellon
• BB&T
• Capital One
• Northern Trust
• State Street
• US Bancorp

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According to various news sources (here's one), the Treasury Department is likely to announce as early as Tuesday morning 10 banks that will be allowed to repay TARP money. ["Allowed"...]

The names of the banks unofficially mentioned are:

• J.P. Morgan Chase
• Goldman Sachs
• American Express
• State Street
• Bank of New York Mellon
• Morgan Stanley

The names of the banks unofficially pronounced "doomed", tethered to the government for a foreseeable future, are:

• Bank of America
• Citigroup

Bank of America could have avoided at least half the trouble by not buying Merrill Lynch, no matter how Ken Lewis was threatened by the Bernanke-Paulson duo. Citigroup might have been better off today if it had acquired Wachovia's good assets with FDIC's help.

According to this article from AP,

"Simon Johnson, a former chief economist at the International Monetary Fund, said putting Citigroup and Bank of America at a disadvantage might be part of the government's plan.

""Both banks need to downsize, so this is going to cause them to lose talent if the constraints are effective," said Johnson, now at the Massachusetts Institute of Technology's Sloan School of Business. "That may be, given the political constraints, the most effective way to reduce systemic risk."'

So does that mean they will be the banking equivalent of Chrysler and GM, being reduced to a government's tool to achieve its policy goals? On top of that, they will be managed by 3 different Presidential czars (Economic, Bailout, Pay) possibly 4 (Bank), who will come before the government official, Treasury Secretary Geithner.

Who's missing among big names?

• Wells Fargo

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Dear Timmy...

(Update 10:40pm PST) Found this article @ Bloomberg.com.
Fed Said to Raise Requirements for Banks to Repay TARP Funds (6/3/09)

?? I thought TARP was administered by Treasury Department. As far as I know, Treasury Department and Federal Reserve are still two different, separate entities.

But if Federal Reserve was telling the banks to raise more capital than previously required by the stress test LAST WEEK, that explains the weakness/underperformance in financial stocks that started last week.

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The US Treasury Secretary sure doesn't get much respect.

He was laughed at in China, and a top Wall Street banker wrote him a letter that says:

“Dear Timmy, we are happy to be able to pay back the $25 billion you lent us. We hope you enjoyed the experience as much as we did.” - Jamie Dimon, CEO of J.P.Morgan Chase.

Mr. Dimon read the letter yesterday before the Annual NYU International Hospitality Industry Investment Conference in New York, according to various news source (here's one).

(I wonder if J.P.Morgan Chase will be barred from returning TARP by the Secretary whose feelings may have been injured...)

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Golf Courses Would Like Some Federal Aid

from Los Angeles Times May 13 article, "Golf courses hit a rough patch":

"In today's economy, golf is in the rough. And with a bad lie. Once-haughty country clubs are offering specials. Courses have closed or cut back on maintenance. The world's top golf ball manufacturer has seen demand for souvenir balls stamped with company logos drop off.

"And so officials in the golf industry have joined the nation's bankers, auto makers and insurance companies in marching to Washington in search of understanding. They're not asking for a bailout, but they do want greater appreciation of their industry's importance."

"..... Singerling and others will be in Washington today to make sure Congress does not lump the golf industry in with massage parlors, suntan facilities and liquor stores as businesses undeserving of federal help.

""We're in an unprecedented era of government involvement in business, so we have to be in D.C. to be able to make sure that people, when they're writing law or making comments about our industry, realize all of the positive impact that golf has," said Joe Steranka, chief executive of the PGA of America."

""Even in a recession, people are pursuing their passion, but they're moving down the value chain, sort of the Wal-Martization of golf," explained Mike Hughes, chief executive of the National Golf Course Owners Assn. "Where they were paying a $60 green fee, they might go to the lower end and pay $20 to $30 for a round.""

Remember Mr. Larry Flynt asking for $5 billion bailout for porn industry, citing the importance of the industry in difficult times? Well, Hollywood got bailout money. Motorsports racetrack facility owners got bailout money. Why not golf courses?

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Warrants under TARP May Be Problematic For Banks

From Bloomberg.com: "Geithner Says Treasury May Move ‘Quickly’ to Sell TARP Warrants"

"Treasury Secretary Timothy Geithner said he’s inclined to “quickly” sell warrants the government got when injecting capital into banks, offering prospects of a speedy exit to lenders seeking to retire government stakes.

"The Treasury received warrants with nearly every capital injection it made with its $700 billion bank-rescue fund, called the Troubled Asset Relief Program. As big banks begin to pay back the assistance years earlier than expected, the Treasury may use market bidding to break a logjam over how to value a key component of the government’s equity stakes.

“We’ve got a carefully designed program in place to make sure we’re getting the best price for those warrants as possible,” Geithner said in answering questions at today’s hearing."

Carefully designed, Mr. Geithner? Now we know how the October 13, 2008 meeting came about.

"The total value of the government’s bank warrants is roughly $5 billion, according to Treasury calculations.

