... but I digress ...: April 2009

2009-04-29

Safe Haven | Falsifying Bank Balance Sheets

Safe Haven | Falsifying Bank Balance Sheets:

"The Geithner-plan is a hare-brained plan, and is bound to fail.

When it does, . there will be a run on the banks. It will be ugly and unstoppable. Only about ten percent of the money supply is in the form of Federal Reserve (FR) notes, and people will be scrambling for them. The printing presses will be run 24 hours a day, seven days a week, and they will still not be able to meet the demand. Apparently, foreigners are already scrambling for FR notes. They could of course have FR deposits in the form of electronic money, but they wouldn't touch them with a ten-foot pole. They want dollars they can fold."

This article pretty much sums up why I am a scared person. It's probably a little too complicated for your average Joe to understand (let alone Joe Sixpack) but if you put some effort into understanding the article then you can be scared too!

And what really sucks is that such a bank run might not happen! If I knew for sure when and how the above scenario would unfold I could make a killing! But, dang it, I don't.

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© 2005-2009 Stephen Clarke-Willson, Ph.D. - All Rights Reserved.

2009-04-27

Calculated Risk: Bank Failure: FDIC Payout Transactions

Calculated Risk: Bank Failure: FDIC Payout Transactions

The FDIC always tries to unload a failed bank onto another bank and it almost always succeeds. Until now.

There have been two large payout bank seizures this month (as opposed to finding a buyer). The first was New Frontier Bank in Greeley, Colorado on April 10th, and the second was First Bank of Beverly Hills, California last Friday.

...

Greeley's largest bank was so larded with troubled assets that, for the first time in three decades, federal officials couldn't find another bank willing to do the liquidation. On April 10, they appointed themselves bank executives to hasten its demise.

I wrote about this in an earlier post about what happens when a bank fails. If a failed bank isn't bought by another bank, then the FDIC simply pays out the insurance. But that can take a couple of weeks. In the meantime, all of your automated payments and deposits are broken and any checks outstanding will be returned.

My advice to everyone is to withdraw as much as you can every day from your ATM machine until you have at least $1,000.00 in actual cash; if you're rich, you should have even more cash on hand; you'll want to do it the old fashioned way and make a huge withdrawal, although you'll find it is surprisingly hard to do; you have to declare your withdrawal to the IRS and then you have to figure out how you're going to walk out of the bank with $5,000, $10,000, $15,000 or more in your pocket or satchel, and then think about where you are going to store it.

No, I'm not starting a bank run or a panic, or even trying to. I'm just saying it would be prudent to have some cash on hand in case your bank goes into receivership and the FDIC does not find a buyer. If every single family in American withdrew $1,000.00 that would only be $100 billion dollars, which quite frankly would help insure against a bank run, because each family would know they had some ready cash.

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The Federal Reserve - Silence is not Golden

The Federal Reserve Is Suffering in Silence -- Seeking Alpha:

"What happens on the Federal Reserve balance sheet apparently is ok, because it exists in some parallel universe or is 'hard to understand'.

Well, I guess we don't even have to wait that long (I figured 2-3 years) - already the losses have begun from the Federal Reserve's first purchases. Remember that Bear Stearns bailout just over a year ago? We've just suffered the first $6.6 billion in losses. By we, I mean all of us. This is real money. I would just like to remind you that the same Fed Chief who missed the entire mortgage mess, the same Fed Chief who claimed we'd grow in 2nd half of 2008, the same Fed Chief who says he sees green shoots, was the same Fed Chief who told us the taxpayer would not take a loss on the Bear Stearns portfolio and in fact we could potentially make gains."

My wife says that what this country needs is financial literacy! And she adds to that ... it wouldn't hurt if financial reporters actually studied economics and history ...

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© 2005-2009 Stephen Clarke-Willson, Ph.D. - All Rights Reserved.

2009-04-26

Calculated Risk: Bank Balance Sheet: Liquidity and Solvency, Part I

The link is to an awesomely simple explanation of why the banks are insolvent. In part two, CR makes an interesting distinction:

The banks are facing huge additional losses for these legacy assets, and these losses will make some banks "balance sheet" insolvent (liabilities will be great than assets). However, the bank is not insolvent in the business sense, because the bank can still pay their debts as they come due - at least for now.

Which explains why someone like me (and lots of other people) keep saying the banks are insolvent but they continue to operate.

This is why the stress tests are so important in helping identify zombie banks - and why financial institutions relying on government support should be required to make the entire test results public.

