The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Here’s an odd turn of events. In the midst of two simultaneous collapses–the finanicial system and the mediascape–Newsweek’s lead financial writer, Daniel Gross has found a way to turn both into a benefit.

It’s no secret that last September’s market swoon started a mad rush in publishing to “tell the story.” Even before the late Summer seize up, books had been commissioned that might explain the unprecedented failure of leadership, markets and regulation.

To date, only William Cohan’s book about Bear Stearns has been published. Charlie Gasparino, Andrew Ross Sorkin, Joe Nocera and Roger Lowenstein–accomplished writers and reporters all–are hard at work trying to wrestle the hydra-headed story onto the page. Will they succeed? And when their books are written will they get the publicity that is so essential to starting the sales cycle?

Dan Gross isn’t waiting to find out. He’s already published Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation as an e-book. Now his publisher, The Free Press, has released the 106-page book as a $9.99 paperback. The Washington Post recently covered the innovative publishing strategy:

E-book exclusives — as opposed to e-books published as spinoffs of a printed version — remain rare, because the market is still too small to sustain them. But Gross’s book offers a revealing window on how such exclusives could reshape “p-book” publishing. The decision to bring “Dumb Money” out in paperback, for example, was made only after the e-book’s appeal had been established.

Gross told the Post:

“If I could do something quickly, get out before all the people who are doing doorstoppers,” he thought, “then I will have had my say, got a book out, everyone will have to account for me or ignore me — and I’ll move on.”

Which the Post saw as a smart move:

Besides, he was writing only 30,000 words. He had most of his material in his notebook already, so he could keep his day job. Most important, he could avoid the traditional, tortoiselike book publication schedule — and with it, months of anxiety about “Dumb Money” being overtaken by events.

According to Gross’s publisher, the e-book sold in the thousands, enough to feel they had seeded the market for a paperback edition that is priced lower than the e-book (smart!)

If you’re wondering what Gross has to add to our understanding of the collapse, you can read his Newsweek story:

On Wall Street—and in the culture at large—those who embraced the mentality of the bubble with the most fervor were richly rewarded. In the 1990s, the investment bankers who brought in hot technology IPOs were the new Big Swinging Dicks. In the Dumb Money decade, the more you borrowed to make bets on stocks and bonds, the more capital—social and financial—you acquired. Like real-estate brokers who realized they could make more money flipping condos than collecting commissions, large investment banks decided they would rather be principals than mere agents. Executives who preached caution were ritually shunned. [ . . . ]

Leverage was like an elaborate pulley system that allowed us all—from the humblest consumer to the most exalted private-equity baron—to hoist a mammoth weight. Then, in 2008, the rigging broke. The large weight plummeted, propelled by the twin forces of mass and gravity.

Or you could just go and buy the book.

Sources:

‘Dumb Money’ is Smart Gamble on the Allure of E-Books
by BOB THOMPSON
Washington Post; April 14, 2009

http://www.washingtonpost.com/wp-dyn/content/article/2009/04/13/AR2009041302805.html

Reigning in Bubbles So They Won’t Pop
by DANIEL GROSS
Newsweek; February 28, 2009

http://www.newsweek.com/id/186949

I received a couple of interesting items c/o my friends at Competitive Enterprise Institute you may not have seen. First is an item from Tim Carney in the Washington Examiner:

“Edward Liddy, CEO of government-run AIG, still owns more than $3 million of stock in Goldman Sachs, which has pocketed $13 billion or more of the $170 billion federal officials have spent bailing out the ailing Wall Street insurance giant.”

