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

I love the smell of napalm in the morning. You know, one time we had a hill bombed, for 12 hours. When it was all over, I walked up. We didn’t find one of ‘em, not one stinkin’ dink body. The smell, you know that gasoline smell, the whole hill. Smelled like [sniffing, pondering]  victory.

Someday this war’s gonna end…

-Robert Duvall (Lieutenant Colonel Bill Kilgore)

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I’ve recently learned from several MBAs graduating in 2010 about firm signing bonuses. They are being paid out unusually early.

I have been wondering why.

The FOMC’s Zero Interest Rate Policy has been a license to print money — literally for the Fed, and figuratively for the major banks.

Being able to borrow at near zero costs means that making billions of dollars is a no brainer, even for some of the planet’s most mismanaged bankers.

Banks are so flush, they have been repaying TARP funds, buying out toxic debt guarantees, and repurchasing preferred shares and warrants.

The most recent hint of their overflowing coffers are the class of 2010 hires. Traditionally, these new employees receive their sign on bonuses sometime in the spring. Some start work that summer; most (at least in my day) begin in September, following one last drunken promiscuous binge through Europe (Ahhh, youth).

I was surprised to learn that several firms, most prominently JPMorgan, are paying out their signing bonuses over the next few weeks.

Its not too hard to imagine why.

I doubt pending legislation has much to do with it, but who knows. Given how much cash they are throwing off, my best guess is they are trying to spend as much of it as possible in the current tax year.

The crisis, the bailouts, the obscene amount of taxpayer monies that have been usurped and wasted. One is reminded of Colonel Kilgore’s speech in Apocalypse Now:  While Duvall’s famous Napalm line gets quoted all the time, it is that last wistful sentiment that is really is the most poignant — and relevant — to the present license to steal.

Someday this war’s gonna end…

Source
Bullish Today, Marc Faber Is “Highly Confident” the Future Will Be Very Bleak
Aaron Task
Yahoo Tech Ticker, Sep 22, 2009 07:30am
http://finance.yahoo.com/tech-ticker/article/337749/Bullish-Today-Marc-Faber-Is-”Highly-Confident”-the-Future-Will-Be-Very-Bleak

I’ve always been grateful that Rudy Giuliani was NYC mayor during the 9/11 attack. He was reassuring during a moment of crisis, when leadership was otherwise missing. He stepped into the void after the attack, while others seemed to disappear. Giuliani’s political career — which was in tatters at that time — was rescued by his leadership.

But I’m watching Rudy speak on CNBC about bank bailouts and bank regulation — and I am comforted by the simple fact that he is not in charge. As critical as I have been about the Obama administration’s economic approach, it has been about the policy response, not the understanding of the crisis.

The mayor, on the other hand, is frighteningly clueless in a Phil Gramm kinda way — he clearly does not understand how the crisis occurred, what caused the collapse, and how to fix it. Instead spouts the same discredited meme — that too much regulation was the problem. He is old school, well coached in free market aphorisms and now discredited market worship.

Its a shame that none of the anchors queried him as to what current regulations he would get rid of. (Nothing like letting a hanging curveball pass you by for a called strike).

Video at CNBC.com

The FDIC is currently funded by a small fee charged to every bank FDIC insured account in the country. The enormous amount of bank collapses has nearly exhausted the FDIC coffers.

Call it an industry, rather than taxpayer-funded bailout.

Somehow, a NYT article this AM misses the issue. The article seems to focus on the irony of banks lending to the FDIC, but seems to forget that it is the fees on bank accounts that fund the insurance program in the first place.

But the ironic spin is besides the point — the FDIC is out of money not because it was mismanaged or made horrifically risky investments or engaged in otherwise irresponsible behavior. It is running out of cash because some of the banks it insures engaged in that behavior.

Excerpt:

“Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.

The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune.

A hallmark of the financial crisis has been the decision by successive administrations over the last year to lend hundreds of billions of taxpayer dollars to large and small banks . . .

Bankers and their lobbyists like the idea because it is more attractive than the alternatives: yet another across-the-board emergency assessment on them, or tapping an existing $100 billion credit line to the Treasury.”

Note that it is courtesy of a 1991 law passed during the S&L crisis that the FDIC is alloed to borrow from banks. The lenders would get government bonds, with interest rates set by the Treasury secretary.

