Additionally, analysts also discount the fact that the FDIC fund to cover depositors of failed institutions is close to zero. This fund can be replenished by the FDIC imposing an assessment on remaining banks or, if need be, tapping an emergency line of credit at the U.S. Treasury.

What will be the real impact of bank failures? In my opinion, American consumer confidence and small business owners will bear the brunt of the pain from the bank failures. Why?

>> The reality of further job losses at these banks and those they support within local economies.

>> The psychological impact of seeing small and community banks fail.

>> The lack of credit availability to consumers and small business owners in communities across America.

What are the plans to stem the tide and plug the holes created by bank failures?

1. Have larger banks take over these institutions. What are the risks in this transition? Many of these banks are already filled with underperforming and delinquent loans. The acquiring banks typically want the cheap deposit base of the failed banks and little more.

2. Private equity buyers will have the opportunity to purchase failed banks. What are the risks in this process? The private equity buyers will have to maintain higher capital ratios. Another risk is that the private equity buyers may utilize the cheap deposit base as a pool of liquidity and capital for higher return undertakings than traditional lending in the local communities.

In my opinion, the gap dividing Wall Street and Main Street is only going to grow wider in the midst of these bank failures. The party on Wall Street has little appreciation for this reality on Main Street.

John Kanas, the former chairman and CEO of North Fork Bank, and his private equity firm purchased BankUnited in Florida this past May. Kanas addresses these topics in an interview on CNBC.

LD

Developments within the credit card space have exposed the true colors of these institutions . . . not that there was ever any doubt. Recall how consumer outrage at rapidly rising interest rates on credit cards pressured Washington to rein in the usurious business practices of the financial industry.

New legislation was badly needed as banks clearly utilized abusive business practices. The Wall Street Journal highlighted these developments in writing on May 21st, Credit-Card Fees Curbed:

“Credit cards are a tremendously valuable and useful tool for consumers, providing them with relief during critical moments,” said Senate Banking Committee Chairman Christopher Dodd. “This is a very important industry….We just want it to work better.”

The legislation marked a major defeat for the credit-card industry, as lawmakers complained that consumers are being hit with tricks and traps on their cards.

Well, while the legislators were in the front room having the photo ops, the bankers were in the back room building a new and better mousetrap, at least from their perspective.

The Los Angeles Times sheds light on how Credit Card Firms Try End Run Around New Federal Rules:

Banks are quietly changing the terms of millions of credit card accounts as they brace for a tough new law that will limit rate hikes.

The law would restrict interest rate increases unless a credit card has a variable rate. So at least two major lenders are switching their cards with fixed rates to — you guessed it — variable rates.

“It’s completely unfair,” said Linda Sherry, a spokeswoman for Consumer Action. “It’s an end run around the intent of the new law.”

That law is the Credit Card Accountability, Responsibility and Disclosure Act, which President Obama affixed with his signature in May. Its various provisions will be phased in between next month and February.

Who are these two major lenders? Bank of America and JP Morgan Chase. Given the size of their operations, watch every other credit card issuer set the same trap.

How exactly does the trap work? The banks try to baffle consumers with bull*%!# while sticking their hands ever deeper into our wallets. The Los Angeles Times highlights:

Los Angeles resident Victoria Afonina received a letter from Bank of America the other day informing her that “as a result of a change in our business practices, your annual percentage rate will use a variable rate formula based on the U.S. prime rate.”

“If the prime rate changes,” it said, “your APR will vary accordingly.”

Afonina, 44, told me she had to read the letter several times to understand what BofA was saying.

She said she’d been a cardholder with the bank for about five years and had enjoyed a relatively low fixed rate of 9.9% any time she carried a balance.

“When I finally understood what they were saying, and that my rate could change every month, I was shocked,” Afonina said. “I’m a good customer. Why are they treating me like that?”

Good question.

“The change from fixed to variable rates allows us to better manage our business as market conditions change,” said Betty Riess, a BofA spokeswoman.

And those new federal rules. . . ?

“Legislative and regulatory changes that limit our ability to re-price for risk were a factor in our decision,” Riess acknowledged.

How could Washington possibly write legislation which allows banks to set these traps and negate the very spirit of the law? Are they that stupid? Are the bank lobbying efforts that strong? Are legislators more concerned with the photo op and headlines than truly protecting consumer interests?

Yes, yes, and yes.

In the meantime, Sense on Cents strongly encourages you to pay down your credit card balances as quickly as possible so you will not be subject to this usury!!

LD

Rep. Edolphus Towns

I commend Rep. Edolphus Towns (D-NY), Chairman of the House Committee on Oversight and Government Reform. Rep. Town’s closing statement at yesterday’s Congressional hearing culminated some riveting theatre. That said, this is not a one act play. Rep. Towns highlights the need to dig deeper in exposing what truly happened in the midst of the Bank of America takeover of Merrill Lynch. Towns finished the hearing with this Closing Statement:

At the outset of this hearing, I said that it’s time to shine some light on the events surrounding Bank of America’s acquisition of Merrill Lynch.

At this point, I would say we’ve gotten a peek, but we don’t have full sunshine yet.

I would make three observations:

1. There are significant inconsistencies between what we have been told today, what we were told two weeks ago by Ken Lewis, and what the Fed’s internal emails seem to say.