Find this article at:

http://www.washingtonexaminer.com/opinion/columns/TimothyCarney/AIG-heads-3M-in-Goldman-stock-raises-apparent-conflict-of-interest-42779802.html

Second is an item by John Berlau on the same issue:

AIG CEO Liddy owns millions in stock in bailout beneficiary Goldman — Tim Carney blockbuster in DC Examiner
by John Berlau (www.cei.org)

April 10, 2009

Everyone should read the blockbuster exclusive in today’s Washington Examiner in which Timothy P. Carney confirms that American International Group CEO Edward Liddy — appointed to his position at the behest of Hank Paulson and Tim Geithner after the government takeover of AIG in September — still owns more than $3 million in stock in Goldman Sachs, one of the biggest beneficiaries of the AIG bailout.

I am privileged to be quoted in this article that both breaks news and puts it into an informative policy context. The dogged investigative reporting conducted for this piece by Carney, a former Warren T. Brookes Journalism Fellow at CEI, should be enough to garner him several awards, and in my opinion this piece and likely follow-ups may be Pulitzer Prize-worthy material.

A couple weeks ago, after the brouhaha about the “retention” bonuses paid to the AIG Financial Products employees, Liddy’s calm demeanor before Congress and the media helped diffuse the situation. He emphasized that he was making a nominal $1-a-year salary and argued he was doing the CEO stint merely as a public service. Liddy wrote in a recent Washington Post op-ed that “my annual salary is $1. My only stake is my reputation.”

But Carney found that Liddy was not telling the whole story about his real stake in the AIG bailout. Namely that Liddy, as Carney notes, has “an acute financial stake in one of AIG’s counterparties—namely, his $3.2 million personal investment in Goldman Sachs.” And under Liddy’s direction, AIG disbursed nearly $13 billion from the taxpayer bailout money to Goldman, in a move many say is more disturbing than the employee bonuses that were the source of the recent controversey.

Everyone from former AIG CEO Maurice “Hank” Greenberg to liberal Rep. Brad Sherman, D-Calif., have expressed outrage that Goldman and other banks were compensated at full value for their derivative contracts. Goldman had bought billions in credit deafalt swaps from AIG. Had AIG gone into bankruptcy, Goldman and other counterparties would have almost certainly had to take a “haircut” on the contracts due to declining market conditions.

In the article, Carney generously writes that “there is no reason to believe Liddy is influencing AIG actions to unfairly benefit Goldman.” Yet Liddy had to be aware that many were saying Goldman may not have survived the hit if AIG substantially reduced payment. He resigned his position from Goldman’s board of directors when he became CEO of AIG, ostensibly to avoid conflict of interest, but has not seen fit yet to sell his more than 27,000 shares in Goldman stock, which he is listed as holding in the firm’s 2008 proxy statement. Carney reports that “an AIG spokeswoman confirmed for the Examiner that Liddy still owns all these shares.”

Carney points out the paradox of “strange public-private chimeras like AIG spawned in this age of bailouts.” When it bailed out the firm, the government took an 79.9 percent stake in AIG, making AIG in one sense a government entity. Yet, as Carney points out, this “situation represents a potential conflict of interest that would never be allowed in a government agency.”

It also likely wouldn’t fly in a purely private company, where directors and shareholders are on guard against executives’ “related party transactions” that aren’t in the company’s best interest. Yet, because he is running a public-private hybrid, Liddy lacks accountability to both to private shareholders and government ethics rules

Former Treasury Secretary Paulson, himself a former Goldman Sachs CEO, has a lot to answer for in forcing out AIG CEO Robert Willumstad and bringing on Liddy to replace him. So does Geithner, who was heavily involved in the AIG bailout as president of the Federal Reserve Bank of New York. Why did they not insist that Liddy divest his holdings or find someone who didn’t have this conflict?

Above all, this shatters the illusion that the government can magaically take over a company, fire the CEO, and run it more efficiently for the taxpayers. I have written before on Open Market that Obama’s firing of Rick Wagoner was not the first time the government forced out a CEO. Even before Paulson ousted Willumstad after the bailout, then- New York Attorney General Eliot Spitzer effectively forced out longtime

AIG CEO Greenberg on baseless charges that have almost all been dropped. Greenberg built up AIG successful 35-year tenure, and has testified that the issuance housing-related credit defaut swaps at the center of the firm’s problem exploded in the months after he left.