The "stress tests" can be computed by anyone with the time and energy to dig through balance sheets. The link shows Bank of America with 2.3% capital (the blue box in the graphic at the top of my post). Citibank is at 1.4%.

If you read about fractional reserve banking, you'll find that 10% is supposed to be the number that must be kept on reserve ... not a small fraction of that.

A recent Reuters report suggests TCE will be a critical metric for the bank stress tests: “U.S. regulators want the top 19 banks being stress-tested to have at least 3% tangible common equity.” In other words, regulators want banks to have a leverage ratio below 33x. (3¢ of TCE for each $1 of tangible assets = 33x leverage)

33x leverage! That's considered "good!" Good lord.

Sadly, some banks may not make even that miniscule goal; but instead of failing, we're going to be told those banks have six months to raise capital.

The more likely scenario is a Bear Stearns style attack on those banks.

For an alternative, slightly insane view, here's a site that promises good news about the economy.

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© 2005-2009 Stephen Clarke-Willson, Ph.D. - All Rights Reserved.

2009-04-24

Guild Wars Sales Hit Six Million!

[2009 04 24 Updated with more links and news.]

IGN: Guild Wars 4th Anniversary Interview:

IGNPC: It seems a bit surreal that we're talking about the fourth anniversary of Guild Wars already. It must be longer for you, though, as the game was in development for a while before its launch, and a concept before then. Just how old is the franchise, technically?

Mike O'Brien: We started developing Guild Wars shortly after founding the company in 2000, so we've actually been working on it for about nine years now. We invited the first external alpha testers to start playing the game with us in April 2002, so they've been playing the game for seven years.

Another fun statistic is that we did the first full build of the game in October 2001, which was 2,750 days ago, and since then we've done 27,500 builds.

Official Press Release: 6 million units!

And Guild Wars is on Steam now! You should check it out if you're not already playing.

Guild Wars is #3 on Steam!

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© 2005-2009 Stephen Clarke-Willson, Ph.D. - All Rights Reserved.

Nano-Plasm - A Novel - Google Book Search

Nano-Plasm - A Novel - Google Book Search

Google indexed my book! You can search inside. I think it automatically generated a list of keywords:

PMTC, Bill Stewart, nano-machines, Anegada, Steganography, Spirograph, Pfizer, Greenpeace, Swade, Social Ecology, caffeine, helicopter, Disneyland, reinsurance, Nepal, Space Mountain, positive feedback, laptop, Wi-Fi, Insurance Lady

My favorite is "Insurance Lady." But it's also got "Disneyland" and "Space Mountain." It kind of makes you wonder WTF this book is about.

It's got a list of places you can buy it:

Buy this book

Stephen Clarke-Willson

Amazon.com - $9.98

Google Product Search

That's ... amazing!

(You can find out about the book at http://NanoPlasmBook.com.)
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FlipHD

This is a movie from a Flip HD ($200.00 at Costco and it comes with a flexible mini tripod).

It's an amazing gadget!

And you can just plug it right into a PS3 and playback your high-def captures. In fact, most PCs can't really play back the FlipHD video very well, so playing back on a PS3 is a good idea.

Likewise, it was trivial to upload the video to YouTube, although the quality is reduced considerably on the way up.

What an amazing device. The only downside is that it's hard to hold really still.

Other than that ... amazing.

[By popular demand: the original mp4 video (10 megabytes).]

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Bernanke, Paulson, Lewis - fraudulent or just stupid?

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Corporate Subprime Loans - Oh my

High and Low Finance - Subprime Loans, Corporate-Style, Will Fuel Defaults - NYTimes.com:

The loans went to borrowers who might never before have been allowed to borrow. When they found repayment difficult, they were permitted to refinance their loans, generating fees for the lenders and postponing the ultimate reckoning. Then the credit markets turned and both the borrowers and lenders were in deep trouble.

So it went with the subprime mortgage crisis. And so it is now going with corporate loans and bonds. It appears that defaults on leveraged loans and corporate bonds will soon rise to levels not seen since the Great Depression.

It has come to my attention that some people don't think we are in a crisis - certainly not one worth panicking over.

I think some panic is appropriate at this juncture.

If that does happen, a wave of corporate bankruptcies will deal another blow to the American economy, and present the Obama administration with more painful decisions about possible bailouts — bailouts that could be made directly or indirectly by persuading bailed-out banks to make loans that might not seem wise to the bankers.

