Big Day in the Shitpile Tale

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April 1, 2008

A big day in the history of the big shitpile:

Deutsche Bank loses $3.9 billion on shitpile ‘assets’.
UBS loses $19 billion and its chairman.
Lehman managed to get $4 billion in new capital it urgently needed by offering a 7.25% interest rate, more than four times the rate available on 2-year Treasury notes (btw – what does this say about inflation?).

That’s all good news Wall Street says: Stocks surge as banks rally despite losses.

Why? Oh, maybe because of this:

The SEC tells owners of big shitpile ‘assets’ under its jurisdiction to ignore their market value and keep them in the books for whatever fictional price they like.
The taxpayer will pay for up to $29 billion of Bear Stern losses on ‘assets’ which the Fed accepted as collateral for loans when JPMorgan bear-raided Bear Stearns:

CNBC’s Steve Liesman reports on a letter from Treasury Secretary Paulson to New York Fed President Tim Geithner. In the letter, Treasury agrees that the Fed can bill Treasury for any losses from the Bear Stearns deal.

Question:

What budget or law did Congress pass that allows the Treasury to promise $150 or so from each U.S. taxpayer to Bear Stearns?

Who is next to be bailed out with your money?

Posted by b on April 1, 2008 at 18:50 UTC | Permalink

Comments

It is said that the oil companies have made such and such profit. In reality they have not made any profit, they have exchanged petroleum for paper money. The money means that there is so much less petroleum left. But the owners of that money can use it to make their freedom objective, thereby depriving others of freedom. Profit is zero but there is appropriation of that value by certain individuals and companies. Car companies are said to make profits when in reality they collect a rent because we are unable to live, at least in the United States without a car, so a car is no different from land, it is a rotting piece of land but while it exists it is the same as land, it generates a rent. Forests are destroyed, fisheries depleted and that empoverishment of the earth is called profit. The fact that there is no such profit is revealed by the process of eliminating that phantom profit through a good depression or a good hyperinflation. We have been so imbued with the idea of profit that we cannot eliminate it from our speech but once one sees that financial or industrial manipulation generates no profit the mind comes to understand why there are wars. Wars simply appropriate someone else’s wealth and in the carrying out of war the consciousness of belonging to a group over against another is confirmed, I mean made firmer. Formerly it was possible to disguise the absence of profit and the presence of theft by dividing the world into little nationalities that fought one against the other, but now that the world is a simple unity, it is clear that the whole economic activity is a zero sum game. If we get richer that means that someone else is getting poorer and we must avoid for clarity of thought to rely on economic fantasies. The reality of my water consumption is the deprivation of someone else, my burning of gasoline is the shivering of someone else. There is no escape unless we come together in a true communion of interests and this communion will probably have to be based on a rigid austerity, without exceptions, that is without special stores for the favored few.

Posted by: jlcg | Apr 1 2008 20:02 utc | 1

“Who is next to be bailed out with your money” I’ve got a funny feeling it won’t be me…

Posted by: Fade | Apr 1 2008 20:40 utc | 2

C’mon, you’ll get a US treasury check, which you will allow you to stave off failing on your mortgage payment until at least after the elections.

Posted by: ralphieboy | Apr 1 2008 22:19 utc | 3

B, do you think that Deutsche Bank and UBS can ask Bernanke to pay for their losses, too?
Fasten your seatbelts, it’s going to be a bumpy year.

Posted by: CluelessJoe | Apr 1 2008 23:09 utc | 4

This debt crisis had created massive losses but not for the US as much as some seem to think. Yes there is a mortgage crisis and a lot of people are hurting but the people that sold those overpriced houses got the money. Foriegn banks that took in the mortgages paid off the sellers of the homes and their losses don’t hurt the US economy. Spreading the risk was the mantra of the day and all those foriegn suckers are in reality subsidizing the US economy. UBS writing off $37 billion is a loss but that same $37 billion went to home sellers in the US. A pretty hefty donation I would say.

