What rock did Herb just crawl out from?

The Wall Street Journal addresses Herb’s ridiculous comment in writing, Treasury Official: ‘No Too Big to Fail Guarantee’ for Big Financial Firms:

There is no U.S. government guarantee to protect the largest financial firms, a Treasury Department official said Thursday, as a congressional watchdog criticized the $45 billion in government aid provided to Citigroup Inc.

Herbert Allison, who oversees the Treasury’s $700 billion financial rescue plan, disagreed with members of a congressional oversight panel that some financial firms benefit from the assumption that the government would step in to prevent their failure.

“There is no too big to fail guarantee on the part of the U.S. government,” Mr. Allison said.

How often did we hear similar drivel about Freddie Mac and Fannie Mae?

What happens to people when they get inside the Beltway? Do they instinctively become serial panderers, if not outright liars?

Elizabeth Warren, who chairs the five-member Congressional Oversight Panel, said it was clear that financial markets do assume the guarantee exists, pointing to a recent ratings agency report that specifically noted the government’s role in backing Citigroup.

“The market clearly perceives that there is a too big to fail guarantee,” Ms. Warren said. “That gives Citi an advantage in raising capital. … That is very valuable to Citi.”

Panel members locked horns with Mr. Allison over his reluctance to answer some questions, primarily regarding the health of Citigroup when the government injected capital into the bank in late 2008. Panel member Damon Silvers, pressing Mr. Allison on whether the bank was at risk of failure at the height of the financial crisis, said it was “extraordinary that it is not possible to have a straightforward conversation.”

The fact that America can not get straightforward and honest answers from our government officials plays right into my commentary the other day, Harry Markopolos: “Don’t Trust Your Government”.

Bend over, Herb.

LD

Citigroup Inc. is instituting annual fees on some current credit-card accounts in an attempt to offset strict new legislation that could dent its profits.

The move comes on the heels of several warnings from the banking industry, which has said that issuers would be forced to rewrite the playbook on plastic because new credit-card laws would take a bite out of their income.

Rates of between 20% and 30% aren’t sufficient for income purposes? The fact is, current card holders are paying for the undisciplined lending practices of the bank over the last 5 years.

These laws include new limits on interest-rate increases on existing balances and greater disclosures.

The legislation was written to prevent abusive practices on the part of the banks. The fact that it allows for the implementation of practices such as these paints the legislation as the equivalent of a ’show trial.’

Typically, annual fees are associated only with cards that offer generous rewards programs. In recent years, few issuers have risked losing market share by charging annual fees across the board.

Now, Citigroup’s attempt to charge annual fees—perhaps the first time a large card lender has used such fees in response to the legislation—will be watched closely by competitors.

Card lenders are seeking ways not only to offset the effect of the legislation, but also to cope with growing losses stemming from souring credit-card loans.

Card issuers have been raising interest rates and fees, tweaking rewards programs, reducing credit lines and closing accounts.

“We have adjusted pricing and card terms for some customers as part of our regular account reviews,” said Samuel Wang, a Citigroup spokesman. “These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit. As part of this change in terms, a small number of Citi customers may be notified of an annual fee.”

Higher cost of doing business? What? Borrowing from the Fed at between 0-.25% is too high? These types of statements take a special type of gall. Wow!

The fee increase was reported earlier by blogs such as Bargaineering.com, and American Banker.

In one instance, a Citi cardholder was informed, in a mailer, of a $30 annual fee. This fee may be waived if at least $2,400 in spending is racked up on the card in a year.

Citigroup is experimenting with a range of annual fees, some in excess of $30.

Cardholders notified of these annual fees have two months to opt out, paying off their balances under current rates and terms over the rest of their contract.

Peter Garuccio, a spokesman at the American Bankers Association, an industry trade group, said, “Annual fees are one way that card issuers can reconfigure their card portfolios and reprice their products” following the credit-card legislation.

The new legislation, the bulk of which will be implemented in February 2010, aims to limit fluctuating interest rates and fees, and arm consumers with more information about their debts.