As I tell Carney in concluding paragraph of the story, “The whole AIG experience demonstrates the fallacy that the government can efficiently sack CEOs and replace them.”

Gauging a bank’s health by seeing how much capital it would need to get through a deep recession seemed a good idea at the time, says

The broadest measure of the current real estate/credit/economic crisis can be found in the foreclosure data. And just how improved is that data series these days?

Not very:

“More than 800,000 properties received foreclosure filings in the first quarter of 2009, according to RealtyTrac’s latest foreclosure report, released today. That was the highest quarterly total since RealtyTrac began issuing its numbers in the first quarter of 2005 despite a 13 percent decrease in bank repossessions (REOs) from the previous quarter. The increase was driven by a jump in default and auction notice filings on the front end of the foreclosure process, particularly in March when default notices were up 20 percent from the previous month and auction notices were up 29 percent from the previous month.”

Bloomberg adds:

“A flood of bank-owned properties is hitting the housing market as the U.S. recession deepens. The unemployment rate jumped to 8.5 percent in March, the highest since 1983, as 663,000 jobs were lost, according to the Labor Department. Home prices fell 19 percent in January from a year earlier, the fastest drop on record, according to the S&P Case/Shiller Index of 20 U.S. cities. The measure has fallen every month on a year-over-year basis since January 2007. Mortgage applications declined last week for the first time in a month, a sign that even with borrowing rates below 5 percent may not be enough to spur a housing recovery.”

So much for the vaunted bottom in Real Estate — and the broader economy . . .

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Previously:
Voluntary Foreclosure Abatements Ending (April 2009)

http://www.ritholtz.com/blog/2009/04/foreclosure-abatements-ending/

Sources:
Foreclosure Activity Hits Record High in First Quarter
darenb
Foreclosure Pulse, April 16 2009

http://www.foreclosurepulse.com/blogs/mainblog/archive/2009/04/16/foreclosure-activity-hits-record-high-in-first-quarter.aspx

Foreclosure Filings in U.S. Climbed to Record in First Quarter
Dan Levy
Bloomberg, April 16 2009

http://www.bloomberg.com/apps/news?pid=20601213&sid=aRDQUt6RM.FE&

Good Evening: Our capital markets entered Wednesday with heightened concerns about our economy in general and the technology sector in specific. By day’s end, however, these concerns were in retreat on both fronts and stocks went out at their session highs. While there was precious little in the way of actual positive news for investors to seize upon, hopes continue to rise because many parts of our economy are worsening at a slower rate. And, if “less bad” becomes widely accepted as the new “good”, then our capital markets may continue to work higher for a spell. The decision facing investors who are agonizing over whether or not to chase the ongoing rally in U.S. equities may come down to just how true are the claims that “recovery is just around the corner”.

Stock index futures were lower early this morning after Intel’s earnings report last night. Because it supplies so many other technology companies, Intel is widely seen as a barometer for both the technology industry and the U.S. economy. INTC’s report had its pros and cons, but the overall theme was pretty clear: Tech is still struggling, and any bottom in that industry is a forecast about the future, not an observable fact from the recent past.

Also out before the opening bell were a flurry of economic statistics, some of which brought historic readings. Mortgage purchase applications dropped in the latest reporting week, but the first big news was that headline CPI is now negative on a year over year basis for the first time since the 1950s. The so-called core figures are still well in the green, which begs the question that follows. If the prices for core items in the CPI can’t drop in this environment, then how much could they rise if and when the cycle does eventually turn? The Empire manufacturing data was negative, but much less so than had been expected. Some analysts hailed this report as indicative of an economic turn, despite the horrendous national readings that were released a mere 45 minutes later. Industrial production was down 1.5%, leaving this statistic with its weakest yearly performance since just after our troops were returning from World War II. Capacity utilization was no better; at 69.3%, our nation’s factories, mines, and utilities are now operating at their lowest capacity since records started being kept 42 years ago.