2. It is still unclear whether Bank of America was forced by the Federal government to go through with the Merrill deal, or whether Ken Lewis pulled off what may have been the greatest financial shakedown of all time; and

3. As a result of this hearing, we have learned that the SEC and FDIC played a role in this transaction.

Former Treasury Secretary Hank Paulson has agreed to appear before this Committee in July and I look forward to that hearing.

But we also need to hear from the FDIC and the SEC, so that we can better understand what happened during the dark days of last December.

Will Congress and the Obama administration look to pursue these ‘inconsistencies?’ Will the parties to these conversations collectively be brought together so these inconsistencies can be addressed? Will the American public once again be subjected to an accusation by one party to a conversation claiming the other party misremembered?

In true Joe Friday fashion, Rep. Ed Towns echoes my sentiments:

The immediate reaction to Bernanke’s testimony is less than positive. The Bank of America-Merrill Lynch ‘play’ could very well be a preview to the Fed as the uber-regulator for systemic risk. Sense on Cents strongly believes the Fed should not occupy that role. Why? Throw any concept of an independent Federal Reserve right out the window. Bloomberg addresses this prospect in, Bernanke Grilling May Weaken Case for Expanded Powers:

Bernanke failed to resolve some lawmakers’ questions on whether the Fed bullied executives and stepped over other regulators in the name of financial stability in a three-hour congressional hearing yesterday.

Criticisms by members of both parties are likely to diminish support for the Obama administration’s plan to make the Fed the single agency responsible for the largest and most interconnected financial institutions.

“There’s something rotten in the cotton here — no ifs, ands or buts about it,” Representative Edolphus Towns, a New York Democrat who chairs the House Oversight Committee, told reporters after the hearing. “There was a forced situation, a shotgun wedding” and “we’re just trying to find out who had the shotgun.”

Will it be business as usual in Washington or will the American public truly learn if Ben Bernanke and possibly Hank Paulson abused their powers.

Don’t recall? Misremembered? Just the facts, please!

LD

The intrigue behind the acquisition of Merrill Lynch by Bank of America may never be known. Will Congress pursue total transparency and integrity to compel all pertinent parties to be fully forthcoming? Would Congress go so far as to appoint an independent investigator with powers to subpoena Ben Bernanke, Ken Lewis, John Thain, Hank Paulson, Larry Summers, and Tim Geithner? Does the rule of law apply in our country only when convenient? Bloomberg provides a peek into this intrigue, Republicans Say Fed Set Late Report of Merrill Loss:

House Republican staffers said the Federal Reserve tried to control the timing of disclosures of rising losses at Merrill Lynch & Co. in the weeks leading up to its takeover by Bank of America Corp., according to a memo obtained by Bloomberg.

The memo, prepared by staffers for Republican lawmakers at a House Oversight Committee hearing tomorrow, cites what it identifies as excerpts from internal Fed e-mails to support the conclusion. Fed Chairman Ben S. Bernanke is scheduled to testify at tomorrow’s hearing in Washington.

The e-mails show that the Fed “engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other Federal Regulatory agencies,” Representative Darrell Issa, the panel’s senior Republican, said in an e-mailed statement.

Strong words by Representative Issa.

Cover-up? Who was negatively impacted by not revealing information on losses at Merrill Lynch? Existing Bank of America shareholders, who may very well have voted against this deal.

Hiding details from other Federal regulatory agencies? Such as? The SEC. The OCC. The FDIC, which would assume a significant percentage of losses on assets purchased by Bank of America. How did FDIC chair, Sheila Bair, feel about that prospect?

“Dear Ben, Strong discomfort with this deal at the FDIC, for all the reasons you and I have discussed,” Bair said in a Jan. 14 e-mail, according to the memo. “My board does not want to do this and I don’t think I can convince them to take losses beyond the proportion of assets coming out of the depository institutions.”

Who else was clearly reluctant to finalize this transaction? Bank of America chairman and CEO, Ken Lewis. He testified in February to New York State authorities about being pressured by Bernanke and Paulson. Lewis hedged his statement about Bernanke’s and Paulson’s pressuring him, if not outright threatening him, under questioning by Congress earlier this month.

Will we learn more today from Bernanke or will this chapter close without a full accounting of what truly happened? Will Congress pass the Obama administration’s proposal to make the Federal Reserve the uber-regulator to stem systemic risk? Might shareholder rights be trampled in the process? Do the ends justify the means? Do laws mean anything? Can one be a well-intended crook? So many questions.

LD

Buying Brand Obama

Barack Obama is a brand. And the Obama brand is designed to make us feel good about our government while corporate overlords loot the Treasury, our elected officials continue to have their palms greased by armies of corporate lobbyists, our corporate media diverts us with gossip and trivia and our imperial wars expand in the Middle East. Brand Obama is about being happy consumers. We are entertained. We feel hopeful. We like our president. We believe he is like us. But like all branded products spun out from the manipulative world of corporate advertising, we are being duped into doing and supporting a lot of things that are not in our interest.