Posted by: Sam | Apr 2 2008 3:24 utc | 5

Loaning It Forward
Presumably everyone realizes that Bush.Con’s $167B mislabeled “tax rebate” economic incentive package is nothing of the sort. There is no “tax rebate.” Fed budget was set a long time ago, and the deficits continue to grow, as do the trade deficits, in real currencies. It’s a loan against our future taxes and the future interest on the deficit’s principal foundering those taxes, a loan from the future back to US today.
1. Our “tax rebate” is already pre-paid by delaying the end to the AMT.
2. Nevertheless, our “tax rebate” works out to only ~$1320 per working American.
3. Nevertheless, the most you can receive is only ~$600.
4. Treasury’s origination fees are >50% for our “rebate loan”, plus interest.
Even though it’s massively over-prepaid, and even though we only received <50% of
the principle, we'll continue to pay UST interest on this "rebate loan" forever,
AND YOU WILL PAY TAXES ON IT NEXT YEAR, and those taxes won't go to pay it down!
If you can sell that doppleganger to the American people, what's a little shitpile?
If it works, what's to keep the Neo-Zi's from handing out $320B "rebate" next year?
If that works, what's to keep the Neo-Zi's from handing out $600B "rebate" next year?
If you can't grow the deficit fast enough, then forceable give loans as "rebates".
So if you cash their petite morte, then you’ve put on the Neo-Zi brown shirt.
I bet you’ve already spent it, haven’t you?

Posted by: Peris Troika | Apr 2 2008 3:42 utc | 6

Still Deutsche Bank managed to hide reports of its losses behind the news of the Swiss UBS debacle, but they were hoping to get away with being able to hide their losses entirely.
Keep in mind that these institutions are using every creative accounting trick in the book to minimize the losses they have to report. We are looking at the tip of the iceberg here.

Posted by: ralphieboy | Apr 2 2008 6:16 utc | 7

Tangentially related…
The stratification intensifies. You want fries with that?
US credit crunch hits education as banks abandon student loans

One of America’s leading banking associations has given warning that the United States faces a growing educational apartheid as some lenders withdraw from student loans amid new evidence that the credit crisis has spread across all types of borrowing.

“Would you like paper or plastic?”

Posted by: Uncle $cam | Apr 2 2008 7:55 utc | 8

@Sam – This debt crisis had created massive losses but not for the US as much as some seem to think.
Hmm – the SEC letter I link to above says the U.S. banks can keep “marking to model” for these “assets” while international banks have to “mark to market”, i.e. to the real price.
There have been so far $232 billion in writedowns out of an estimated (Goldman-Sachs) $1.2 trillion in losses that will eventually occure. At least 40% of those losses will occure in the U.S.

“U.S. leveraged institutions have written off less than half of the losses associated with the bursting of the credit bubble,” they said. “There is light at the end of the tunnel, but it is still rather dim.”
Of the cumulative losses expected by these leveraged players, bad residential home loans will represent about half, while poor-performing commercial mortgages will represent 15 percent to 20 percent.
The rest of the losses will come from credit card loans, car loans, commercial and industrial lending and non-financial corporate bonds, Goldman economists said.

We are still in an early phase of this.
I wonder who gave $4 billion to Lehman yesterday and sprked yesterdays rally – seems very suspicious to me …

Posted by: b | Apr 2 2008 10:33 utc | 9

@ P. T.
So if you cash their petite morte, then you’ve put on the Neo-Zi brown shirt.
I bet you’ve already spent it, haven’t you?
Yep, on a contribution toward a greenhouse that will convert worthless paper into salad greens to help feed my family and neighbors next winter.
Some of us here in VT think we can convert a short lived orgasm into something longer lasting and socially beneficial.
Maybe we can color those shirts green.

Posted by: Juannie | Apr 2 2008 14:18 utc | 10

b:
There have been so far $232 billion in writedowns out of an estimated (Goldman-Sachs) $1.2 trillion in losses that will eventually occure. At least 40% of those losses will occure in the U.S.
I already seen that link at calculated risk. This also means 60% of those losses will occur outside the US in affect a subsidy. This also ignores my point i.e. someone sells a half million dollar house, the bank pays off the seller and writes up a mortgage to the buyer to repay the funds, the buyer defaults, the bank loses money but the seller already has the cash in hand.
The banks are already making up for the losses by relatively high mortgage rates compared to the FED rate cuts and increasing fees. The mortgage and credit losses are nothing compared to the Collateralized debt obligations underwriting all the bad debt. With $56 trillion in funds all seeking high returns (even at 5% is $2.8 trillion per year plus fees) this is impossible to support considering the underlying assets. the Bank for International Settlements predicts it is going to all unwind:
The complex debt securities used to repackage the less attractive parts of asset-backed bonds are likely to disappear entirely as a result of the ongoing collapse of the credit market bubble, according to a report from the Bank for International Settlements.
http://www.ft.com/cms/s/0/ba555242-0022-11dd-825a-000077b07658.html?nclick_check=1
Like all pyramid schemes they are great untill they get too big to support. The irony is the new bankruptcy bill allows investors that played the mortgage market to declare bunkruptcy but not the homeowners. Given that factoid does anybody really think they didn’t see this coming?