Equities opened 1% lower after digesting all of the above, with the NASDAQ leading the way to the downside. But this early sell off proved to be the lows for the day, as some took reassurance from the TIC data that showed a bit of renewed buying of Treasurys by China and Japan. Stocks recovered and then meandered above and below unchanged until just after lunch. Volume was fairly light until a few news items encouraged market participants to clamor for shares of all shapes and sizes into the closing bell. First came a rise in the Housing Market index, which rose to an awful 14 from a ghastly 9 in the previous month. Since 50 is neutral, it may take a while for the housing market to return to the good old days of 2005.

Then, at 2pm edt, came the release of the Fed’s Beige Book. This compilation of the latest economic data from all 12 Fed districts, described our economy as one that is slowing down at a more gradual pace than before. Somehow believing a slower rate of economic descent means an ascent is imminent, most analysts and investors welcomed the news (with the exception of BAC-MER, see their take below). Finally, American Express announced that while charge-offs were still rising, they are doing so at a gentler pace. AXP spurted 12% and its rally encouraged market participants to chase other financial names as well. Let’s just say that as Wednesday progressed, the risk appetites among investors were focused less on the risk and more on the appetite.

Not wanting to be left behind if indeed this notion of less bad becoming the new good starts to take root, investors pushed stocks higher into the close. In scraping out the barest of gains, the NASDAQ (+0.007%) was the underperformer, while the Russell 2000 (+1.8%) turned in the best performance among the major averages. Treasury market participants agreed to disagree with the economic interpretations of their equity market cousins, and Treasurys managed to edge higher. Yields were mixed to down a basis point or two. The dollar rose 0.5%, but commodities had a fairly ho-hum day. Most sectors within the CRB were little changed as the index itself fell a modest 0.15% today.

Nothing sows the seeds of doubt in the minds of money managers quite like a bear market rally. Thoughts like, “Is the bottom in?”, and “Am I missing a once in a generation buying opportunity at the beginning of a great new bull market?” cause institutional investors to reach for the antacid tablets. For many of them, losing money in a bear market is no sin, as long as everyone else is taking on water, too. But missing out on the gains of a bull market is a career-threatening problem. As such, large investors are all competing to strain their eyes in looking for Ben Bernanke’s “green shoots”. They almost hunger for the early bits of growth that often presage an economic recovery. What they forget is that many of these green shoots will turn out to be weeds, or, what’s worse, be lost to a spring frost.

I’m not trying to be an eternal pessimist, either, since there are indeed some hopeful signs. As you can see from the articles below, the credit markets are starting to pick up. Even if prices in the dicier parts of fixed income aren’t up as much as are stocks since March 6, they are starting to tick higher. LIBOR continues to recede, high yield bond issuance is climbing off the mat, and even carry traders are beginning to feel safe enough to re-establish risky positions. With all the cash now gushing out of Washington, I suppose these nascent signs of improvement should be both expected and welcomed. But since one of the primary goals of these scribblings is to offer a perspective that is ever mindful of risk management, I would like to call everyone’s attention to the fact that these same hopeful signs were on display in the autumn of 2007 and the spring of 2008.

The spring of 2009 may yet bring more upside for investors, but they should be mindful of the fact that when individuals, corporations, and even some countries all try to delever on a global basis, false springs are more the rule than the exception. After the 1929 crash, the Hoover administration spied similarly hopeful signs in the U.S. economy. “Recovery is just around the corner”, is first attributed to economist, Irving Fisher, but Team Hoover repeated this phrase and variations of it right up until he was crushed by the landslide election of FDR in 1932. It is true the U.S. economy in 2009 has yet to see the massive reversals suffered during the Great Depression, but the root causes of each period — easy monetary policy and an over-reliance on debt — are the same.