What, for all our faith and hope, has the Obama brand given us? His administration has spent, lent or guaranteed $12.8 trillion in taxpayer dollars to Wall Street and insolvent banks in a doomed effort to reinflate the bubble economy, a tactic that at best forestalls catastrophe and will leave us broke in a time of profound crisis. Brand Obama has allocated nearly $1 trillion in defense-related spending and the continuation of our doomed imperial projects in Iraq, where military planners now estimate that 70,000 troops will remain for the next 15 to 20 years. Brand Obama has expanded the war in Afghanistan, including the use of drones sent on cross-border bombing runs into Pakistan that have doubled the number of civilians killed over the past three months. Brand Obama has refused to ease restrictions so workers can organize and will not consider single-payer, not-for-profit health care for all Americans. And Brand Obama will not prosecute the Bush administration for war crimes, including the use of torture, and has refused to dismantle Bush’s secrecy laws or restore habeas corpus.

That is EXACTLY what MANY of us have been saying ad nauseum for MONTHS now – Obama is another Bush, further evidenced by his saying one thing and doing the exact OPPOSITE:

Brand Obama offers us an image that appears radically individualistic and new. It inoculates us from seeing that the old engines of corporate power and the vast military-industrial complex continue to plunder the country. Corporations, which control our politics, no longer produce products that are essentially different, but brands that are different. Brand Obama does not threaten the core of the corporate state any more than did Brand George W. Bush. The Bush brand collapsed. We became immune to its studied folksiness. We saw through its artifice. This is a common deflation in the world of advertising. So we have been given a new Obama brand with an exciting and faintly erotic appeal. Benetton and Calvin Klein were the precursors to the Obama brand, using ads to associate themselves with risqué art and progressive politics. It gave their products an edge. But the goal, as with all brands, was to make passive consumers mistake a brand with an experience.

“The abandonment of the radical economic foundations of the women’s and civil-rights movements by the conflation of causes that came to be called political correctness successfully trained a generation of activists in the politics of image, not action,” Naomi Klein wrote in “No Logo.”

Well, ain’t that the damn truth. Sad, but the truth, nonetheless. And it led to this:

Obama, who has become a global celebrity, was molded easily into a brand. He had almost no experience, other than two years in the Senate, lacked any moral core and could be painted as all things to all people. His brief Senate voting record was a miserable surrender to corporate interests. He was happy to promote nuclear power as “green” energy. He voted to continue the wars in Iraq and Afghanistan. He reauthorized the Patriot Act. He would not back a bill designed to cap predatory credit card interest rates. He opposed a bill that would have reformed the notorious Mining Law of 1872. He refused to support the single-payer health care bill HR676, sponsored by Reps. Dennis Kucinich and John Conyers. He supported the death penalty. And he backed a class-action “reform” bill that was part of a large lobbying effort by financial firms. The law, known as the Class Action Fairness Act, would effectively shut down state courts as a venue to hear most class-action lawsuits and deny redress in many of the courts where these cases have a chance of defying powerful corporate challenges.

While Gaza was being bombarded and hit with airstrikes in the weeks before Obama took office, “the Obama team let it be known that it would not object to the planned resupply of ‘smart bombs’ and other hi-tech ordnance that was already flowing to Israel,” according to Seymour Hersh. Even his one vaunted anti-war speech as a state senator, perhaps his single real act of defiance, was swiftly reversed. He told the Chicago Tribune on July 27, 2004, that “there’s not that much difference between my position and George Bush’s position at this stage. The difference, in my mind, is who’s in a position to execute.” And unlike anti-war stalwarts like Kucinich, who gave hundreds of speeches against the war, Obama then dutifully stood silent until the Iraq war became unpopular.

Oh, yes – a man of SUCH conviction. Hahahaha. As long as it scores him some points, he’s ALL over it.

But get this – if there was any doubt whatsoever in any way, shape, or form, that Obama is the sole result of marketing, check this out:

Obama’s campaign won the vote of hundreds of marketers, agency heads and marketing-services vendors gathered at the Association of National Advertisers’ annual conference in October. The Obama campaign was named Advertising Age’s marketer of the year for 2008 and edged out runners-up Apple and Zappos.com. Take it from the professionals. Brand Obama is a marketer’s dream. President Obama does one thing and Brand Obama gets you to believe another. This is the essence of successful advertising. You buy or do what the advertiser wants because of how they can make you feel.

Yep, pretty much – so it doesn’t matter HOW empty the promises, or vague the rhetoric, doggone it, he just makes us feel all tingly inside (blech, yuck, ick).

Hedges has an explanation for how we got to this place:

Celebrity culture has leeched into every aspect of our culture, including politics, to bequeath to us what Benjamin DeMott called “junk politics.” Junk politics does not demand justice or the reparation of rights. Junk politics personalizes and moralizes issues rather than clarifying them. “It’s impatient with articulated conflict, enthusiastic about America’s optimism and moral character, and heavily dependent on feel-your-pain language and gesture,” DeMott noted. The result of junk politics is that nothing changes – “meaning zero interruption in the processes and practices that strengthen existing, interlocking systems of socioeconomic advantage.” It redefines traditional values, tilting “courage toward braggadocio, sympathy toward mawkishness, humility toward self-disrespect, identification with ordinary citizens toward distrust of brains.” Junk politics “miniaturizes large, complex problems at home while maximizing threats from abroad. It’s also given to abrupt unexplained reversals of its own public stances, often spectacularly bloating problems previously miniaturized.” And finally, it “seeks at every turn to obliterate voters’ consciousness of socioeconomic and other differences in their midst.”

