Geithner’s Generosity Earns Wall Street’s Applause
Good Evening: U.S. stocks rose smartly today after some better than expected news on both the economic and earnings fronts. Financial stocks especially took flight after some generous comments from Treasury Secretary, Timothy Geithner, that seemed to ease some previous concerns about compensation limits. Whether emboldened by this change of heart at Treasury or not, a few Wall Street firms declared their intention to repay their TARP capital. In addition, both Lowe’s and the Housing Market Index reported upside surprises. These factors gave investors a bit more confidence today, the growing level of which was easy to spot in the prices posted at today’s close. And, if one considers the generous terms available to TALF participants, perhaps Mr. Geithner’s newfound kindness toward Wall Street on the bonus and TARP fronts is no fluke.
Aside from a huge rally in India over the re-election of the incumbent Congress party, I could find no decent explanation why U.S. stock index futures were well into the green before this morning’s open. Sure, Lowe’s 22% decline in earnings was better than expected, and they did indeed raise their ‘09 guidance, but one company’s results do not mean housing has hit bottom. Still, market participants were in a chipper enough mood this morning to push the major averages more than 1% higher at today’s open.
Geithner Says Government Shouldn’t Set Limits on Pay
U.S. May Homebuilder Confidence Rises to Eight-Month High of 16
Goldman, Morgan Stanley Said to Apply for TARP Exit
These next three stories came out at different times of the day, and while they might not have had much impact in isolation, they all helped give investors confidence that the economic and investing climates were changing for the better. Addressing a particularly sore spot with many in Wall Street and a surprising number on Main Street, Secretary Geithner had the following to say about government’s role in setting compensation:
“I don’t think our government should set caps on compensation,” he said in answering questions at an event at the National Press Club today in Washington. “What I think we need to do is make sure we put in place some broad constraints on the incentives compensation systems create.” (source: Bloomberg article above)
housing-market-index-1995-to-present
The Secretary’s words may not represent a huge shift in policy, but they acknowledged at least some of the philosophical concerns so many have when they hear about government intrusion at the micro policy level. On top of these hopeful words, the Housing Market Index printed a slightly better than expected 16 versus last month’s 14. Some played up this release as more evidence of a bottom in housing, but it’s an awfully tough case to make if one looks at the long term chart of this index (see link to graph above). These figures are still horrendous (50 is “normal”), but better than expected is good enough these days.
Equities went from strength to strength all day, and there were no pullbacks of consequence. Stocks, especially the financial kind, received a final boost late in the day when the TARP payback story hit the wires. These firms have mentioned their desire to pay back TARP investments before, but today’s announcement implied the regulatory climate was thawing enough to make the paybacks seem more plausible. Friendless only last week, the BKX (+7.5%) spurted higher into the close and carried the other averages with it. No index was left behind as the gains logged fell somewhere between the Dow’s 2.85% and the Russell 2000’s 4%. Treasurys were dumped during the celebration, and yields fell between 6 and 12 bps as the curve steepened. Credit spreads confirmed today’s flight toward risk by tightening in many areas. The dollar couldn’t stand all the attendant chatter about prosperity and had a poor day, while commodities were firm. Only precious metals seemed to sit out the CRB’s nearly 1% gain today.
If the rise in junk email and the scams attached to a growing number of them are any indication, then the U.S. economy is definitely still struggling. Whether its the “U.K. Lottery” telling me I’ve won, or “Western Union” looking to send me cash, these emails trying to get my personal or financial information are usually and swiftly sent to the electronic version of purgatory. The one below caught my eye, however, due to the sender’s relatively high profile. It’s an obvious scam, one riddled with mistakes, but it does make one wonder whether emails like it will some day be sent out by the real Federal Reserve — the one in Washington, not New York. Quantitative Easing and all the money printing that come with it have raised the odds of this outcome from zero 18 months ago to some tiny number above zero at present. Here’s the actual email I received last week (Italics are mine and employed to distinguish the scam from the rest of these scribblings):
From: Ben S. Bernanke [mailto:BenBernanke78@live.com]
Sent: Thursday, May 14, 2009 7:46 AM
Subject: CONTRACT FUND CREDIT FROM BANK FEDERAL RESERVE BOARD
NEW YORK.
ATTN: CONTRACT FUND CREDIT FROM BANK FEDERAL RESERVE BOARD
We received the instructional letter to credit $10.5million to your account
We wish to let you know that all charges are waived for the sucess of
this contract fund to be credited into the your account.
Your respond is required to enable us credit your account without any
further delay and you are also required to get back to us with the
reconfirmation of your banking particulars for we to know if what we have
in file is correct and to avoid crediting your fund to wrong account.
