The Market Ticker

Here we go!

Colonial, Alabama’s second-largest bank, is being closed by regulators today, the person said, becoming the largest U.S. bank failure of 2009 after an expansion into Florida saddled the lender with more than $1.7 billion in soured real-estate loans.

The FDIC usually waits until the close of business Friday; they must have had a slight problem with withdrawals......

Left unsaid is what's going to happen to the FDIC's deposit insurance fund on this one - my guess is that it will be ugly, as these guys were up to their necks in Florida on development projects that went bad.  The "value" of that paper may be very close to zero; if the FDIC avoids doing one of their 40% loss deals I will be quite surprised.

A 40% loss on this one would, if my math is right, kill the rest of their insurance fund plus quite a bit and put the FDIC in the position of immediately needing to go hit up Treasury for more money. 

That ought to be good for confidence, right?

Oh, there are two more on the "you're dead" list that I've been talking about for a while: CORUS and Guaranty, both of which have said they (as of last filing) have a negative Tier Capital Ratio, meaning that they are formally underwater and IMHO should have been seized months ago.

But don't worry, Treasury has an infinite credit card to keep funding the FDIC with, right? 

"Heh Mr. Chinaman, can you spare an extra trillion - or three?"

63.2 .vs 69 estimated, oops!

Where are those green shoots folks? 

You can pump stocks all you want, but in the end it is consumer behavior and belief that matters.

Here's a fact Dennis, Larry and the rest of ToutTV - The consumer got smart to this bullcrap last time, in 2001, when they got their head cut off listening to you.

The "medicine" of trying to goad consumers into going out and spending money they don't have no longer works.  Hell, American Express sent me a letter (on a card I haven't used for a year!) telling me that they were jacking my interest rate "because we evaluate business conditions."

Uh huh.  They get money for zero from The Fed (they're a bank holding company) and want to lend it to me at 17% when I have an upper-700s FICO, a six-digit income and ZERO DEBT - literally?

Here's my answer: BITE ME!

Guess what: My "consumer sentiment" sucks.  It sucks because the liars and thieves have stolen hundreds of billions of dollars from Americans to bail out their sorry butts while millions of my fellow Americans, including some very good friends of mine, have lost their jobs and are trying to avoid being ejected from their homes and starving.  Instead of bad lending being punished and shysters going to jail, it has been rewarded. 

In the meantime the "Average Joe" in America is getting destroyed as his income is either reduced or eliminated entirely, yet we're told to "go out and shop."

With what do you recommend America "go out and shop"? 

Joe Sixpack's good looks?

Yeah, I'm doing ok, but I'm in the minority.  I'm one of the few who saw this mess coming in time to get my assets the hell out of the market, and avoided the destruction of 2008 and early 2009.  And before you say "but the market is up 50%!" I remind you of the math:

SPX 1576 --> 666 = 57% loss.

666 --> 1000 = 50% gain, but you're still down more than 30%!

This is the nasty truth that nobody talks about on TV - if you lose half you need a double to get it back, and unfortunately all the "touters" were claiming in October of 2007 that the economy was booming and would continue to because, well, the market was. BUY BUY BUY!  Remember, an $80 stock usually goes to $120?  Downey Savings and Loan?  Countrywide will be bought out?

(The latter was true - unfortunately it was for $2, not $60!)

This is not limited to "Tout TV" either: It includes such noted luminaries as Hank Paulson and Ben Bernanke, along with their cadre of "economists", virtually none of which predicted the train wreck that I and a few others saw coming.

Without the consumer turning there is no recovery.  But the consumer cannot and will not turn until the looting stops and The Bezzle is removed from the system so its drag disappears, and organic growth can resume unencumbered by having to cover the bad bets of the scammers and frauds!

"Extend and Pretend", "lie about asset values", "bailout nation" and all such similar games are not going to work.

Job loss continues - it is not over, and it will not be over, until we stop being stupid.  Until we stop coddling failure and trying to tax everyone to pay for the fraud and abuse of a handful of silver-spoon crybabies on Fraud Street located in Manhatten NY and their cadre of embezzlers on K-Street in Washington DC.  Until our government starts doing its job and locking up the phonies who destroyed our housing industry and then stole over $1 trillion from taxpayers to "prevent a banking collapse" - a collapse that, by the way, hasn't been prevented, but has merely been postponed.  Until all of the bad banks are closed, which includes most of the big ones, with "bad bank" being any institution that is lying about asset values.

Folks, we have a major problem on our hands and we have solved exactly nothing.  There is no "pent up" consumer demand and won't be until the consumer is freed from being taxed to death to support the blatant theft of the last 20 years.  Borrowing by the government is taxation by another name; someone, somewhere, somehow is going to have to pay through his or her tax bill for all those borrowed trillions, and the consumer knows it.

STOP THE LOOTING AND START PROSECUTING.

One has to wonder....

Murin, who joined Ginnie Mae on July 1, 2008, plans to pursue private business opportunities, according to the people, who asked not to be named because an announcement has yet to be made. His resignation would be the third departure this year of the top executive for the main companies responsible for the majority of U.S. mortgage financing.

Yeah, ok.  This has nothing to do with an impending explosion over there, right?