An image-based culture, one dominated by junk politics, communicates through narratives, pictures and carefully orchestrated spectacle and manufactured pseudo-drama. Scandalous affairs, hurricanes, earthquakes, untimely deaths, lethal new viruses, train wrecks—these events play well on computer screens and television. International diplomacy, labor union negotiations and convoluted bailout packages do not yield exciting personal narratives or stimulating images. A governor who patronizes call girls becomes a huge news story. A politician who proposes serious regulatory reform, universal health care or advocates curbing wasteful spending is boring. Kings, queens and emperors once used their court conspiracies to divert their subjects. Today cinematic, political and journalistic celebrities distract us with their personal foibles and scandals. They create our public mythology. Acting, politics and sports have become, as they were during the reign of Nero, interchangeable.

Yet another reference to Nero – and appropriately so.

But here is yet another sad truth:

In an age of images and entertainment, in an age of instant emotional gratification, we do not seek reality. Reality is complicated. Reality is boring. We are incapable or unwilling to handle its confusion. We ask to be indulged and comforted by clichés, stereotypes and inspirational messages that tell us we can be whoever we seek to be, that we live in the greatest country on Earth, that we are endowed with superior moral and physical qualities, and that our future will always be glorious and prosperous, either because of our own attributes, or our national character, or because we are blessed by God. Reality is not accepted as an impediment to our desires. Reality does not make us feel good.

In his book “Public Opinion,” Walter Lippmann distinguished between “the world outside and the pictures in our heads.” He defined a “stereotype” as an oversimplified pattern that helps us find meaning in the world. Lippmann cited examples of the crude “stereotypes we carry about in our heads” of whole groups of people such as “Germans,” “South Europeans,” “Negroes,” “Harvard men,” “agitators” and others. These stereotypes, Lippmann noted, give a reassuring and false consistency to the chaos of existence. They offer easily grasped explanations of reality and are closer to propaganda because they simplify rather than complicate.

Pseudo-events—dramatic productions orchestrated by publicists, political machines, television, Hollywood or advertisers—however, are very different. They have, as Daniel Boorstin wrote in “The Image: A Guide to Pseudo-Events in America,” the capacity to appear real even though we know they are staged. They are capable, because they can evoke a powerful emotional response, of overwhelming reality and replacing reality with a fictional narrative that often becomes accepted truth. The unmasking of a stereotype damages and often destroys its credibility. But pseudo-events, whether they show the president in an auto plant or a soup kitchen or addressing troops in Iraq, are immune to this deflation. The exposure of the elaborate mechanisms behind the pseudo-event only adds to its fascination and its power. This is the basis of the convoluted television reporting on how effectively political campaigns and politicians have been stage-managed. Reporters, especially those on television, no longer ask if the message is true but if the pseudo-event worked or did not work as political theater. Pseudo-events are judged on how effectively we have been manipulated by illusion. Those events that appear real are relished and lauded. Those that fail to create a believable illusion are deemed failures. Truth is irrelevant. Those who succeed in politics, as in most of the culture, are those who create the brands and pseudo-events that offer the most convincing fantasies. And this is the art Obama has mastered.

Ah, yes – convincing people to ignore reality and just listen to the sound of his voice. Great – just what we want in our elected officials – to create a little fantasy world in which we can live and not have to deal with all that icky reality stuff:

A public that can no longer distinguish between truth and fiction is left to interpret reality through illusion. Random facts or obscure bits of data and trivia are used to bolster illusion and give it credibility or are discarded if they interfere with the message. The worse reality becomes—the more, for example, foreclosures and unemployment skyrocket—the more people seek refuge and comfort in illusions. When opinions cannot be distinguished from facts, when there is no universal standard to determine truth in law, in science, in scholarship, or in reporting the events of the day, when the most valued skill is the ability to entertain, the world becomes a place where lies become true, where people can believe what they want to believe. This is the real danger of pseudo-events and why pseudo-events are far more pernicious than stereotypes. They do not explain reality, as stereotypes attempt to, but replace reality. Pseudo-events redefine reality by the parameters set by their creators. These creators, who make massive profits peddling these illusions, have a vested interest in maintaining the power structures they control.

The old production-oriented culture demanded what the historian Warren Susman termed character. The new consumption-oriented culture demands what he called personality. The shift in values is a shift from a fixed morality to the artifice of presentation. The old cultural values of thrift and moderation honored hard work, integrity and courage. The consumption-oriented culture honors charm, fascination and likability. “The social role demanded of all in the new culture of personality was that of a performer,” Susman wrote. “Every American was to become a performing self.”

Hard work?? Thrift? Moderation? Oh, my – that is SOOO Twentieth Century! It’s a brand new day, folks, and along with that is a new brand, OBAMA, and his “listen to what I say, and ignore everything I do”:

The junk politics practiced by Obama is a consumer fraud. It is about performance. It is about lies. It is about keeping us in a perpetual state of childishness. But the longer we live in illusion, the worse reality will be when it finally shatters our fantasies. Those who do not understand what is happening around them and who are overwhelmed by a brutal reality they did not expect or foresee search desperately for saviors. They beg demagogues to come to their rescue. This is the ultimate danger of the Obama Brand. It effectively masks the wanton internal destruction and theft being carried out by our corporate state. These corporations, once they have stolen trillions in taxpayer wealth, will leave tens of millions of Americans bereft, bewildered and yearning for even more potent and deadly illusions, ones that could swiftly snuff out what is left of our diminished open society.