CONGRATULATION TO YOUR CONTRACT FUND.
Please be fast on this matter.
Thanks and God bless you.
Regards,
Ben S. Bernanke
Chairman Federal Reserve Bank New York
It’s also not out of the realm of possibility that Treasury Secretary Geithner will soon have emails sent out under his name with a promise to send similar amounts to TALF participants. Our Treasury Secretary had already shown some kindness to the Street today, so the connection to the Bernanke email crystallized in my thoughts when a reader sent me the following article from Fortune Magazine:
Geithner’s gift to Wall Street
But, unlike the Bernanke email and its imagined ties to Quantitative Easing, the TALF is a real program where real participants can make a whole lot more than the figure quoted by the ersatz Fed chairman — and with a lot less risk! So if you are a qualified institutional investor and a kindly broker sends you an email touting the TALF, don’t delete it. Pluck it out of your spam folder and open it. The low risk and high returns embedded in this program may not be found in the economic textbooks, but it doesn’t take an MBA to see that only real risk is of the political variety. Taxpayers may be the ones who are on the hook for the TALF, but it’s the best example yet of just how generous Tim Geithner can be.
– Jack McHugh
May 19th, 2009 at 3:26 am
[...] Jack McHugh (summary, no charts) [...]
May 19th, 2009 at 5:13 am
Waiting for the correction in May is somehow just as tedious as waiting for the rally was in March.
Thanks Jack.
May 19th, 2009 at 9:03 am
…” Goldman and Morgan said to apply for TARP exit ” …
Ah to be on easy street again. …
All this is preceded by the idea we are in a rally (now that debt has been off loaded onto the common).
Notice also: Now that NY bankers have passed their debt onto others, they have made, material changes in their accounting methods. U.S. Code, Title 12, Chapter 16, § 1831 o Prompt Corrective Action (i)(1) and (i)(2)(D) restrict the activities of any critically undercapitalized insured depository institution; and at a minimum, prohibit any such institution from doing any of the following: Making any material change in accounting methods.
They get a taste for rally off this accounting trick and then – are in a hurry to go private again.
That is so they can privatize their profits again:
now that the common is shouldering their debt obligations.
The NY banking community are so transparent. They are appearing more and more like a group of mentally ill opportunist who are salacious and careening to get rid of their debt, and then a polar extreme – desperate to privatize their gains again.
Someone should write a song for their children to sing: Gloriously: NY bankers pass their debt onto the common and slink away from defense of capitalism, during crisis periods, when capitalism might need a defender. NY banks then want to privatize their profits. Privatize their gains during the good years. Have one bad year in the cycling of capitalism and there is Paulson as their front man, to unload their debt onto others.
Chorus: In a hurry to offload their debt obligations, and in a hurry to be private again.
May 19th, 2009 at 9:10 am
“I don’t think our government should set caps on compensation,” he said in answering questions at an event at the National Press Club today in Washington. “What I think we need to do is make sure we put in place some broad constraints on the incentives compensation systems create.” (source: Bloomberg article above)
… New Bloomberg headlines:
Tax Evader Turns to Debt Evader for NY’s Banking Elite. (How white collar criminals escalate from smaller crimes, to perpetrating larger crime. And have trouble finding like-minded associates to help them in their endeavors.)
May 19th, 2009 at 9:41 am
Places where Paulson, Geithner and team did not step up to defend capitalism in a time of crisis, when capitalism might need a defender.
Because they were focused on a luscious surplus of omissions instead.
TITLE 12 – BANKS AND BANKING
CHAPTER 16 – FEDERAL DEPOSIT INSURANCE CORPORATION
§ 1831 o. Prompt Corrective Action
http://www.law.cornell.edu/uscode/uscode12/usc_sup_01_12_10_16.html
http://www.law.cornell.edu/uscode/uscode12/usc_sec_12_00001831—o000-.html
Who else would slink away from defense of capitalism in a crisis? Paulson to Ben to Timmy: Omitting to uphold common sense and enforce law that might otherwise protect Americans from debt-offloading abuse.
Surprised? Wall Street celebrates and ramps up when a number of omissions tell of intent to defraud? … The old Wall Street mantra is to break the law and pay for it later if caught, isnt it? Thought that what they teach upstarts at GS? Get what money you can into the firm, pushing firm debt obligations on others is as good as bringing money in – right?
What could the worst possible consequence be? Here is a possible consequence: the old anglo saxon crowd will throw a fund raiser if you get caught by the FDIC. http://en.wikipedia.org/wiki/Neil_Bush
How bad could that be? Okay might have to shake hands with Mentor Cheney, and Ben Shalom, but you can always wash afterward… Just look at George Jr. it did not warp his mind too badly…
Did it?