More bad loans! Brilliant!
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2009-04-14

Bank Runs: Past, Future and Right Now - Economix Blog - NYTimes.com

Bank Runs: Past, Future and Right Now - Economix Blog - NYTimes.com:

This is not to say that retail runs cannot occur. But with a strong F.D.I.C. at hand, it’s hard for them to have the destructive, self-fulfilling dynamic seen at the onset of the Great Depression, in which loss of confidence means withdrawals, which triggers further loss of confidence, and banks move quickly toward being out of business when they don’t have in hand enough cash or assets that can quickly be turned into cash.

Sadly, it turns out we haven’t outgrown runs. Rather, we have learned since mid-2007 that other kinds of runs — let’s call them wholesale or professional investor runs — are not only possible but also increasingly likely in the United States.

This is more or less what happened to Bear Stearns. See the Vanity Fair article about it. It was all over in one week.

If - and it's a big if - we have a banking collapse, it will happen quickly, at the speed of electronic trading. I don't think your average American is going to haul off to the bank and cause a run. But a clever short selling person can cause an electronic run. It could be a big problem. Because, if, say, someone pulls this off against Bank of America, and the FDIC sends you a check to cover your loss, ... where would you cash it?
______________________________________
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© 2005-2009 Stephen Clarke-Willson, Ph.D. - All Rights Reserved.

2009-04-13

Goldman Sachs Rakes In Profit in Credit Crisis - NYTimes.com

Goldman Sachs Rakes In Profit in Credit Crisis - NYTimes.com:

Goldman’s good fortune cannot be explained by luck alone. Late last year, as the markets roared along, David A. Viniar, Goldman’s chief financial officer, called a “mortgage risk” meeting in his meticulous 30th-floor office in Lower Manhattan.

I suspect billions of dollars in government bailout funds were more important than luck or skill or anything else.

And I don't think it hurt that their former CEO, Henry Paulson, was in charge of doling out the bailout cash.

People are excited that Wells Fargo is reporting higher than expected profits.

Unfortunately, Wells Fargo can be insolvent and still report profits. It's a rather lame situation but it is true. In fact, most of the big investment banks were insolvent when they were paying out huge bonuses to the top dogs. They had very risky loans but they pretended (either by lying to themselves or by buying insurance from AIG) that the loans were not risky and booked big profits based on it.

I wouldn't get too excited if the banks are "suddenly" making money. The next round of loan defaults - either prime loans or credit card backed securities - will kick them in the teeth again.
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© 2005-2009 Stephen Clarke-Willson, Ph.D. - All Rights Reserved.

Sidebar - A Reticent Justice Opens Up to a Group of Students - NYTimes.com

Clarence Thomas says:

“I have to admit,” he said, “that I’m one of those people that still thinks the dishwasher is a miracle. What a device! And I have to admit that because I think that way, I like to load it. I like to look in and see how that dishes were magically cleaned.”

I agree!

And I think I agree with his statement that we have too many rights ... that's actually impossible, but I think he really meant there are too many entitlements from government.

It's sad because when someone says, "Clarence Thomas," all I can think of is ...

One of the oddest episodes I remember was an occasion in which Thomas
was drinking a Coke in his office, he got up from the table at which we
were wording [sic], went over to his desk to get the Coke, looked at the can and
asked, "Who has put pubic hair on my Coke?"

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2009-04-10

Bailout money paying off fradulent contracts

How Much Risk Is the Treasury Really Assuming from Financial Institutions? (Part 2) -- Seeking Alpha:

"The key point is that neither the public, the Fed nor the Treasury seem to understand is that the CDS contracts written by AIG with these various non-insurers around the world were shams - with no correlation between 'fees' paid and the risk assumed. These were not valid contracts as Fed Chairman Ben Bernanke, Treasury Secretary Geithner and Economic policy guru Larry Summers claim, but rather acts of criminal fraud meant to manipulate the capital positions and earnings of financial companies around the world.

Indeed, our sources as well as press reports suggest that the CDS contracts written by AIG may have included side letters, often in the form of emails rather than formal letters, that essentially violated the ISDA agreements and show that the true, economic reality of these contracts was fraud plain and simple. Unfortunately, by not moving to seize AIG immediately last year when the scandal broke, the Fed and Treasury may have given the AIG managers time to destroy much of the evidence of criminal wrongdoing.

Only when we understand how AIG came to be involved in CDS and the fact that this seemingly illegal activity was simply an extension of the reinsurance/side letter shell game scam that AIG, Gen Re and others conducted for many years before will we understand what needs to be done with AIG, namely liquidation. Seen in this context, the payments made to AIG by the Fed and Treasury, which were then passed-through to dealers such as Goldman Sachs (NYSE:GS), can only be viewed as an illegal taking that must be reversed once the US Trustee for the Federal Bankruptcy Court for the Southern District of New York is in control of AIG's operations."

