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.

Tweet

GM's Union Making Out Much Better than US Taxpayers on GM Stock Sale

No surprise here. It really pays to have their best friend at the White House.

From The Washington Times on November 25, 2010 [Emphasis is mine]:

General Motors Co.'s recent stock offering was staged to start paying back the government for its $50 billion bailout, but one group made out much better than the taxpayers or other investors: the company's union.

Thanks to a generous share of GM stock obtained in the company's 2009 bankruptcy settlement, the United Auto Workers is well on its way to recouping the billions of dollars GM owed it — putting it far ahead of taxpayers who have recouped only about 30 percent of their investment and further still ahead of investors in the old GM who have received nothing.

The boon for the union fits the pattern established when the White House pushed GM into bankruptcy and steered it through the courts in a way that consistently put the interests of the union ahead of many suppliers, dealers and investors — stakeholders that ordinarily would have fared as well or better under the bankruptcy laws.

"Priority one was serving the interests of the UAW" when the White House's auto task force engineered the bankruptcy, said Glenn Reynolds, an analyst at CreditSights. The stock offering served to show once again how the White House has handsomely rewarded its political allies, he said.

The union's health care and pension trust fund earned $3.4 billion through the sale of one-third of its shares in GM last week. Analysts estimate that it would break even if it sells the remaining two-thirds of its shares at an average price of $36 — close to where the stock traded shortly after the offering hit the market. GM shares closed at $33.45 on Wednesday.

For taxpayers to break even, by contrast, the stock would have to rise to at least $52 and by some estimates as high as $103 — levels that would take years to achieve.

In any event, after selling one-third of its shares last week, the U.S. Treasury has agreed not to sell any more of its GM stock for another six months, while the union fund is free to keep selling its shares.

For the full article, follow the link.

Tweet

AIG Bailout Money Went To These 32 Entities in These 15 Countries via Goldman Sachs

So Goldman Sachs revealed on Friday where the AIG bailout money went, upon a threat of subpoena from Senator Chuck Glasslay, Ranking Member of the Senate Finance Committee.

It was reported by MSM like USA Today and New York Times, but these articles don't tell us exactly who got the money. USA Today's article has a few well-known names like Royal Bank of Scotland and Barclays, and an unfamiliar name like DZ AG Deutsche Zantrake Genossenschaftz Bank.

But who are the other 29, and where are they located? Inquiring minds want to know.

NY Times article has a link to the site of the Senate Finance Committee, and the link to this "list" is buried in the announcement. So I went there, got the names of 32 entities who received US taxpayers' money via Goldman Sachs via AIG bailout, and looked up where they are located. I couldn't verify all of them (ones with ? marks), but you'll get the idea.

And here's the result. It is an international rescue operation. It includes big banks, re-insurers, pension funds, hedge funds or some kind of Special Purpose Companies across the world, though mostly in Europe. Most prominent are UK firms, followed by Dutch and Irish.

1. DZ Bank AG Deutsche Zentrale-Genossenschafts Bank (Germany)
2. Banco Santander Central Hispano SA (Spain)
3. Rabobank Nederland-London Branch (The Netherlands)
4. ZurcherKantonalbank (Switzerland)
5. Dexia Bank S.A (Belgium)
6. BGI INV FDS GSI AG (??? AG indicates Germany)
7. Calyon-Cedex Branch (Credit Agricole, France)
8. The Hongkong & Shanghai Banking Corporation (Hong Kong)
9. Depfa Bank Plc (Ireland)
10. Skandinaviska Enskilda Bankensweden (Sweden)
11. Sierra finance plc (?? plc indicates UK)
12. PGGM Pensioenfonds (The Netherlands)
13. Natixis (France)
14. Zulma finance plc (?? UK)
15. Stoneheath Re CRDV G (?? Many small re-insurers are headquartered in Cayman Islands)
16. Hospitals of Ontario Pension Plan (Canada)
17. Venice finance plc (?? UK)
18. KBC Asset Management NVD Star Finance (Ireland)
19. MNGD Pension Funds LTD (Managed Pension Funds Limited, a member of State Street Groups, US)
20. Shackleton Re Limited (?? Another re-insurer in Cayman Islands?)
21. Infinity finance plc (UK)
22. Legal & General Assurance (UK)
23. Barclays Bank PLC (UK)
24. GSAM Credit CDO LTD (Looks like a Goldman Sachs SIV in UK.)
25. Signum Platinum (Cayman Islands)
26. Lion Capital Global Credit I LTD (?? Singapore??)
27. Kommunalkredit Int Bank (Cyprus)
28. Credit Linked Notes LTD (?? Credit linked note is A security with an embedded credit default swap allowing the issuer to transfer a specific credit risk to credit investors. This must be some kind of SIV set up by SPC (Special Purpose Company). Maybe another Goldman thing.)
29. Ocelot CDO I PLC (Ireland. Issuer of Credit linked notes, affiliation unknown – there is a mention of Calyon in their press release. Calyon changed its name to Credit Agricole, a French bank)
30. Hoogovens PSF ST (?? Name is Dutch.)
31. Hypo Public Finance Bank (Ireland)
32. The Royal Bank of Scotland (UK)