May 19th, 2009 at 10:41 am
Admin: Please do not nix out important parts of my post. This post needs the reference laws to be considered properly. I do not use too much profanity or post here that often to merit censure. Please delete the above post and this paragraph and let my post alone.
Places where Paulson, Geithner and team did not step up to defend capitalism in a time of crisis, when capitalism might need a defender.
Because they were focused on a luscious surplus of omissions instead.
TITLE 12 – BANKS AND BANKING
CHAPTER 16 – FEDERAL DEPOSIT INSURANCE CORPORATION
§ 1831 o. Prompt Corrective Action
1)
U.S. Code, Title 12, Chapter 16, § 1831 o Prompt Corrective Action (b)(2)(B)(i) and (d)(1)(A). Capital distributions (dividends) and share buy back programs restricted.
2)
U.S. Code, Title 12, Chapter 16, § 1831 o Prompt Corrective Action (i)(1) and (i)(2)(D) restrict the activities of any critically undercapitalized insured depository institution; and at a minimum, prohibit any such institution from doing any of the following: Making any material change in accounting methods.
3)
U.S. Code Title 12, Chapter 16, § 1831 o Prompt Corrective Action (i)(1) and (i)(2)(F) restrict the activities of any critically undercapitalized insured depository institution; and at a minimum (emphasis added), prohibit any such institution from doing any of the following … (F) Paying excessive compensation or bonuses.
4)
U.S. Code Title 12, Chapter 16, § 1831o. Prompt Corrective Action (i)(1) and (i)(2)(B) … Restricting activities of critically undercapitalized institutions: To carry out the purpose of this section, the Corporation shall, by regulation or order— restrict the activities of any critically undercapitalized insured depository institution; and (emphasis added) … at a minimum, prohibit any such institution from doing any of the following: Extending credit for any highly leveraged transaction.
5)
U.S. Code Title 12, Chapter 16, § 1831 o. Prompt Corrective Action (i)(1) and (i)(2)(C) … Restricting activities of critically undercapitalized institutions: To carry out the purpose of this section, the Corporation shall, by regulation or order— restrict the activities of any critically undercapitalized insured depository institution; and (emphasis added) … at a minimum, prohibit any such institution from doing any of the following: (C) Amending the institution’s charter or bylaws …
6)
U.S. Code Title 12, Chapter 16, § 1831 o. Prompt Corrective Action (i)(1) and (i)(2)(E) … Restricting activities of critically undercapitalized institutions: To carry out the purpose of this section, the Corporation shall, by regulation or order— restrict the activities of any critically undercapitalized insured depository institution; and … at a minimum, prohibit any such institution from doing any of the following: (E) Engaging in any covered transaction (as defined in section 371c (b) of this title).
7)
U.S. Code Title 12, Chapter 16, § 1831 o. Prompt Corrective Action (i)(1) and (i)(2)(A) … Restricting activities of critically undercapitalized institutions: To carry out the purpose of this section, the Corporation shall, by regulation or order— restrict the activities of any critically undercapitalized insured depository institution; AND (emphasis added) at a minimum, prohibit any such institution from doing any of the following … (A) Entering into any material transaction other than in the usual course of business, including any investment, expansion, acquisition (see overnight expansion gifts and acquisitions WaMu, Bear Stearns or Lehman Brothers), sale of assets, or other similar action with respect to which the depository institution is required to provide notice to the appropriate Federal banking agency. …
.
Who else would slink away from defense of capitalism in a crisis? Paulson to Ben to Timmy: Omitting to uphold common sense and enforce law that might otherwise protect Americans from debt-offloading abuse.
Surprised? Wall Street celebrates and ramps up when a number of omissions tell of intent to defraud? … The old Wall Street mantra is to break the law and pay for it later if caught, isnt it? Thought that what they teach upstarts at GS? Get what money you can into the firm, pushing firm debt obligations on others is as good as bringing money in – right?
What could the worst possible consequence be? Here is a possible consequence: the old anglo saxon crowd will throw a fund raiser if you get caught by the FDIC. http://en.wikipedia.org/wiki/Neil_Bush
How bad could that be? Okay might have to shake hands with Mentor Cheney, and Ben Shalom, but you can always wash afterward… Just look at George Jr. it did not warp his mind too badly…
Did it?
May 19th, 2009 at 2:47 pm
Jack,
Tiny Tim can afford to play nice now that the market is going up, and the Street is “creating wealth” once more.
(He said, with heavy irony.)