Chris Hedges’ new book, “Empire of Illusion: The End of Literacy and the Triumph of Spectacle,” will be out in July and can be preordered on Amazon (and please remember that No Quarter benefits if you click the Amazon button at the No Quarter site) or at your local bookstore

I couldn’t have said it better myself. Both Obama the Brand and the man are dangerous with his marketing to mask his real actions. Too many people did not wake up before granting Bush a second term (though even THAT is debatable given the state of our elections, particularly electronic voting machines – shameless plug for “Hacking Democracy” Live Chat and voter fraud in general). We can only hope, and work (in the good ol’ Twentieth Century way), to help more people move back into the reality-based community. To move from the illusion of Obama the Brand to the reality of Obama the Politician. The sooner, the better. And “sooner” can’t come fast enough for me. How about you?

The world is awash in a sea of debt. The debt is piled highest in Europe on a relative basis while in actual terms the debt in the United States outpaces all other parts of the world. As the deleveraging process continues, the demand for new money to spur growth is anemic. The paradox of thrift is keeping our economy in a state of stagnation. The Fed and U.S. Treasury are utilizing all tools in their box to restructure debt and promote lending without risking default. Ultimately, all the Fed and Treasury programs will devalue the debt via inflation. Inflation, in which future dollars are worth less than current dollars, is akin to paying a negative rate of interest on money.

So when you think of the policies being promoted by Geithner, Bernanke, Obama, Summers, Jarrett, Orszag, and the rest of the administration, review them in light of that rate of interest on your money.

As the FT reports:

The ideal interest rate for the US economy in current conditions would be minus 5 per cent, according to internal analysis prepared for the Federal Reserve’s last policy meeting.

The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation.

A central bank cannot cut interest rates below zero. However, the staff research suggests the Fed should maintain unconventional policies that provide stimulus roughly equivalent to an interest rate of minus 5 per cent.

Fed staff separately estimated what size and type of unconventional operations, including asset purchases, might provide this level of stimulus. They suggested that the Fed should expand its asset purchases by even more than the $1,150bn (€885bn, £788bn) increase policymakers authorised at the last meeting, which included $300bn of Treasury purchases.

I do believe this report as being accurate of the administration’s intentions. At every turn, members of the administration have put forth proposals and policies consistent with this negative interest rate approach. It would be foolhardy to think that the administration will stop now. Thus, we should expect a continued expansion of the Fed’s balance sheet, more quantitative easing, more capital injections into the banking system, and no hesitation at ongoing fiscal stimulus. Will Congress look to impose fiscal discipline? Do you really think Nancy Pelosi, Harry Reid, Chris Dodd or any other liberal Democrat will stop spending especially if they are told it is the right approach? They have lived for this day.

The end game will be inflation. The administration wants it. The risk is hyper-inflation.

How do stocks react to a bout of inflation and potentially hyper-inflation? Very good question. Companies with pricing power should do well. Those companies without pricing power will likely suffer.

How do bonds (fixed income instruments) react to a bout of inflation and potentially hyper-inflation? Bonds will decline in value precipitously.

What do market participants think?

LD

Congress said nothing, the President said nothing. Nobody stopped every major credit card company in the USA from screwing with everyone’s credit scores by cranking up their interest rates in mid-stream and offering customers no options other than to “freeze” their cards, which of course would also affect their credit ratings. The Screwing of American credit card holders is pretty much completed.

Even the best, most reliable customers were burned without a place to turn. Very few people knew that they could call their credit card companies and refuse to allow them to do this. Even then, this would involve threatening to pay the card off and refusing to use it again until the company reinstated the original interest rate.

That’s not the only thing these thieves got away with. As far back as February of this year, the usual suspects made arrangements with 30 states to have unemployment checks deposited into debit cards they owned. Then they gouged the Unemployed by charging them fees and squeezing some of their unemployment money out of them. Nobody with any power said boo on their behalf. All the while, these same companies had taken billions in bailout money.

Companies like Chase, Citigroup, Capital One, AMEX, and Bank Of America have completed their gouging plan. The only effort to stop them came from the Fed with a rule that they couldn’t arbitrarily raise rates……after the year 2010, a rule that was designed to give their goombahs in the banking industry plenty of time to screw America first.

So now that it’s all pretty much over and everyone is duly screwed, President Obama had a meeting with these thieves and he means to make sure credit card reform happens. Unless this is going to be retroactive, it’s all bullcrap.

This is also same man who, as Senator, voted “No” to capping interest rates. His claim early on during the Presidential Primaries was that “30% cap was still too high”. Damned right it was. But apparently, in his own brand of wisdom, Obama deduced that NO cap was better than a 30% cap. In other words, he voted “Present”. See 10:00 in this debate video where that pig John Edwards comes right out and laughs about Obama’s ‘rationale’.

Here’s a video of President Obama roaring like a lion at Credit Card company big shots–now that most all Americans who have credit cards have already been F*cked.