There is an assumption that many of the counter parties to these agreements knew they were a sham; and were using these agreements to move equity and/or losses and/or capital around in order to increase the level of risk the counter parties could take. Both sides knew of the fraud and participated willingly; so there is no need for any kind of bailout.

I doubt we have enough country club jails to hold all of the people that belong in them.

Finally, in addition to the direct impact of a potential unwinding of the AIG CDS contracts, there remains the larger issue raised by Chris Whalen: i.e. the potential unenforceability of many CDS contracts as a result of secret side letters. The OCC’s rationale for minimizing the potential credit exposure of derivative transactions to the financial institutions depends in great part on their ability to set off obligations to particular counterparties against balancing transactions. In the event contracts are held unenforceable as a result of side letters or other defects in their execution, the setoff rationale would no longer hold true and the overall exposure could be far greater than currently assumed. Presumably the Special Inspector General will be exploring these issues during his investigation. Should this activity prove to be pervasive and should these letters and emails extend beyond AIG to its counterparties, we could find the $16 Trillion notional amount of CDS contracts issued by the major financial institutions becoming a major Achilles Heel for the Treasury/Fed/FDIC’s efforts to save the wholesale banks.

2009-04-07

Big Numbers

Spread Between Fed Funds Rate and Mortgages: History Doesn't Support Greenspan -- Seeking Alpha:

"The total bad loans could be at the range of $7 - $11 trillion, or 3.5 - 5.5% of all loans, as estimated by Mr. Mayo, worse than the 3.4% ratio during the great depression. We have written off only about 2% so far, about 3rd or 4th inning of a 9 inning game. There is still a very long and dark night to go."

'Bailout psychology' ... and massive fraud ...

'Bailout psychology' destroying the economy:

"Obama and his economic gurus all chant, 'Credit is the lifeblood of the economy,' but they don't mean credit. They mean debt. Imagine the president saying, 'Debt is the lifeblood of our economy. We desperately need to get more American families deeper in debt.' That's what he means, and that's what these bailouts hope to do."

The entire article is an awesome rant about the bailouts.

And here's something really scary: Bill Moyer's Journal on how the whole thing is a fraud. You can listen to it and get all the content. There isn't much to see.

Basically William K. Black accuses Paulson and Geitner of covering up the most massive fraud of all time. He says Madoff was a light weight compared to these guys.

Is William K. Black a nutjob? "... William K. Black [is] the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s." Sounds like he has some street cred to me.

______________________________________
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© 2005-2009 Stephen Clarke-Willson, Ph.D. - All Rights Reserved.

2009-04-06

$700 Billion Bailout Celebrated With Lavish $800 Billion Executive Party | The Onion - America's Finest News Source

$700 Billion Bailout Celebrated With Lavish $800 Billion Executive Party | The Onion - America's Finest News Source

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Redmond City Hall (and thereabouts)

2009-04-05

NPR: Banks Get The Best Of It

NPR: Banks Get The Best Of It:

'As it stands, the new accounting rules only work when the market is inactive, like we are witnessing at the moment,' says Joshua Ronen, an accounting professor at New York University. 'When a market is irrationally exuberant the market is seen as active, so this would not apply.'

This means that banks can reap the benefits of high prices in a hot market, and limit their losses when the market dries up. Ronen calls this double standard the 'idiocy of this guidance.'

2009-04-02

Guild Wars 2 Gameplay Trailer

I'm not sure how this got released into the wild, but there you go...

2009-04-01

NPR: Look, Ma! The Peabody!

NPR: Look, Ma! The Peabody!:

"Alex Blumberg and Adam Davidson won the Peabody Award today for their special on This American Life, 'The Giant Pool of Money.'"

The "Giant Pool of Money" is indeed a great podcast.

I think there is an error in it. Alex and Adam gloss over where the giant pool of money came from suggesting that the main source was hard working Asian people. In fact, the giant pool of money came from easy credit from the Federal Reserve.
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60 days

King County Department of Assessments:

"The King County Department of Assessments January 1, 2008 valuation change notices were mailed to all property owners during 2008. The opportunity to appeal the value is limited by state law to 60 days from the mailing date of the notice."

Like I don't have better things to do than evaluate this evaluation as soon as it arrives. Also, this notice about the appeal rules is not on the form - it's on a website link on the paper form that looks extremely optional.

Communists.

But on a happy note, back in California we successfully petitioned to get our house valuation lowered.

So it can be done. Just not within a reasonable time frame in King County.

______________________________________
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