Given that the legislation goes into effect in February 2010, the banks are clearly trying to get all of these income generating, beat-the-consumer maneuvers in place well before then. Thanks Wall Street and Washington.

What a joke. Problem is, once again, the joke is on the American consumer.

LD

Related Sense on Cents Commentary:
    Uncle Sam Just Winked at Citi’s Credit Card Rate Increase (July 1, 2009)
    Banks Build Better Mousetrap (July 9, 2009)

Contributions to Obama Campaign Track Bailout Money

Barack Obama’s lack of leadership in a down economy has now hit [1] crisis proportions, as his claimed inability to block millions of dollars in bonuses for executives of bailout recipient AIG has caused even his supporters to turn on him.

But while the ire of Congress and the media focus are on the $165 million that AIG paid out in bonuses to their executives, the president is hoping you won’t notice the $100 billion in taxpayer bailout dollars that AIG paid out to other banks, including $58 billion to foreign banks and [2] $36 billion given to French and German banks alone.

The Obama administration is allowing AIG to bail out the rest of the world with your tax dollars.

So by all means, the president is happy to have you railing at “evil” but relatively small potatoes AIG executive bonuses, as it points your outrage away from his own far more costly executive abuses.

And of course, the re-distributor-in-chief hopes you won’t notice where much of the rest of the AIG bailout cash is being spent.

While $58 billion of your tax dollars — or more accurately, your children’s tax dollars — are being used to pay foreign banks, a substantial portion of that money ($43.5 billion) is being used to pay American banks, including Goldman Sachs, Merill Lynch, Bank of America, Citigroup, Wachovia, Morgan Stanley, AIG International, and JP Morgan.

The following recipients of President Obama’s trickle-down-to-my-donors bailout plan rank among his top 20 contributors to his 2008 presidential election campaign, according to [3] Open Secrets:

Goldman Sachs: $955,473

Citigroup: $653,468

JP Morgan Chase & Co.: $646,058

Morgan Stanley: $485,823

Well, looky there!! Don’t THOSE names look just a little familiar?! Just WAIT:

Three other banks that were significant contributors to Obama received money through AIG:

Bank of America: $274,493

Wachovia: $214,151

AIG: $112,170

Lehman Brothers, which did not survive long enough to join the list of banks leaching off the work of the American taxpayer, also gave the Obama campaign [4] $276,088.

Individuals identifying themselves as working for the banks above gave Barack Obama’s presidential campaign $3,617,724. In other words, more than 3.6 million reasons for the president to help focus the media’s glare on the relatively minuscule $165 million in AIG executive bonuses, and away from their $43.5 billion portion of $100 billion of taxpayer dollars the administration, by design or incompetence, filtered to other banks through AIG.

In receiving $43.5 billion for their investment of just over $3.3 million, it looks like the banks that gambled on Wall Street certainly got their money’s worth out of their investment in Barack Obama.

Your tax paying dollars at work, folks! To help pay back Obama’s big-money contributors to buy him the highest office in the land. Wheeee!!!!

If you want to read more on the AIG issue, SusanUnPC also has a good piece on the recent AIG/Dodd stuff, “Listen To Your Aunt Susan.” There is also Larry Doyle’s, “AIG Contracts A Brain Freeze,” are just a couple of other articles at No Quarter on the AIG issue.

While there is tremendous volatility in the markets and commensurate anxiety as a result, there were some major stories and developments that got less play but deserved more.

Allow me to expound. Robert Shiller, a highly distinguished Economics Professor at Yale Univeristy and co-designer of the Case-Shiller Home Price Index spoke this morning on Bloomberg News. Shiller is the preeminent expert on trends and developments in housing. He made the following assessments:

1. Glad to see that Obama is making an effort to support housing but has serious concerns about the effort.

2. $75 billion allocated for loan modification is not nearly enough to make a truly meaningful impact. (remember there is another $200 billion allocated for Freddie and Fannie to refinance mortgages).

3. No plan or proposal for those holding Jumbo mortgages leaves a large part of the market without benefits. Those homes will likely hang over the market.