What’s different this time is that Mr. Bernanke and the successive Treasury Secretaries he’s teamed up with have long since ditched conventional policy responses. It’s been said, and I agree, that trying to foster sustained growth in an economy weighed down by too much debt is like trying to start a sustainable fire using wet logs. The matches and gasoline (some stimulus and a low funds rate) didn’t work on our debt-soaked economy, so Mr. Bernanke is resorting to the blowtorches and rocket fuel (a lot of stimulus and quantitative easing). I don’t know enough about the chemistry of combustion to accurately predict what will happen next. But my advice would be to stand well back and wait to see what happens next. I’ll risk being underinvested during this rally. Even if he’s successful, Mr. Bernanke might set fire to more than just the logs.

– Jack McHugh

U.S. Markets Wrap: Stocks Gain as AmEx Rallies, Treasuries Rise

Fed Says U.S. Economy’s Decline Slowed in Some Areas

Libor Falling Fastest Since January on Credit Revival

HCA, Crown Castle Offer Junk Bonds in Busiest Day Since June

Carry Trade Comeback Means Biggest Gains Since 1999

Some sector color on the Beige Book

Ever notice the guys who crash planes into the sides of mountains don’t get to do the review of what went wrong?

Same thing with other gian calamities: The Captain of the Exxon Valdez didn’t do the crash review; The Challenger Shuttle engineers weren’t the ones who determined it was the O rings, etc. A separate team of experts comes in to objectively review the evidence.

So won’t someone explain to me why we give a rat’s ass what the big 3 ratings agencies think would be a better way to regulate themselves?

“Rating agencies have come under scrutiny over the past year after they gave overly generous ratings to debt — a move which some say exacerbated the financial crisis.

Agencies like Moody’s, Standard & Poor’s and Fitch Ratings have also been criticized for their business model in which issuers of securities pay the firms to rate them. Some believe this creates an inherent conflict of interest. On Wednesday, the heads of those firms and myriad other credit-rating experts gathered at the SEC to discuss what changes, if any, need to be made to improve oversight of the firms.”

Not critics of the horrific state of affairs — btut he companies themselves.

Well, its entertaining to say the least. The commentary from S&P via a white paper is especially HILARIOUS:

“Market participants should be free to choose from a variety of business models for credit-rating agencies, but all firms should try to strengthen their transparency, quality of performance and prevention of conflicts of interest, according to Standard & Poor’s.”

Now, I think that is funny. But they don’t — they are serious:

“In a new white paper, S&P lists six qualities investors want from ratings firms: all public ratings available to all investors without charge at the same time; a ratings process free from conflicts of interest and independent of issuers, investors and governments; ratings based on sound, consistently applied methodologies that consider real-world trends; broad and consistent coverage of a wide range of securities and asset classes; ongoing scrutiny to ensure timely upgrades or downgrades if appropriate; and freedom to choose rating opinions from multiple sources and additional benchmarks on issues besides the likelihood of default.”

These guys should work for HBO — seriously, give them a job doing anything but rating credit.

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Sources:
Schapiro: More Oversight Needed for Credit-Rating Firms
SARAH N. LYNCH
WSJ, APRIL 15, 2009, 3:43 P.M.

http://online.wsj.com/article/SB123980931135221355.html

S&P: Rating Agency Goal Should Be Transparency, Independence
DOW JONES NEWSWIRES, APRIL 10, 2009, 3:52 P.M.

http://online.wsj.com/article/BT-CO-20090410-704685.html

SEC chief: need tighter oversight of rating firms
MARCY GORDON
AP, APRIL 15, 2009

http://www.google.com/hostednews/ap/article/ALeqM5i_mRZNfX8KzLDJwYh1IM0g-jb7FAD97J577G0

via Prieur

A merger of incompetents:

“U.S. regulators seized Fannie Mae and Freddie Mac in September amid a rise in mortgage delinquencies that led to a combined loss of $108.8 billion last year. The U.S. Treasury has injected $59.8 billion in emergency funds into the companies.