Posted by: Sam | Apr 2 2008 17:27 utc | 11

If Sam’s assertion that the bulk of the losses from the greedheads of amerika’s latest scam, the sub prime debacle will be worn by foreign banks, is correct, then it will be amerika, well ordinary amerikans who eventually bear the greatest cost of this.
I’ll try to explain. Nobody likes losing money especially when they feel ripped and can see what they lost being enjoyed by those they feel ripped them off. When it happens in a local economy it can have a deleterious effect on investment for at least a generation. Here in NZ, capitalist enterprise has been totally dependant on foreign investment since the late 80’s when the 87 crash hit NZ investors (mainly small investors borrowing against their home) really hard. There were no controls or enforcement in place. By none I mean none not weak or perverse controls such as those of the emasculated SEC in amerika. In NZ none, nada zip. Previous stockmarket investment in the agrarian socialist state that once was, had been an old boys club. There had been no need for controls. A couple of the more blatant rips got prosecuted but some prosecutions failed and the neo-libs have ensured that enforcement and regulation has been weakened even further since then.
Consequently the locals invested in property instead and now that the same thing has happened ie the sharks managed to get many of those who had made a profit to buy into their scams which were either moneylenders making ‘bad’ loans or property ‘trusts’. Natch they have been cleaned out. The Government’s response has been to get rid of the serious fraud office (I guess a few pols have a few ill gotten gains to hide), so humans being what they are ie selective memory, after a generation or so, well 20 years, kiwis will have to get back into investing in industry because of the stench around property investing.
Sorry about the digression but I wanted to demonstrate obvious human behaviour that happens everywhere, and the NZ thing was simple whereas the amerikan scam is more complex, but the behaviours will boil down to the same thing. So what will happen if foreigners do take a major hit from the amerikan banks’ greed and incompetence? Well they will be pressured by those who are most effected, the small investors, into ensuring the disaster cannot be repeated.
Many of the foreign banks were exposed because they have to carry $US assets to finance international deals whose reserve currency is generally in $US. Now that amerika doesn’t manufacture much for export, a heap of its power, influence and profit comes from the simple fact that deals for everything from butter to oil, computers to mercenaries, carry contracts are done in $US even though most of the time, neither of the parties to the transaction and none of the gear being dealt has been anywhere near amerika.
Thing is ever since the $US became unstable around late 06 when it’s value began to go through the floor, peeps have been talking about the need for a more stable reserve currency. Where I live all the cow cockies are complaining that what should be a boom for them (China’s economic rise has created a huge demand in that country for dairy produce and consequent price rise) hasn’t, because the deals were done in $US and the value of the $US against our currency has dropped by approx 30% in a couple of years.
Now that the banks managing these millions of transactions around the world have taken a big hit, one which they will pass on to their customers simply because the corrupt amerikan financial system was working in bent CDU’s and other equally useless pieces of paper. Sure amerikan banks may end up on the ‘winners’ side of the ledger short term. Long term foreign financial institutions will be moving into alternative reserve currencies. The euro will certainly benefit as will the Chinese yuan which has already annoyed the shit out of amerikan financial whizz assholes by putting it’s own stability ahead of the $US stability. Incidentally China is about to announce that it has just negotiated it’s first free trade agreement with a ‘western’ nation, NZ, LOL. Yeah I know so tiny it’s not worth a piss in the ocean, but as a piece of tokenism it helps China. Still we may stop the agreement yet. With a very weird alliance of people some of whom I wouldn’t normally piss on much less talk with. Natch some of the opponents are with us because the deal is with China. Not because we shouldn’t be doing these deals with any nation so many orders of magnitude larger than us, or that bilateral trade agreements are anti-competitive, unjust and corrupt – but that is another story.
Anyway back to the main story. Long term the amerikan economy is going to pay big time and have a bucketload of regrets at its short term stupidity and avarice if too much of the losses are passed offshore. Yes these are large sums of money but really we are only talking about pixels on a screen or notes printed on expensive paper. In the furure banks are going to be swapping much larger virtual sums and amerika is likely to find itself outside the loop when the deals go down. Like the shampoo commercial once said, “It won’t happen overnight but it will happen”.

Posted by: Debs is dead | Apr 3 2008 22:08 utc | 12

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