At first blush, it is not a bad solution to the current problem of the ongoing collapse of too many banks.

Given that the banking industry blew up due to the irresponsible behavior of its own members, seeing some of its leaders step up to facilitate further repairs to the sector is an idea I can get behind — and is  greatly preferable to yet another taxpayer funded bailout.

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Source:
F.D.I.C. May Borrow Funds From Banks
STEPHEN LABATON
NYT, September 21, 2009

http://www.nytimes.com/2009/09/22/business/22bailout.html

As the FOMC begins their two day meeting today not only will they have to juggle the current stabilization in the US economy with their extremely accommodative policies, I wonder whether they will discuss the US$ and the price of gold as price stability (stable currency) is one of their two mandates. The $ index is falling to a fresh 13 month low today and gold is just shy of a new high. Based on the stock market action in response, we are depreciating our way to prosperity and the reflation trade is the best defense. Since Bernanke took office on Feb 1st 2006, the $ index is down 15% and gold is up 79%. With the Fed mostly focused on the temporary changes in prices as measured by the CPI and PCE deflator and also the output gap, it’s likely they won’t express much concern as from that perspective, prices still remain subdued. The Asian Development Bank increased its Asian region economic growth estimate for ’09.

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2 MIT students put together Project Icarus — an ultra low cost rig which they lofted a digital camera via weather balloon to the edge of space.

Ingredients: Helium, a styrofoam beer cooler, a cheap Canon A470 camera, and instant hand warmers to prevent the camera batteries from freezing.

They added a prepaid GPS-equipped cellphone for tracking to recover the rig when it landed back to earth.

Total cost: $148.

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Sources:
Project Icarus

http://space.1337arts.com/

The $150 Edge-of-Space Camera: MIT Students Beat NASA On Beer-Money Budget
Charlie Sorrel
Wired, September 15, 2009

http://www.wired.com/gadgetlab/2009/09/the-150-space-camera-mit-students-beat-nasa-on-beer-money-budget

September 21, 2009 — Tonight (September 21), Barney Frank — Chairman of the House Financial Committee and Massachusetts Congressman — answers 10 questions at 10 o’clock on NBC’s “The Jay Leno Show”

I was going to say that $425 million seemed like a lot of cash, but then I remembered the $30 billion they took in taxpayer monies.

“Bank of America Corp., the biggest U.S. bank, agreed to pay the government $425 million for an unused guarantee of Merrill Lynch & Co.’s assets as the bank tries to cut reliance on federal support after two bailouts.

The Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. will get the money, according to a Bank of America statement today. Regulators were seeking $300 million to $500 million, according to a person familiar with the matter who spoke before the agreement was announced.

The payment would end a dispute over what the bank owes the U.S. for a promise to help absorb losses on $118 billion of holdings, mostly at Merrill Lynch. The federal guarantee helped seal the takeover of the New York-based brokerage after fourth- quarter losses spiraled past $15 billion. While the accord was announced in January, an agreement was never signed and the bank resisted paying.”

What an exquisite waste of taxpayer capital . . .

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Source:
Bank of America Agrees to Pay $425 Million for Merrill Backstop
Margaret Popper and David Mildenberg
Bloomberg, September 21 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=a5noRhggsFYI

A year after the failure of Lehman Brothers, global regulators are still dealing with the aftermath and struggling to learn the lessons of the great panic of 2008.

Martin Wolf, chief economics commentator at The Financial Times, says letting Lehman fail was the right course, if only because it forced regulators to “grapple with the crisis properly.” The steps taken in Lehman’s wake ultimately stabilized the global economy and reinvigorated the financial markets — at least for the time being, Wolf says, as we discuss in more detail in a separate segment.

But Wolf fears regulators learned the wrong lessons of Lehman’s bankruptcy, i.e. that they can’t ever allow a large financial institution to fail.

-Yahoo Tech Ticker

Some quick links for your afternoon pleasure:

• $30 billion home loan time bomb set for 2010 (SF Chronicle)

• Ready…Aim…Chase!?!? (Lindzon)

• Fed not acting like there’s a recovery (CNN/Money)

• Interview: Five Questions for William K. Black (Bearish News)

• The Fed’s phony war on bonuses (Reuters)

• Kedrosky’s NYT OpEd on Tennis Challenge, Anyone? (I know, wtf, right?)

• 30 Minutes A Day (jack cheng)

Anything else worth perusing?