So Goldman sent money to its London operation (No. 24)...

Tweet

Minyanville: Why Bailout Money Should Have Gone to Underwater Homeowners

Robert Barone, head of Ancora West, argues in Minyanville that $2 trillion bailout money that went to the likes of AIG, Fannie and Freddie, Citigroup, GM and Chrysler and TARP recipients should have gone to homeowners who owe more than their homes are worth ('underwater').

In his article, he cites one recent case of J.P. Morgan Chase modifying the mortgage of one of his clients (who didn't even ask for modification) by 27%, resulting in win-win situation for both the bank and the underwater homeowner client of his:

JPMorgan's Generosity

In June, one of my clients was forgiven a substantial portion of the loan on his primary residence by JPMorganChase (JPM). It appears that JPMorgan is doing this for the sub-prime and Alt-A loans it inherited from its FDIC-assisted purchase of Washington Mutual (WaMu). In my client's case, a $250,000 principal reduction was given on a $937,000 principal balance (originally owed to WaMu). The mortgage holder didn't communicate with JPMorgan or ask for any consideration, and had always been current on the loan. The existing interest rate was 2.5% (variable rate loan). In exchange for the principal reduction, JPMorgan asked for a 5.0% fixed-rate 25-year amortizing loan. The client's monthly payment stayed the same.

Recall that JPMorgan received a large amount of FDIC assistance. (While FDIC insurance funds are technically not directly from the taxpayer, they are indirectly, as banks raise their fees to pay for regulatory expenses.) This action by JPMorgan appears laudable. After all, the shareholders of JPMorgan appear to have gained from FDIC assistance. So, some giveback appears appropriate. However, let's not so quickly attribute this to JPMorgan's generosity. JPMorgan "purchased" WaMu's assets at a huge discount to face value. While I don't know the exact terms, let's, for the sake of this example, assume 60% of face. So, JPMorgan was holding my client's mortgage on its books at a $562,000 value. Under accounting rules, JPMorgan could only recognize a "profit" after my client had first paid down the $562,000 carrying value. That would be 12 years away at the current payment. JPMorgan knows this homeowner is underwater, and, while it probably wouldn't lose money if a foreclosure occurred, it would have foreclosure expenses and market wait time. But, by forgiving $250,000 of the $937,000 balance (or 27%) but doubling the interest rate, JPMorgan immediately recognizes more interest income on its financial statement (2.5% of $937,000 = $23,425 while 5.0% of $687,000 = $34,350). In addition, my client can now sell that home at market (about $800,000). If the home does sell, the client ends up with some equity, and JPMorgan recognizes an additional $125,000 in income ($687,000 principal balance less $562,000 carrying value). No foreclosure. No downward pressure on the neighborhood's home prices. Everybody wins!

The way the bailouts were done, it takes this kind of circumstance to actually get an appropriate outcome. Had the $2 trillion in bailout funds been used to benefit the underwater homeowners to begin with, I doubt the housing market would be in its current funk. As a nation now committed to bailouts, the operative rule ought to be: "Any use of taxpayer money must directly benefit taxpayers."

