Bernanke Reappointed, Court Order and FDIC

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Federal Reserve Chair Ben Bernanke is going to be reappointed for another 4 year term. Obama decided to reappoint Bernanke because he wanted to keep together the team that had weathered the Credit Crisis, an administration official said. This is of course like reappointing the team that did such a 'good job' handling Hurricane Katrina. Just as Bush praised those incompetents, 'change you can believe in' Obama praised Bernanke for preventing another depression. Bernanke was first appointed by Bush and didn't foresee the Credit Crisis coming, nor did he respond appropriately once it did. There is of course also no evidence that another depression has been prevented . So far, it is just some fantasy that politicians inside the Beltway keep repeating to each other.

In other Fed related news, a federal court in New York has ordered the Fed make available information from 11 of its Credit Crisis programs to the public. The court ruled that the Fed improperly withheld records under the Freedom of Information law. Bloomberg News sued (kudos to them) and is trying to find out how much money was given to which banks. In its defense of the case, the Fed (which I would like to remind you is only a quasi-governmental entity - the big banks own stock in it and have their representatives sit on the Fed's regional board of directors) essentially maintained that it was above the law. Undermining our democratic system - just another example of the 'good job' that Ben Bernanke has been doing.

The FDIC is also in the news again. For some reason, even though the Credit Crisis is supposedly over and the economy is recovering U.S. bank failures are skyrocketing. The agency needs new bidders for failed banks because existing banks are now avoiding purchasing them. The FDIC's deposit insurance funds are also getting depleted. The FDIC is proposing a rule change that will allow private equity firms to buy failed banks and maintain capital ratios of 10% instead of 15%. This will of course make the failed banks likely to fail again - and I bet the private equity firms will scream for a government bailout when this happens. Indy Mac and Bank United were already sold to private equity firms earlier this year. Based on this news, we can presume that the FDIC is not using the Bernanke approach of threatening to fire any bank president that doesn't agree to the government's proposed takeover demands, as happened with Bank America. Since these banks are NOT too big to fail, they are not being directly nationalized as was AIG or indirectly nationalized as was the case with most of the big U.S. commercial banks and brokers. Undermining our capitalist system - just another example of the 'good job' that Ben Bernanke has done.

The biggest danger in any crisis is leadership that is oblivious and is in denial. The crisis only gets worse under such circumstances. Bernanke has been a disaster as a federal reserve chair by any criteria that you wish to measure his tenure by. Obama is not only totally ignorant of basic economics and devoid of any ideas for handling our current situation, but is even oblivious to what the current situation is. His actions remind me of Herbert Hoover's famous June 1930 press conference stating the Depression was over. Hoover was more than a decade early.

NEXT: Consumer Confidence Game and Housing's False Bottom

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Tribune Bankruptcy Has it All

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Only minutes ago the Tribune filed for bankruptcy. The failure of the Tribune contains within it a multiplicity of elements from the credit crisis, the economy, and the failure of mass media to adequately inform the public of both. According to its filings, the owner of the Chicago Tribune and the Los Angeles Times has $13 billion in debt, but only $7.6 billion in assets. Under such circumstances, it is not surprising that it sought bankruptcy protection, but that it managed to avoid doing so for so long. This leads to the obvious question of just how many other U.S. companies have similar finances that are so precarious that it is inevitable that they will go under? Probably quite a few.

The Tribune was taken private under one of the many private equity deals that took place during the low interest rate fueled credit bubble. Just like subprime borrowers for homes, the company was loaded up with debt that could never be successfully paid back if future circumstances proved to be anything less than rosy. And less than rosy certainly describes the recent history of events impacting the Tribune. The current recession, denied until this month by the U.S. government, has caused a dramatic decline during the last year in all of the Tribune's advertising categories (the source of most income for mass media outlets in the U.S.). The credit crisis makes it impossible for the Tribune, as well as all other companies in similar circumstances, to get out from under the stranglehold of debt that it took on earlier in the decade.