Thanks Barack! Put your teeth back in and make this retroactive, else it will be clear that this is just another pretend photo opportunity where you hand out snowballs in the summertime and the public watches them melt right in their hands. But we can at least say that you stayed awake. Your “Top” financial advisor Larry Summers didn’t. When you you going to fire that arrogant ass? Just wondering.

The BofA purchase of Merrill did not feel “right” to me from the outset. Why? Recall that at the time of this deal, Lehman had just failed and other investment banks’ stocks (Merrill, Morgan Stanley, Goldman Sachs) were plummeting. Given that dynamic, why did BofA pay a fairly sizable premium for a firm in distress? Merrill’s stock was trading somewhere in the mid-teens but BofA paid the equivalent of $29 a share. It is said that Lewis paid such a premium in order to retain the renowned Merrill retail brokerage staff, but it struck me as more directed by Uncle Sam than anything else.

In early February I questioned What Really Happened With Merrill and B of A. I summarized then that normal business decisions and strategy do not occur when operating in uncharted waters. Well, in the last two and a half months our economy and financial industry have moved into even deeper waters.

In looking back at the height of the waves swamping the Merrill ship, the WSJ report reminds us:

Under normal circumstances, banks must alert their shareholders of any materially significant financial hits. But these weren’t normal times: Late last year, Wall Street was crumbling and BofA faced intense government pressure to buy Merrill to keep the crisis from spreading. Disclosing losses at Merrill — which eventually totaled $15.84 billion for the fourth quarter — could have given BofA’s shareholders an opportunity to stop the deal and let Merrill collapse instead.

“Isn’t that something that any shareholder at Bank of America…would want to know?” Mr. Lewis was asked by a representative of New York’s attorney general, Andrew Cuomo, according to the transcript.

“It wasn’t up to me,” Mr. Lewis said. The BofA chief said he was told by Messrs. Bernanke and Paulson that the deal needed to be completed, otherwise it would “impose a big risk to the financial system” of the U.S. as a whole.

Mr. Lewis’s testimony suggests how aggressively federal regulators have been willing to behave in their fight to fix the U.S. financial system. The testimony for the first time spreads some of the blame to Messrs. Paulson and Bernanke for Mr. Lewis’s decision to keep problems at Merrill under wraps.

The immediate question I have is whether the shareholders at Bank of America can bring action against Lewis, Paulson, and Bernanke. Can the shareholders in turn bring action to remove the board at B of A?

These are questions which will likely remain unanswered. However, the mere thought that they are being raised is amazing. If ever there were an individual who held leverage over Uncle Sam it was Ken Lewis. Or did he? When Lewis indicated he wanted to slow the merger process and further review the deal, Paulson pressured him. As the WSJ reports:

Mr. Lewis described a conversation with Mr. Paulson in which the Treasury secretary made it clear that Mr. Lewis’s own job was at stake. Mr. Lewis still was considering invoking his legal right to terminate the Merrill deal. Mr. Paulson was out on a bike ride when Mr. Lewis phoned to discuss the matter, according to the transcript.

“I can’t recall if he said, ‘We would remove the board and management if you called it [off]‘ or if he said ‘we would do it if you intended to.’ I don’t remember which one it was,” Mr. Lewis said. “I said, ‘Hank, let’s de-escalate this for a while. Let me talk to our board.’ “

Lewis has experienced enormous pressure from every corner. Where have Paulson, Bernanke, and now Geithner been when he needed support?

Is Ken Lewis a “great American” serving the interests of his country, or a mere pawn in the hands of a government official and central banker?

Check out additional interesting viewpoints on this topic at Memeorandum.com.

LD

As I write this, Bloomberg reports Bank of America is speculated to need another $10-20 billion in equity capital. BofA’s earnings were reported this morning at .44 earnings per share versus an expectation of approximately .03 earnings per share. Analysts are panning the earnings due to the propsects for ongoing increases in credit losses within BofA’s loan portfolio. BofA’s stock is down approximately 8% in early trading.

If BofA does need another $10-$20 billion in equity capital, where might it come from? In my opinion, in a non-public transferral of capital, those funds may come from JP Morgan and/or Goldman Sachs, and would actually be recycled TARP funds. Effectively, JPM and GS will merely be a conduit for increased government funds injected into BofA and Citigroup, as well. Remember JPM has $25 billion in TARP funds, Goldman has $10 billion. If BofA took $15 billion of these funds then Citi could receive $20 billion. What would JPM and GS receive in return? I would think these negotiations would be private and not released, although given that the capital provided is public money all information should be released.

The administration has released word that the focus of the Bank Stress Tests will be on the industry as a whole and not individual institutions. The FT reports, U.S. to Put Conditions on TARP Repayment. What are the conditions?

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.

“Our general objective is going to be what is good for the system,” the senior official said. “We want the system to have enough capital.”

His comments come as Goldman Sachs, JPMorgan Chase and other relatively strong banks are pressing to be allowed to repay their bail-out funds. On Sunday, Lawrence Summers, President Barack Obama’s top economic adviser, told NBC’s Meet the Press that repayments could eventually help the government provide further resources to help the sector. Such a move could also allow healthier institutions to differentiate themselves from weaker banks and free them from constraints on executive pay, and other activities, that come with bail-out money.