"Big banks may value their warrants at an amount that is hundreds of millions of dollars below the prices that other models might generate, the Treasury official said. That range makes it hard for the government to find a price that protects taxpayer funds without penalizing the banks."

No kidding. If the example of a bank who already returned the TARP money, the difference may be enormous.

One extreme case is Centra Financial of Morgantown, W.Va., a privately-held bank who repaid the TARP money of $15 million. Centra sold the warrant to Treasury for $750 -- $1 for 750 preferred shares. But when it came time to repurchase the warrants, Treasury demanded $750,000.

Bloomberg article continues:

"The Treasury says banks can choose whether to negotiate over the warrants or not. The department plans to examine the warrants from four different perspectives, two provided by the Treasury and two by outside financial advisers, the official said.

"If the bank refuses or can’t agree on a price, then the government will sell the warrants to a third party, as outlined in the original contracts."

Treasury's calculation may be out of the line, now that the market volatility has declined so much. Maybe their calculation is based on VIX in the sheer panic days of last October (with VIX between 50 and 90).

Maybe this was the news that pressured financials today, which started to weaken during his testimony (Q&A section). Further uncertainty.

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Paulson Told Bankers They Had No Choice, Really.

Long before the current contingent arrived from Chicago, Washington D.C. was already a gangsta land. Or it sure seems that way. According to Bloomberg.com article, "Paulson Told Bankers to Take U.S. Taxpayer Aid or Be 'Exposed'",

"Former Treasury Secretary Henry Paulson, saying nine U.S. banks were “central to any solution” of the credit crisis, told their leaders to take government aid or be forced to by regulators, according to a memo prepared for an October meeting."

That October meeting took place on Monday October 13, 2008. The memo was obtained by Judicial Watch, a nonprofit research group in Washington that obtained the documents under a Freedom of Information Act request.

The stock market went off the cliff on Wednesday October 1, the very day that Senate passed the Emergency Economic Stabilization Act of 2008, a.k.a. Bailout of Financial Institutions. It kept falling, and on Friday October 10 the market hit the then-bottom of 7,883 on Dow Jones Industrial Average.

In that panic situation, Paulson told the bankers:

"“If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance,” Paulson’s one-page list of talking points for the session with the banks’ chief executives said. “We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed.”

"Three and a half hours after the meeting was scheduled to begin, Paulson had obtained the bankers’ signatures on half-page forms along with the handwritten amount of the federal government’s investment, according to the documents. He announced the actions publicly the next day."

I read before that Paulson on that day told the bankers they wouldn't be able to leave the room until they sign the form. I always wondered why none of them took up an offer, so to speak, and stayed on. Wells Fargo CEO was reported to be vehemently opposing the idea, saying his bank did not want any government money.

Now I know. Even if they said no, Treasury would force-feed them anyway. Head I win, tail you lose.

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Bay Area Counties Join Others for TARP Money

over their loss on Lehman and Washington Mutual investments. A Congressional hearing was held Tuesday this week.

According to San Jose Mercury News:

"The Lehman collapse jolted the world economy and claimed collateral damage in at least 21 states, where counties and cities saw $1.7 billion in investments they thought were safe become almost worthless. That in turn cost about 20,000 jobs nationwide, including 1,658 in the Bay Area [that's California], said economist Christopher Thornberg."

San Mateo County lost $155 million, Alameda $5 million, Santa Clara $1 million, Monterey $30 million including Washington Mutual investment ($20 million), and the city of Fremont lost $4 million.

These counties and cities want their investment principals back, at 100% on a dollar. The Congressmen/women for these counties argue that total $1.7 billion bad investments that counties and cities nationwide hold is just a small change, compared to the size of the bailout fund spent by Treasury Department. The legislation has already been introduced legislation asking Geithner for TARP money to reimburse local governments that lost money to Lehman Brothers.

According to Monterey County Herald,

"A provision in the Toxic Assets Relief Program allows Treasury Secretary Timothy Geithner the latitude to use bank bailout funds to compensate local governments for the Lehman failure, a move urged by congressional representatives. Instead, the Treasury Department has focused on using the TARP money to prop up struggling banks.

"But County Treasurer Lou Solton said the federal government's decision to pass over Lehman while bailing out other institutions, including Fannie Mae, Freddie Mac and AIG, makes this a special case.

""The real issue is fairness," Solton said. "The bottom line is these are taxpayer dollars being returned to taxpayers. We're bailing out Wall Street, what about Main Street?""

This has made me wonder...

• "The bottom line is these are taxpayer dollars being returned to taxpayers." Sure.
• What about private, individual Main Street investors in LEH and WM debts? Don't they also deserve 100% on their principal?
• Who's next? University endowments? Calpers?
• Have they ever heard of Credit Default Swaps?

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US to put conditions on TARP repayment

This from Financial Times:

"Strong banks will be allowed to repay bail-out funds they received from the US government but only if such a move passes a test to determine whether it is in the national economic interest, a senior administration official has told the Financial Times."

I wonder who is going to define "national economic interest".

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