Executives at Washington-based Fannie, the larger of the two, have discussed internally the possibility of taking over McLean, Virginia-based Freddie’s operations, according to people familiar with the matter. A formal approach isn’t imminent, said the people, who asked not to be named because the discussions are private.

A merger would be the quickest way for regulators to cut costs by reducing Fannie and Freddie’s combined 11,000-person workforce, shedding underperforming mortgage assets and reducing the bureaucracy of running two companies with identical functions, said Christopher Whalen, co-founder of Institutional Risk Analytics in Torrance, California . . .”

“It’s got to happen; we’re not going to put them back the way they were,” Whalen said of a merger. “The only way we’re going to be able to manage them is if we squeeze every last ounce of savings out of the administrative side and just focus on trying to keep the loss number under control.”

Great! I can just hear the new TV commercials: “Say Good-Bye to Fannie, Freddie — and say hello to Frannie!” Look for it sometime in mid-2010…

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Source:
Say Good-Bye to Fannie, Freddie as Housing Woes Wreck Status
Dawn Kopecki
Bloomberg, April 15 2009

http://www.bloomberg.com/apps/news?pid=20601109&sid=abdBONxO8dMA&

Regulatory Malfeasance and the Financial System Collapse
by Joseph R. Mason
April 14, 2009

Kotok comment: we are pleased to forward this guest commentary by Professor Joe Mason. In it he outlines ways in which the securitization process went awry and led to the financial crisis we have been experiencing. Joe notes some of the warnings. He also furnishes a link to his recent paper on mortgage servicing which we have read and recommend to our readers. We thank Joe for permitting us to share this missive with our readers.

~~~

Joe Mason wrote:

Greetings from Rome! While I look forward to the Banca d’Italia’s program on “Financial Market Regulation after Financial Crises,” on Friday National Journal features correspondent Corine Hegland published a rather scathing account of risk transfer in securitization entitled “Why the Financial system Collapsed” (available at http://www.nationaljournal.com/njmagazine/cs_20090411_7855.php) If anyone wonders why regulators did not recognize the growing problem of risk on bank balance sheets over the past decade, this article is a good starting point.

Ms. Hegland begins by explaining to readers the distillation process of securitization. In short, when a securitization throws off a preponderance of risk-free debt in the form of AAA-rated securities, there must be a complimentary – albeit smaller – proportion riskier lower-rated securities that absorb the losses. In February 2007, I asked “where the risk went?” As I knew back then and Ms. Hegland clearly describes in her article, the risk never left the originating institution (the sponsor), typically a commercial bank.

Think of the problem this way. If a bank sells a pool of loans with an expected loss rate of two percent, they can’t really sell the two percent. They could discount the price, but that is just taking the two percent loss now rather than later. But if losses turn out to be less than two percent the bank made a bad deal. So the bank usually prefers to keep the first loss piece – called the residual. Hence, the expected loss is retained.

While I have written about this previously, Ms. Hegland does an incredible job of describing the degree to which regulators knew about the problems with risk transfer and willfully looked the other way. Ms. Hegland not only shows how regulators memorialized such practices in regulatory rules, moving away in 2004 from requiring a transfer of a “majority” of risk to merely requiring a structured finance arrangement to transfer “some” of the risk.

Where the article really gets fun is where it cites explicit warnings by none other than Fannie Mae and Freddie Mac that such relaxed standards would indeed result in a shell game, where partial or nonexistent risk transfer would cause a financial crisis. In the words of Freddie Mac in response to notice of proposed rulemaking in 2001 (as published in the National Journal), such practices would encourage banks “…to structure securitizations that reduce their capital requirements to a fraction of what they would otherwise be required to hold, even though the risk exposure remains the same. The results could be a net reduction in the amount of capital in the banking system to protect against credit risk.” Fannie Mae said even more clearly back then, “There should be equal capital for equal credit risk, regardless of the form in which the risk is held.”