4. Shiller believes we may very well see a second wave of speculation in housing. He has this opinion because he thinks some buyers will try to “bottom fish” the market. He believes our view of housing as an investment vehicle as opposed to a means of shelter and comfort needs to change!

5. He finds it impossible to make a forecast on the housing market given the great uncertainties about the impact of the stimulus proposal and banking plans.

6. While he welcomes the Obama adminsitration’s efforts, he cautioned that this economic downturn led by housing will not be over quickly.

7. Confidence is badly needed and will only return when our government and global governments are able to develop strategic and robust long term planning.

What do I think of Shiller’s comments? I think he is stating that Obama’s housing plan is well intended but given that we can not distinctly segment the housing market by sectors that it will have a marginal impact. Additionally I think he is being cautious in stating that Americans need to change their mindset about homes being piggy banks. I measure his comments next to former Australian Treasury Secretary Keating and I see the same message; this downturn will take considerable time to turn around!

I also listened to the cult-like NYU Professor Nouriel Roubini today as well.
He offered the following:

1. Strong possibility of a sovereign default in the Euro zone. He singled out Ireland, Greece, Iceland, Spain, Italy and Belgium as countries with the most issues within their banking sectors. He does believe that if only one or two countries expose their problems that the balance of the European Union will support them. He did not offer an opinion if the contagion is so massive and spreads. He did highlight the fact that Western European banks have outsized exposures to emerging Europe and the emerging markets elsewhere in the world. He singled out Estonia, Latvia, Lithuania, Belarus, and Ukraine as the countries with the greatest issues.

2. In the United States he thinks the prospects of a temporary nationalization of a major bank or banks may happen very soon. He does think the Obama administration’s moves so far (bank plan, housing) are in the right direction but do not go far enough.

3. Roubini does believe that the United States has moved quicker to address our issues than either Europe or Japan.

4. On the housing front he thinks that we will eventually have to move to a “principal reduction” program in order for it to be effective.

5. How will we pay for all this? Everybody’s taxes will be going up although not right away. We will also have to deal with increasing inflation.

Away from these two titans, there was a lot of rumbling in the markets and from Washington about bank nationalization. While Ken Lewis, CEO of Bank of America was all over the news defending BofA and how nationalization should not be a topic of conversation, I saw and heard nothing from anybody at Citibank. The market believes that Secretary Geithner will be out next week with more details about his Financial Stability Plan (hopefully it goes better this time) and there is an outside chance he releases something over the weekend.

From Washington I heard conflicting viewpoints on nationalization from Senator Dodd. Dodd was panned on Bloomberg at one point. I will admit he makes for a very easy target.

LD

Against the backdrop of the frozen tundra, numerous members of the storied Pittsburgh Steelers franchise have reached legendary status. Included in this family are such greats as Jack Lambert, Mean Joe Greene, Terry Bradshaw, Rocky Bleier, Franco Harris, John Stallworth, Lynn Swann, Chuck Noll, and the longtime owner Art Rooney. For lovers of the NFL, these men are true giants. The current Steelers franchise is led by budding legend and All-Pro quarterback Ben Roethlisberger. When “Big Ben” leads, Pittsburgh follows. You can discuss this “Big Ben” tonight and every Wednesday night at 9PM on “No Topic Taboo . . . Everything Else with Jay.”

With all due respect to Mr. Roethlisberger, though, there are two other “Big Bens” that crossed paths just yesterday and hold much greater sway and impact in world affairs. I speak of Ben Bernanke and the famous London clocktower.

While the NFL is a great diversion, we ultimately return to the real world and need to deal with the realities it presents. Fed chairman, “Big Ben” Bernanke, presented chilling testimony yesterday in the shadows of the famous clocktower at the London School of Economics.

Understand that every message delivered by a Fed chairman is very carefully scripted. In years past, the Fed was much less transparent than it is today. That said, the Fed chairman speaks carefully so as not to unsettle markets but also to provide an outline as to future policy. In so doing, the general public is often hard pressed to decipher what he is saying and what it means. The general media typically does not capture the nuances and subtleties offered by the Fed. To that end, our work here at No Quarter looks to fill that void.