So, JPM purchased the mortgage at a discount at $562,000 (he uses 60%, but could even be less). By cutting the homeowner's mortgage by 27% to $687,000, JPM is still above cost. JPM offers the client 5% fixed rate instead of variable rate of 2.5%. The homeowner takes it, as it gives him the security of fixed rate (and low) on a significantly reduced mortgage. JPM is happy as it secures the fixed-rate interest payment which is more under the new reduced mortgage than under the old, underwater mortgage with variable rate. The homeowner now have equity in the house, which can be sold for $800,000. If the owner sells the house, he will have money in the pocket, and JPM also pockets the profit ($687K minus $562K).

It looks like a sound business decision on the part of JPM to me. Why wouldn't any other banks, particularly the big ones like Bank of America and Citigroup who greatly benefited from the taxpayer-funded bailout, come to their business senses and do the same?

Earlier in the article, he cites the numbers from CoreLogic: 24% of all homes with mortgages (confirmed in May by Zillow's 23% estimate) are underwater. According to CoreLogic, that's 11.3 million of the 47 million homes.

So $2 trillion could have helped these 11.3 million homeowners at the average $176,991 per homeowner.

How about the argument that these homeowners shouldn't be rewarded for their mistakes? Barone has this to say:

Some will object that this favors the certain population segment that made a judgment error and took on too much debt. I argue that this segment is victimized by economic conditions in the same way as those who lose their jobs during recessions are victimized by economic conditions. This year, according to the Bureau of Labor Statistics, we're giving the unemployed $14 billion in unemployment benefit disbursements. Furthermore, "earmarks" on legislation channel taxpayer funds to the benefit of very narrow and specific groups. So, the singling out of a segment of taxpayers to receive benefits isn't something new.

Well, I agree. It would have been a much better use of $2 trillion dollars if the government had to spend on something, although J.P.Morgan Chase and other big coming to the senses by their own profit motive (i.e. market solution) is much preferable to me.

Tweet

AIG Selling Its Crown Jewel to Pay the Goverment Back

Instead of doing the IPO, AIG is selling one of its most profitable and highly regarded insurance subsidiary in the high-growth region, AIA, to U.K.'s Prudential for $35.5 billion, as part of the effort to repay the U.S. government.

The U.S. government bailed out A.I.G., which was essentially a bailout of AIG's counterparties who also bet against CDOs insured by AIG's CDS. The sale of AIA is viewed in Asia as an inexplicable act, as they know that AIA is one of the top insurance companies in the region. Prudential is licking the chops, for very good reason.

The Federal Reserve Bank of New York owns the $16 billion preferred shares of AIA. The NY Fed will have their money back and probably a lot more, and they will claim how successful the government bailout is. See, we got your money back! The problem is that they didn't bother to ask us when they put the money in AIG, and we are not going to see that money back in our pockets.

AIG President and CEO Bob Benmosche says, as reported by Huffington Post:

"This transaction, the most significant milestone to date in our ongoing effort to repay taxpayers, also gives us greater flexibility to move forward with AIG's restructuring and focus on enhancing the value of our key insurance businesses, which will benefit all stakeholders."

Enhansing the value of their key insurance businesses by selling off one of their most successful insurance business in the fastest-growing region. Now that makes sense. What else are they selling to enhance the value of their insurance businesses?

AIG, who started its existence in Shanghai, will now be severed from its roots. All for paying back the government who was there to "rescue" big Wall Street banks, who essentially forced the "rescue".

Tweet

Reuters: US Banks Exposure to PIIGS Is $176 B

Who could have known that a small country like Greece can move the global stock markets, as it has done exactly that for the past several weeks. Initially, it was discounted here in the U.S. as the problem for mostly European banks, particularly U.K. banks; U.S. banks had very little exposure to the debts in PIIGS (or Club Med plus Ireland) or to the Central and East European debts, or so it was said.

Uh huh.

Here's from Reuters. It turns out that the top 10 U.S. banks (the usual suspects) have $176 billion exposure to Greece, Portugal, Ireland, and Spain. Exposure to Ireland alone is $86 billion.