Who are the financial geniuses that are the Tribune's creditors? The usual list of Wall Street's who's who of course. The Tribune's biggest unsecured creditors are its lenders, JPMorgan Chase and Merrill Lynch. Others include Deutsche Bank, New York-based investment management firm Angelo Gordon, hedge fund Highland Capital Management and Goldman Sachs Group. Barclays Capital., which bought key assets from bankrupt Lehman Brothers, is also among Tribune's creditors, with about $142.9 million in interest rate swaps (boy, it was a real bargain picking up those assets). Other outlets in the incestuous mass media business are also on the hook, including Warner Bros. Television, Twentieth Television, Buena Vista Entertainment, and NBC Universal Domestic Television. It can not be ruled out that the Tribune's failure will set off a chain reaction of bankruptcies in the industry.

In a broader sense, there is much more of an object lesson from the Tribune's financial difficulties than that dubious lending practices permeated Wall Street (not exactly a new idea at this point). The lack of responsible reporting on the events that led to the credit crisis, giving an outlet to the Wall Street Pollyanna chorus that denied that the problems were serious and which claimed over and over again that they would soon go away, and not looking into the U.S. government's cover up of the current recession with manipulated economic statistics are how the big news outlet have handled things of late. The tribune itself seems to have been victimized by the web of denial that the U.S. mass media fostered on the American public. Poetic justice perhaps?

NEXT: The Latest Washington Free Lunches

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Muriel Siebert Discusses the Credit Crisis

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

At the January 9, 2008 meeting of the New York Investing meetup, I had the pleasure of interviewing stock market legend Muriel Siebert. In 1967, Siebert became the first woman to have a seat on the New York Stock Exchange. In the mid-1970s, she was appointed Superintendent of Banking for New York State. No bank failed under her tenure. In her more than 50-year career on Wall Street, Muriel Siebert had personally witnessed almost the entire post World War II financial era. She had seen it all and had done it all.

Highlights of the this historical interview with Muriel Siebert have been condensed to three eight minute videos, which can be seen at:
http://www.youtube.com/watch?v=UHxRCNd0HSI
http://www.youtube.com/watch?v=bZLsD2DHvLw
http://www.youtube.com/watch?v=_tL2bOmkMwo

In the interview, Siebert indicated that things had changed considerably since the 1970s, the last period of high U.S. inflation. The U.S. had lost its dominant economic status and emerging economies around the globe were not as dependent on it as that had been previously. She also pointed out how their growth was creating a voracious demand for commodities and the wealth transfer from rising commodity prices enabled the takeover of major U.S. financial institutions by commodity producing countries like the Gulf states. She was not sanguine about the prospects for the U.S. dollar, pointing out that the U.S. needed to cut the deficit considerably to support it and the consequences of doing so would be severe.

Siebert said the she had seen nothing like the subprime crisis during her long career on Wall Street. She thought the abuses had been so extreme and damaging that some people involved in creating the problem should go to jail. Siebert asked, "Where were the regulators?; "Where were the rating agencies?"; and cited mortgage brokers as being key players in generating the large quantity of irresponsible loans. The subprime crisis wasn't the only thing she thought we had to worry about either. She mentioned the collapse of private equity and how this had helped juice the market up and that its loss would cause the stock market to fall.

Siebert pointed out the similarity between how Enron hid its financial activities and the banks had done so in the 2000s by pushing their subprime activities off-shore and off-balance sheet. She stated that under Sarbanes-Oxley that audits should be complete by March 31st and a clearer picture of just how extensive the damage was would begin to emerge. Her opinion was that no one really knew how big the problem was. Siebert mentioned the large amount of derivatives that now exist and the complete lack of regulation for them. She thought the we need global security regulation that should be instituted on a similar model as global banking regulations that are now in place. Siebert thought that there was too much leverage in the system and said this was what really scared her, although she concluded that she didn't see a 'total' collapse of the financial system.

NEXT: Central Bankers Gone Wild

Daryl Montgomery

Organizer, New York Investing meetup

For more about us, please go to: http://investing.meetup.com/21