While Ms. Hegland’s article is a good jumping off point for many who are just now learning about securitization (and perhaps trying to structure bailout programs for the large institutions who took advantage of the perverse regulatory rulemaking), it is still just an introduction. The next step lies in better understanding the terms and triggers of securitizations to recognize perverse incentives apparent in selling the AAA securities but keeping the risk, while also servicing the loans. My recent paper, “Subprime Servicer Reporting Can Do More for Modification than Government Subsidies” (which just made the Social Science Research Network’s Top Ten download list for the Financial Economics Network Professional & Practitioner Paper Series, available at http://papers.ssrn.com/abstract=1361331) shows that while securitization deal terms that require servicers to hold residual stakes can properly align incentives in steady state market environments, they can create perverse incentives when markets are in free-fall. Right now, therefore, a preponderance of servicers are using any means necessary – including modifying loans whether borrowers can pay or not – to keep securitizations in which they hold residual and junior bond stakes away from triggers that can move their own investment stakes from first in line to last in line.

Shrewd investors know that if mortgage pools perform well, those junior stakes are repaid in the first few years of the deal. If, on the other hand, mortgage pools perform poorly, those junior stakes go to last in line after everyone else is completely paid off. So while nobody in policy circles wants to talk about it, tranche warfare has erupted, with senior investors fighting junior investors to maintain credit enhancement that protects senior investor value as junior investors who control the servicing are delaying inevitable delinquencies and losses – the key measures of pool performance – through various strategies including modifying anything that moves, delaying the sale of foreclosed homes, and even inside dealing in home markets to prop up reported sale prices.

In summary, financial markets are a long way from fixed. Policymakers need to take advantage of calm markets to work on reform, so that we will have fewer panics in the future. Otherwise, we are destined to keep repeating the same panics over and over.

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Joseph R. Mason – Hermann Moyse, Jr./Louisiana Bankers Association Professor of Finance, Louisiana State University, Senior Fellow at the Wharton School, and Partner, Empiris LLC. Contact information: joseph.r.mason@gmail.com; (202) 683-8909 office. Copyright Joseph R. Mason, 2009. All rights reserved. Past commentaries and testimony are blogged on http://www.rgemonitor.com/financemarkets-monitor/bio/626/joseph_mason.

As we already knew (and as I wrote in Bailout Nation), the purpose of forcing all the major was to hide the fact that Citigroup was destitute.

ABC is reporting that former Treasury Secretary Paul O’Neill said that the heads of the major U.S. banks were summoned to Washington and told they were required to take the money “So that those who needed it would not be stigmatized.”

“So they all took the money. Stop and think about that. What was the purpose of this policy? To deceive the people so that the public would not know which banks were in danger of failing? Why didn’t any of the CEO’s, claiming not to need the money, have the courage to refuse?” O’Neill said in an e-mail to ABC News. “If banks now claim they want to return the money because they don’t need it, why do they have to raise new capital to replace the money from we the people in order to repay the government?”

O’Neill said that unfortunately the government is permitted to practice a policy of deception for the greater good of the society.

“Is the public ever going to have clear facts regarding any of the individual institutions?” he said. “For months I have been calling for a public disclosure of all bank assets by rating class, along with facts showing the face value of so-called toxic assets along with the associated current book keeping value and associated reserve account. The public and members of Congress seem to be accepting of the idea that a handful of people in the administration and the Fed should do all of this in secret.”

As we suspected . . .

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Source:
Banks Feel the Heat to Pay Back Bailout Billions
MATT JAFFE
ABC.com, April 15, 2009

http://abcnews.go.com/Business/Politics/story?id=7337061&page=1