US banks have $176 bln exposure to Greece, others (2/9/2010 Reuters)

"NEW YORK, Feb 9 (Reuters) - U.S. banks have $176 billion in exposure to Greece, Ireland, Portugal and Spain, with risks concentrated among the 10 largest U.S. banks, Barclays Capital said on Tuesday.

"The total exposures to these nations, however, comprises only around 5 percent of the total foreign exposure of U.S. banks, Barclays analysts Jonathan Glionna and Miguel Crivelli said in a report.

"Exposures to Greece and Portugal comprise less than 1 percent of cross-border exposures, they said. The data is based on a lending survey by the Federal Financial Institutions Examinations Council (FFIEC), and includes cross border claims, derivatives and foreign office claims on local residents.

"Concern about sovereign debt has increased on worries that Greece will need a bailout to avoid a debt default.

"Credit default swaps on bank debt have increased in recent weeks, in line with rising concerns over sovereign debt risk.

"For example, the cost of credit default swaps insuring JPMorgan's (JPM.N) debt have risen to around 78.5 basis points, or $78,5000 per year for five years to insure $10 million in debt, from 47 basis points at the beginning of the year, according to Markit intraday.

"The FFIEC data shows that 10 U.S. banks -- Bank of America (BAC.N), Citigroup (C.N), JPMorgan, Wells Fargo (WFC.N), Bank of New York (BK.N), State Street (STT.N), Goldman Sachs (GS.N), Morgan Stanley (MS.N) and the U.S. branches of Deutsche Bank (DBKGn.DE) and HSBC (HSBA.L) -- hold 96 percent of the risk, Barclays said.

The banks have $86 billion in exposure to Ireland, $68 billion to Spain, $18 billion to Greece and $9 billion to Portugal, Barclays said." [Emphasis is mine]

Ireland looks scarier than Greece when you look at the numbers. Ireland's GDP (2009 estimate) is $177 billion. (Source: CIA World FactBook)

U.K. banks have £100 billion (US$157 billion) exposure, according to The Independent UK article: £76.2 billion (US$119 billion) exposure to Spain, £7.8 billion (US$12 billion) to Greece, and £15.6 billion (US$24 billion) to Portugal. Total Anglo-American exposure: $333 billion

So, if EU, the supra-national political entity with no constituents other than bureaucrats and politicians, can essentially force Germany to bail the PIIGS out (starting with G), it won't be bailing out EU member countries. It will be bailing out US and UK bankers so that they get their money. Or worse, EU (or piggy bank Germany) will be checkmated by these bankers, and be forced to pay up.

As Zero Hedge indicated already, can you smell A.I.G.??

Tweet

How to Stick It to the Too-Big-To-Fail Banks

Move your money.

"Withdrawal Tax": How to Stick It to the Big Banks That Got Bailed Out, and Make Money While You're at It. Pass It On! (Gary North, 1/2/2010 Gary North's Specific Answers)

"The Huffington Post has come up with a nice little protest movement. Let's pull our money out the the bailed-out banks and put it in local banks that lend to locals. Who are the locals? People just like us.

"This makes sense economically. If you ever want a loan, get it from your own banker. If it's a local bank, you will be treated well.

"The FDIC insures all accounts up to $250,000. Your money is as safe in a local bank as a bailed-out mega-bank.

"The folks at Huffington are on the Left. But we can all agree when we see insider bailouts like the ones in September and October 2008.

"They have produced a video. This video is biased, mean-spirited, and simplistic I love it! The more of these low-budget YouTube videos on the Big Bank bailout, the better.

"The bankers are on the defensive. Let's keep them there."

The article continues. The Huffingto Post article is this, and the video Huffington Post created is this:

Tweet

No Bailout For CIT

Just as I thought, only 2 days ago on Monday.

CIT talks fall apart, bankruptcy may loom
(7/15/09 Reuters via Yahoo Finance)

"WASHINGTON/NEW YORK (Reuters) - CIT Group Inc (NYSE:CIT - News), a major lender to small- and mid-sized U.S. businesses, said on Wednesday that talks with the government to bail out the company had ended, a development that could make bankruptcy likely.