Before deciphering “Big Ben” Bernanke’s message, I find it somewhat uncanny that his speech was delivered near the famous clocktower. Why? Simply because we have tried to highlight that our economy and markets need an extended period of time to recover. We tried to convey that very message last week in our piece, “Time, Why You Punish Me?…”

“Big Ben” set the stage for his immediate outlook by providing a rather lengthy review of the landscape in 2008 and actions taken. He offered, “financial institutions have seen their capital depleted by losses and writedowns and their balance sheets clogged by complex credit products and other illiquid assets of uncertain value.” He further added, “markets for securitized assets, except for mortgage securities, have shut down.”

These losses and the shutdown of the these markets for securitized products were the major topics of our pieces “Where’s The Money” (on December 29th) and “The Wall Street Model is Broken…and Won’t Soon Be Fixed” (on November 12th)

We have addressed at length these very topics, their implications for our markets and economy, and most importantly why we thought credit would not flow. From my very first piece here at NQ on October 14th, I wrote of the government rescue package, “this injection of capital will not necessarily flow through to the economy. The banking system here in the United States likely has $1 trillion in embedded losses. This plan is trying to buy time for the system to recognize those losses. The recognition of those losses will curtail future growth for the banking system and the economy as a whole.”

In light of the regular onslaught of criticism from Congress, the incoming administration, and the general media, “Big Ben” is most assuredly sending a message highlighting the actions taken and the results generated. While the sandbags have been piled high enough to currently protect our populace, rest assured the waters are still rising and time marches on.

“Big Ben” goes into real detail about the specifics of each step taken and the impact they had in stabilizing our markets. For our purposes, we do not need to review this material. We will again provide the link that provides transparency into these programs:

http://www.globalresearch.ca/index.php?context=va&aid=11236

Just as “Big Ben” is trying to provide a historical context for his outlook for the economy and markets, I provide links to all of those past stories for our newer readers and passengers that we are picking up along the way. I beg the indulgence of our longer term readers in the process.

As the clocktower ticks, what does “Big Ben” see in our future? He offers, “the incoming Adminsitration and the Congress are currently discussing a substantial fiscal package that, if enacted, could provide a significant boost to economic activity. In my view, however, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system. History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively.”

This statement is a major shot across the bow for the incoming administration and Congress as they deal with the prospects of allocating the next $350 billion in TARP money and beyond that. “Big Ben” is stating that the embedded losses and growing losses within our banking system must be addressed, recognized, and alleviated before we can start to truly move forward.

“Big Ben” further adds, “the worsening of the economy’s growth prospects, continued credit losses and asset markdowns may maintain for a time the pressure on the capital and balance sheet capacities of financial institutions. Consequently, more capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.” Goldman Sachs just yesterday released that they believe the global banking system will ultimately realize $1.8 trillion in losses. Only slightly more than half of those losses have been realized to date.

What does this mean? The banks need more money along with government guarantees against further losses from their deteriorating portfolios. To wit, Citigroup is selling divisions to raise capital. How will those government guarantees be structured? Potentially the nationalization of a banking institution, like Citi, or the splitting of Citi and perhaps other banks into “good banks” and “bad banks”. The “good banks” will house the day to day operations, while the “bad banks” will house the toxic and deteriorating assets and will be capitalized by, you guessed it, “Uncle Sam!”

**U.S Government Negotiating with Bank of America To Provide More Capital To Facilitate Purchase of Merrill Lynch**

http://online.wsj.com/article/SB123197132814683053.html?mod=testMod

“Big Ben” says as much, “another approach would be to set up and capitalize so-called bad banks, which would purchase assets from financial institutions in exchange for cash and equity in the bad banks.”

In finishing his speech, “Big Ben” addresses the fact that these issues are truly global in nature and as such the world will need to develop a global regulatory system.

Market reaction to the revealing of these realities is decidedly negative this morning, as equities are down 3-4%.

We will continue to try to stay ahead of the curve for you here at NQ.

In an attempt to tie this piece together, I recommend “take the Steelers, lay the points, and go with the under.”

LD