The most restrictive covenant of holding TARP funds centers on compensation limits. How JPM and GS negotiate their way out of that noose is the big carrot for playing ball with Uncle Sam.

We also should not forget that every banking institution on Wall Street has issued FDIC-backed debt. That support has allowed the banks to save themselves 3-4% on the cost of funds and is another version of the private profit vs. public risk scenario.

Despite statements from Obama and team, the political game plan of buying time and spreading the banking risks across the taxpaying public is in place. I do not see that changing at this juncture. The “games” being played via the Bank Stress Tests will likely be another version of Games of Chance: TALF, PPIP, TARP, FDIC, FASB.

LD

This “managed earnings” process can be played for an extended period, but ultimately the earnings – or more importantly “hidden losses” – come out in the wash.

Citigroup played this game yesterday. The NY Times reports, After Year of Losses, Citigroup Finds a Profit. I give the Times credit; they did not report that Citigroup generated a profit, but that they found it. Where did they find it? The Times offers:

Like several other banks that reported surprisingly strong results this week, Citigroup used some creative accounting, all of it legal, to bolster its bottom line at a pivotal moment.

Citi utilized creative accounting supported by the pressure applied by Congress on the FASB. Where is the pressure applied by the SEC and FINRA on behalf of investors? Isn’t it only fair that somebody speaks up for investors? Is the SEC and FINRA in bed with Congress to “play the game?” Let’s move on.

The top rated banking analyst on the street chimes in:

Meredith A. Whitney, a prominent research analyst, said in a recent report that what banks were doing amounted to a “great whitewash.” The industry’s goal — and one that some policy makers share — is to create the impression that banks are stabilizing so private investors will invest in them, minimizing the need for additional taxpayer money, she said.

One accounting tactic banks have used to generate “phantom income” is to mark the value of their debt trading in the market at “current prices.” For example, if Citigroup issued $1 billion in debt at 100 and it is now trading at 80, Citigroup could and does book an increase in “income” of $200 million dollars. No true income is generated because Citi still pays the rate on the debt when it was issued. If the banks want to value debt at current prices, then assets need equal treatment.

The Times reports,

Edward J. Kelly, Citigroup’s financial chief, defended the practice of valuing its bonds at market prices, since it values other investments the same way. The number fluctuates from quarter to quarter. For instance, Citigroup recorded a big loss in the fourth quarter of last year, when the prices of its bonds bounced back.

Kelly’s assertion is inaccurate. The relaxation of the mark-to-market allows Citi and other institutions to mark “so called” impaired assets to market at valuations the bank deems appropriate. If that is a fair process, wouldn’t it also be fair to allow those institutions which own bank debt to also deem the debt as an “impaired asset” and mark it where it deems appropriate? For example, if Citi’s bank debt is trading at 80, but I – as an owner – view that as “impaired,” perhaps I should mark it at 90 for purposes of reporting my income.

As anybody involved in the markets knows, that approach to valuing bank debt for an investor would be palpably absurd. In the same vein, allowing banks to mark their assets at valuations they deem appropriate is equally absurd.

I would propose that bank analysts must now not only review earnings but, given these “games” being played by the banks, the analysts should also grade the integrity of the earnings based upon transparency and quality.

Fool me once, shame on you. Fool me twice, shame on me.

LD

(Editor’s Note: Paulie Abeles is taking Monday night, April 13th, off to be with family.)

Please join me Sunday evening from 8-9 p.m. ET for NoQuarter Radio’s Sense on Cents with Larry Doyle. What is truly going on in the economy? Where are markets headed? The developments in the markets, economy, global finance, Wall Street, and Washington are occurring at breakneck speed. I will try to slow things down a bit and provide a sense of perspective. What did we learn in the markets over the last week and month and what do they mean for the weeks and months ahead? What is happening overseas and how does that impact us here at home? What is happening in the municipal sector and how will that impact the markets and our personal finances? So much to cover.

Tonight my guest will be Louis George Rieger, Chief Investment Strategist at Greenwich Investment Management. Following graduation from Yale Law School, George accepted a position at T. Rowe Price Associates LLC, where he became an officer and stockholder. In 1984, George founded RRH Capital Management, Inc. At RRH, George established the firm’s record in the management of not-rated, tax exempt bonds and high yield equities. George founded Greenwich Investment Management in 2006. George’s legal education has proven valuable in structuring municipal bond issues. He brings over 35 years of experience in the securities industry.

These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! What is on your mind? What would you like to address? Please share your questions and thoughts by calling in to (347) 677-0792, and also join our live chat room, which I’ll start up about 10 minutes before the show begins.

Many thanks to Larry Johnson and the rest of the team at NoQuarterUSA for providing such a vibrant vehicle as NoQuarter Radio. I look forward to having you join me Sunday evening as we collectively navigate the economic landscape!!

LD

One of my favorite scenes in the movie occurs after the boys make the big heist. Immediately, the word is put out to keep your mouths shut and no indications of newfound wealth.

Back to reality. In terms of “putting the fix” into the world of our major money center banks, isn’t the relaxation of the mark-to- market the “newfound wealth”? Isn’t the “keep your mouths shut” the equivalent of the Treasury telling the banks not to comment on results of the Bank Stress Test? Speaking of the Bank Stress Tests, Bloomberg reports:

The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.