Herein lies the problem. The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial.

Riiiight.

The FHA/Ginnie program has turned into a toxic waste dump, with the shysters from the Subprime world having moved over there.  I know, I know, I get emails from the folks claiming otherwise all the time.

Uh huh.  Let's list it.

Seller-funded down-payment assistance (which I characterize as fraud, since in reality its a discount on the asking price of the house, but heh, who cares about yet another scam?)

Back-end ratios approaching 50% in some cases, with over 40% approved in most cases.  Remember, that's on gross income - now deduct taxes from the paycheck, a car payment, the utility bills and something for food, then tell me if the number you wind up with is positive or negative.  Negative is bad, by the way.

Appraisals?  What are those?  There are now companies advertising that they can refi you into these programs with no appraisal in "some cases."  How's that going to work out?

Here's my guess: The timer reads "XX:05" over there, with the "XX" blacked out in the window, and its anyone's guess whether the two "X"s are in fact zeros.

PS: If the FHA/Ginnie system blows on losses you can kiss goodbye and hope of anything approaching a recovery anywhere.  You can bet they'll try to hide this one for as long as possible.

Hoh hoh hoh!  We're finally seeing some recognition of what I've been talking about for the last two years!

Aug. 14 (Bloomberg) -- More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

And Bloomberg appears to have recognized the key problem with these banks (all of which should have been shut over a year ago):

Excluding the stress-test list, banks with nonperformers above 5 percent had combined deposits of $193 billion, according to Bloomberg data. That’s almost 15 times the size of the FDIC’s deposit insurance fund at the end of the first quarter.

Yeah, that's a problem.

But the real problem is regulatory malfeasance.  See, the purpose of the Tier Capital Ratio is to permit the government (FDIC) to come in via the OTS or OCC before the regulatory capital cushion is entirely depleted, and if the law is actually followed and people actually do their jobs, there is no loss to the depository insurance fund.

That is, so long as a bank's assets can be sold (in total) for more than its liabilities (deposits) there is no loss.  The bank may go bust from a standpoint of being a "going concern" but there is no hit to the taxpayer, no hit to the depository fund and no problem (other than for the shareholders of the bank involved.)

But when you allow banks to lie for two years for the explicit purpose of "trying to earn their way through the cycle" you hitch your argument to the view that the real issue is one of consumer confidence, not excessive debt and loose lending.

Only a fool would have argued that given what we know of the lending environment from 2003-2007, yet that is exactly the argument that Bernanke, Paulson, Geithner, Bair and others have made through this entire mess!

President Obama should have closed all banks for a week when he first came into office, sent in the examiners, and allowed those with non-performing loan bases of 2% or less to re-open.  He should have set forth a 2% non-accrual standard and stuck by it - hit that, you're closed.  Period. 

But that would have run dimensionally contrary to the viewpoint that we must "enhance lending" to get out of this recession - a foolhardy perspective when the reason you're in recession in the first place is that too many people made too many loans to too many people who had no money to pay them back!

Now we're stuck - we appear to have "avoided" a Depression, but we have in fact done no such thing.  We have instead played "extend and pretend" writ large on the taxpayer's back, and yet the default rate continues to explode higher because we have refused to force these institutions to disgorge their bad assets.

In reality the root of this problem lies with lax (or absent) regulation over the last ten years in the banking sector, where "fog a mirror" loans were available for virtually any purpose.

As a consequence of our government's refusal to face this problem head-on in 2007 and 2008 (despite many calling for it, myself included) we are nowhere near the end of this crisis, despite rallies in the stock market.  Indeed, I remain convinced that recognition of reality will come fast and hard in the next year or so as these "not too big to fail" firms blow up one by one, forcing regulators to come in and close them, and finally, asset valuations are forced down to a realm that comports with reality.

This is literally a roller - as in

“Whenever we have plunged off a cliff and fallen into a deep hole in the past, for a while the economy has a tendency to bounce back very quickly,” said Glassman, a senior economist at JPMorgan in New York. Glassman and his colleagues this month said forecasts of 3 percent to 4 percent growth in coming quarters may be too low given “pent-up” consumer demand.

I find this tremendously amusing given the following graph:

Right.  The consumer is madly paying down credit cards trying to avoid default, they can no longer use their home as an ATM machine, and yet there is "pent-up consumer demand."

Yes, consumers are pigs.  But Abercrombie and Fitch posted a second quarter loss with quarterly sales down 30% (there's that number again!) on a same-store basis.  I can confirm this anecdotally; there's an ANF store near us and you couldn't "go postal" in the store - there's never anyone there!

There is of course a huge difference between profits and stock prices, at least these days - their stock premarket is up huge.  No small part of this is due to the incessant pumping of bankers and "economists" like these clowns.  Nobody bothers to mention that these folks work for firms that will profit tremendously from the debt and equity offerings of firms that manage to crank up their stock prices to lofty-enough levels, nor is it ever mentioned that insider sales of stock are at levels last seen just before the market started to fall apart in October of 2007.

The people who run these places probably know more than the so-called "economists", yes?  Certainly the vote expressed by their wallet is "something evil this way comes", not "happy days are here again."

Good luck folks....