""Discussions with government agencies have ceased," the New York-based company said in a statement. "There is no appreciable likelihood of additional government support being provided over the near term."

"The announcement came after last-ditch talks in which Treasury Department had been concerned about a worsening liquidity crunch at CIT over the last few days, and that government aid would not put the lender on a path to recovery.

"CIT said its management, directors and advisers were evaluating alternatives. It did not elaborate.

"A bankruptcy filing would mark one of the largest for a U.S. company since the global credit crisis accelerated last September."

CIT had received $2.3 billion of TARP money. No more, says the Treasury. I suspect CIT lacked a strong connection to the present administration.

I also find FDIC's attitude very amusing:

"The FDIC has been reluctant to do so [granting CIT access to its government debt guarantee program], however, because the program is designed for healthy institutions, and it believes CIT's participation involves too much risk."

FDIC has granted access to numerous institutions that are not the best examples of health (Citigroup and Bank of America come to mind). FDIC itself is no such example either, with reserve ratio of paltry 0.27% as of March 2009. It would need a massive bailout from the taxpayers more than any private sector financial institution.

But no matter. The government has decided who will be the winner and who will be the loser. CIT is the latter, but won't be the last loser as the government continues to extend its grabby hand into every aspect of our lives.

Tweet

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?

Tweet

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.

Tweet

How Would GM Bond Holders Fare in Bankruptcy?

This from AP: Experts say GM bankruptcy almost inevitable

"For General Motors Corp., the task at hand is so difficult that experts say a Chapter 11 bankruptcy filing is all but inevitable.

"To remake itself outside of court, GM must persuade bondholders to swap $27 billion in debt for 10 percent of its risky stock. On top of that, the automaker must work out deals with its union, announce factory closures, cut or sell brands and force hundreds of dealers out of business -- all in three weeks." [emphasis mine]

So just like Chrysler, GM is basically being driven to bankruptcy. Yes yes, you could say for both auto makers that they have had all the time to do something but now they're out of money and option, it's their fault. GM's CEO Fritz Henderson, who replaced Rick Wagoner on March 29 (Mr. Wagoner resigned at the express request from the White House), pledged last week that:

""If we need to pursue bankruptcy, we will make sure that we do it in an expeditious fashion...""

However, the problem will be those "unpatriotic" bond holders again.

"The biggest obstacle to GM restructuring out of court appears to be its bondholders, who have been reluctant to sign on to the stock swap when the government and United Auto Workers union would get far more stock in exchange for debts owed by GM."

Sound familiar? Chrysler was just a prelude, a warm-up. The government successfully bullied the secure, 1st-lien senior bond holders into accepting less than 30 cents on a dollar (see my post here). And..

"GM has proposed issuing 62 billion new shares, 100 times more than the 611 million now offered publicly."

Under the restructuring plan being pushed by the government's Auto Task Force,

• 50% stake goes to the government, in exchange for writing off half the amount of loan ($27 billion total this year). Result: 50% stake for $13.5 billion.
• 39% stake goes to UAW, for swapping $20 billion GM's obligation for retiree health care payments and receiving $10 billion cash. Result: 39% stake for $10 billion.
• 10% state goes to bond holders, who hold $27 billion GM debt. Result: 10% stake for $27 billion.
• 1% stake goes to the current common share holders.

If Chrysler's case is any indication, GM's restructuring will be pushed through as the government wants. What will that portend, for the future relationship between the private investors and the government?

Here's the transcript of the interview of Thomas Lauria, who represented the Chrysler's "dissident" lenders. It aired on May 8 on PBS's Nightly Business Report.

" I think the bigger question though is will the auto industry or any other troubled industry that may have important political issues associated with it be able to attract private financing on a (INAUDIBLE) basis? Certainly a lender who looks at what is happening to the lenders in the Chrysler case might have second thoughts. And we know there are other industries that are going to need rescue financing, the airline industry, GM coming up. Will the government be the only source of that financing? Certainly the administration says that they're hopeful that the private sector will participate, but I'm not sure that this is much of an inducement for that. " [emphasis mine]

I am not sure either.

Tweet