The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month.

Clearly the Fed and Treasury are trying to keep their “boys” quiet and lay low while the real regulators of the market, that being honest investors, are walking the beat.

If any of the boys talk, then the leaders of the family won’t be able to coordinate the stories and hoodwink the public.

Whatever happened to, “as long as you tell the truth, you don’t have to worry about having a bad memory”?

It seems we are operating much more in the realm of, “well, I can tell you but . . . ”

The Goodfellas: Henry Hill, Jimmy Conway, Paul Cicero, and Tommy DeVito

Henry . . . Jimmy . . . Paulie . . . Tommy . . .

Please let me know who in our government and world of finance are most appropriate to play each of these individuals? Let’s have some fun.

(Editor’s Note: Paulie Abeles is taking Monday night, April 13th, off to be with family.)

Join me from 8:00 to 9:00 p.m. ET on NoQuarter Radio for Sense on Cents with Larry Doyle. These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! What is truly going on in the economy? Where are markets headed? What is happening in Washington and how is that impacting Wall Street? So much to cover.

Tonight my guest will be Louis George Rieger, Chief Investment Strategist at Greenwich Investment Management. Following graduation from Yale Law School, George accepted a position at T. Rowe Price Associates LLC, where he became an officer and stockholder. In 1984, George founded RRH Capital Management, Inc. At RRH, George established the firm’s record in the management of not-rated, tax exempt bonds and high yield equities. George founded Greenwich Investment Management in 2006. George’s legal education has proven valuable in structuring municipal bond issues. He brings over 35 years of experience in the securities industry.

The developments in the markets, economy, global finance, Wall Street, and Washington are occurring at breakneck speed. I will try to slow things down a bit and provide a sense of perspective. What did we learn in the markets over the last week and month and what do they mean for the weeks and months ahead? What is happening overseas and how does that impact us here at home? What is happening in the municipal sector and how will that impact the markets and our personal finances?

Ultimately this show is less about the markets and the economy and more about you! Please join us and share your questions, thoughts, concerns, and opinions. A well diversified portfolio is the best form of risk management, and in a similar vein we look for a diversified audience so we can all truly benefit from a wide array of opinions and perspectives as we try to most effectively navigate the economic landscape.

What is on your mind? What would you like to address? Please share your questions and thoughts by calling in to (347) 677-0792, and also join our live chat room, which I’ll start up about 10 minutes before the show begins!

Many thanks to Larry Johnson and the rest of the team at NoQuarterUSA for providing such a vibrant vehicle as NoQuarter Radio.

Welcome to the world of global finance 2009. As banks, insurance companies, hedge funds, and other financial entities deal with losses, we see a lack of aggressive posture being taken on dealing with these losses. Why? Once moral hazard is violated with a single entity, every other entity will look to violate it as well.

Immediate losses are forestalled in hopes that they will be covered or disguised. However, every loss ultimately must be recognized. By whom and how is the question.

At this juncture, more of the losses in our financial system are being directed toward the taxpayers. How? Via the wide array of government programs. What is the cost? A likely underperforming economy due to a lack of credit, and higher taxes to offset lower revenues.

The financial and political arenas have been intertwined in this mess right from the outset. The highly respected Bloomberg reporter Jonathan Weil opines on how President Obama is taking greater political risk in forestalling losses within the banking system. Weil writes:

Why doesn’t the Obama administration force insolvent banks and insurance companies to come clean about their losses first? It’s the “why” that’s so vexing. The who, what, when, and how are mere details, by comparison.

More than anyone else’s, it should be in Obama’s political self-interest to accelerate the worst of the financial crisis and get as much of the inevitable pain behind us as quickly as possible. Every day he waits is one less day he will have between the time we hit rock bottom and the next election. And yet, Obama and his minions are doing all they can to delay the reckoning, which only will make it worse.

In my opinion, Obama does not force the hands of these financial firms for three reasons:

1. his lack of understanding of the issues

2. his lieutenants’ connections to the firms

3. Congressional connections to those firms and payoffs made by Wall Street

While the taxpayers bear the enormous financial risk of these losses at this juncture, Obama and his troops bear the political risk in the 2010 and 2012 elections.

Why are Obama and team taking that risk? Weil offers:

Perhaps they’re scared the markets would panic if large, insolvent financial institutions started telling investors just how undercapitalized they are. There’s the distinct chance some of Obama’s advisers are beholden to failed banksters, because they used to work for them and may want to do so again someday.

Additionally, if Obama and team aggressively challenged the banks to address the losses currently, perhaps they may feel the risks to the financial system would spill over into the political arena. Thus, instead of truly inspiring confidence in the markets by dealing directly with the situation, we get the smoke and mirrors. To wit, Weil asserts:

Why else would the Treasury tell the 19 biggest U.S. banks to undergo “stress tests” of their financial health, and then put the banks in charge of performing the tests on themselves? Those reasons also might help explain why regulators pressured the board that sets U.S. accounting standards to weaken the rules on mark-to-market accounting, so the banks could hide their losses and show more capital.

Weil continues to provide a measure of integrity and transparency I wish we would see from our financial executives and political leaders.

LD