This morning I woke up to the media once again "spouting" about how the government had "made money" on the bank bailouts. MSNBC was spouting the mainstream lie, with the following from the NY Times:
Nearly a year after the federal rescue of the nations biggest banks, taxpayers have begun seeing profits from the hundreds of billions of dollars in aid that many critics thought might never be seen again.
The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.
The problem is that this "accounting" is terribly misleading. It ignores the more than $100 billion passed through AIG to Goldman Sachs and others, for example - money that is almost certain to never be recovered.
The government still faces potentially huge long-term losses from its bailouts of the insurance giant American International Group, the mortgage finance companies Fannie Mae and Freddie Mac, and the automakers General Motors and Chrysler. The Treasury Department could also take a hit from its guarantees on billions of dollars of toxic mortgages.
No really? Fannie and Freddie are a potential five trillion dollar bomb that the government has refused to take on its balance sheet for fear it may detonate on the US credit rating (yes, the rating of the NATION, not of a company.) This fear is not unfounded; with some 13% of all mortgages currently "non-performing" (either in default or foreclosure), a record, and a "cure rate" down from the 40% range to 6% for prime mortgages, there is every reason to believe that many of these losses will become realized.
The taxpayers want their money back and they want the government out of our banking system, Representative Jeb Hensarling, a Texas Republican and a member of the Congressional Oversight Panel examining the relief program, said in an interview.
The taxpayers aren't going to get their money back, and the government has done exactly nothing to force the disclosure of losses that are currently being hidden by accounting games and even outright fraud. Indeed, if anything, the government has encouraged and made possible even more games.
What's worse is that the largest banks now are operating in direct violation of laws intended to prevent "contagion" and systemic risk! Specifically, there are now multiple violators of the 10% deposit concentration rule, yet no demand for a break-up of that concentration of risk has been made. Instead the FDIC has conspired with these huge banks to get even bigger and has ignored the proscriptions in the law preventing this sort of concentration of risk! Yet Sheila Bair still has her job. Why?
This sort of misleading "reporting" is an outrage. It is one thing to be hopeful, but it is entirely different to publish things that you either know or should have known are absolutely false in an attempt to burnish the patina of a fraud-laced pair of Administrations in Washington DC along with the agencies that are their handmaidens.
America deserves better.
More importantly, we deserve the truth. The truth about asset quality, the truth about embedded losses, the truth about The Fed's and Treasury's actions. Every loan, every penny spent, where it went, what it covered and why. Those who wrote CDS without the ability to pay deserve to be treated as the fraudsters that they were and are, and those who aided and abetted backdoor bailouts deserve ejection from public life and, if there is a law we can find that applies, an indictment.
Every federal agency and individual who has conspired with and designed programs to circumvent regulations must be expelled from the government, and those firms who are in violation must be broken up, without exception. All of the exceptions to regulations, including the myriad "23A" letters from The Fed must be unwound.
We have not, as is commonly said, avoided systemic risk - we have in fact added more systemic risk, and shortened the fuse on the nuclear financial devices, placing them ever-closer together and dramatically increasing the risk of a chain-reaction meltdown.
Amazingly enough the media continues to talk about how "we're recovering" while at the same time ignoring the fact that we have not only done nothing to address these systemic risks in our financial system we have actually made them worse and set the hair trigger ever-tighter, raising the risk of a second-level meltdown far worse than anything we have seen thus far in this crisis.
We must interrupt the building chain reaction before we get a "China Syndrome" style outcome - a potential disaster that could literally be triggered at any time by any sort of external shock (caused by, say, a meltdown in the Chinese stock market. Uh, anyone look at Shanghai last night?)
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.
NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.
The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.
Looking for "The Best of Market Ticker"? Check out Ticker Classics.
Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.
The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.
Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.