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In Fear the Boom and Bust, John Maynard Keynes and F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis. Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there’s a “boom and bust” cycle in modern economies and good reason to fear it.

The leaks continue apace:

The day after Vice Chairman Kohn testified before Congress, it started dawning on the FRBNY that they weren’t going to be able to keep the names of counterparties from Congress.

FRBNY staff member James Bergin e-mailed several other FRBNY staff:

“I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals – too many counterparties, too many lawyers and advisors, too many people from AIG – to keep a determined Congress from the information.” 62

Fascinating stuff . . .

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62 E-mail from James Bergin to Alejandro LaTorre et al, March 6, 2009, BATES #FRBNY-TOWNS-R3-008604.

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Source:
Public Disclosure As A Last Resort: How the Federal Reserve Fought to Cover Up
the Details of the AIG Counterparties Bailout From the American People
Special Report
U.S. House of Representatives , 111th Congress
Committee on Oversight and Government Reform
January 25, 2010

AIG Staff Report with Cover (PDF)

I just read a research report from Dick Bove of Rochdale Securities that made me actually laugh out loud.  It has the most irony impaired title I have ever read — the bold, all caps, title Bove penned was:

WILL IGNORANCE, DECEIT, AND RAGE DESTROY THE FINANCIAL SYSTEM?

Someone should tell the boy its too late for “ignorance, deceit and rage,” as the financial sector has already destroyed financial system . . .

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I just have to ask: WTF do these people get their ginormous cojones from? Do they have a tailor on call to let out their inseam to make room for their balls ? Talk about unmitigated gall — a research analyst from Wall Street is upset over anger destroying the financial system.  It would be funny if it wasn’t so god-damned pathetic . . .

This has to be the most outrageous headline I’ve read since whatever the last headline was that made me apoplectic:

SEC mulled national security status for AIG details

In a little noticed story over the weekend, Reuters has discovered that the New York Federal Reserve want to invoke national Security rules to keep the details of the bailout a secret.

It reveals the degree to which the NY Fed was a) In a state of sheer Panic; b) Captured by the banks they regulate; and c) Failed to understand the basic premise of Democracy.

Aside from what this means to the ongoing tenure of Tim Orwell Geithner at Treasury, it shows how utterly clueless the people who bailed out the banks and their bond holders actually are.

Here is Matthew Goldstein of Reuters:

“U.S. securities regulators originally treated the New York Federal Reserve’s bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security, according to emails obtained by Reuters.

The request to keep the details secret were made by the New York Federal Reserve — a regulator that helped orchestrate the bailout — and by the giant insurer itself, according to the emails.

The emails from early last year reveal that officials at the New York Fed were only comfortable with AIG submitting a critical bailout-related document to the U.S. Securities and Exchange Commission after getting assurances from the regulatory agency that “special security procedures” would be used to handle the document.

The SEC, according to an email sent by a New York Fed lawyer on January 13, 2009, agreed to limit the number of SEC employees who would review the document to just two and keep the document locked in a safe while the SEC considered AIG’s confidentiality request.

The SEC had also agreed that if it determined the document should not be made public, it would be stored “in a special area where national security related files are kept,” the lawyer wrote.

In another email, a New York Fed official said the SEC suggested in late December 2008, that AIG file the document under seal and then apply to the regulatory agency for so-called confidential treatment, if central bankers wanted to stop the information from becoming public.”

Perhaps it would be best if someone showed Timmy to the door . . .

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Source:
SEC mulled national security status for AIG details
Reuters, Jan 24 2010
Matthew Goldstein
http://www.reuters.com/article/idUSTRE60N1S220100124

Another Ron Griess special, via The Chart Store

Given last week’s relatively benign PPI, lets look at the components feeding into CPI:

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In a clear hangover from the buying induced jump in the summer and fall due to the home buying tax credit, Dec Existing Home Sales totaled 5.45mm annualized, 450k below forecasts as both single family and condos/co-ops saw declines from Nov. The falloff was from 6.54mm units in Nov and 6.09mm in Oct. This figure measures actual closings where the contracts were likely signed in Sept-Oct when the fate of the Nov 30th expiration of the tax credit was uncertain. Months supply rose to 7.2 from 6.5 as inventories rose in both categories. Median prices did rise 1.5% y/o/y and rose 4.9% m/o/m to $178,300, the most since July. Both thru the artificial suppression of mortgage rates and the home buying tax credit, the industry has lifted off the mat but we’re left with the distortions where the true equilibrium between supply and demand won’t be realized until the summer when both have run its course.

Art Cashin, head of floor operations at UBS, has the latest buzz from the NYSE.

Airtime: Mon. Jan. 25 2010 | 9:18 AM ET

NAR:

“Existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 16.7 percent to a seasonally adjusted annual rate1 of 5.45 million units in December from 6.54 million in November, but remain 15.0 percent above the 4.74 million-unit level in December 2008.

For all of 2009 there were 5,156,000 existing-home sales, which was 4.9 percent higher than the 4,913,000 transactions recorded in 2008; it was the first annual sales gain since 2005.”

Don’t read too much into the increase in price — the big drop off in first time buyers likely skewed the purchases away from smaller, cheaper, starter homes.

Looking more closely at the data, a few interesting factors jump out:

• While the monthly data was horrific — down 16.7% — the more important year-over-year numbers were a solid +15%;

• On a percentage basis, the 16.7% monthly decline was the largest on record, dating back to 1968;

• Single-family home sales fell 16.8% (SAAR 4.79 million) and are 12.7% above the 4.25 million level in December 2008.

• For all of 2009, single-family sales rose 5.0% to 4,566,000.

• First-time buyers purchased 43% of homes, down from 51% in November, according to a NAR survey.

• Median existing-home price for all housing types was $178,300 in December 2009 — a gain of 1.5% higher vs December 2008.

• Total housing inventory at the end of the year was down 6.6% to 3.29 million existing homes for sale — a 7.2-month supply;

• Raw inventory is 11.1% a year ago, the lowest level since March 2006;

More data coming later this week . . .

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UPDATE:

Here is my favorite Housing graph, the NonSeasonally Adjusted Chart for Existing Home Sales

Courtesy of Calculated Risk

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Source:
December Existing-Home Sales Down but Prices Rise; 2009 Sales Up
NAR, January 25, 2010
http://www.realtor.org/press_room/news_releases/2010/01/december_down

A milestone in Bernanke’s nomination was reached this morning …. the Sunday political talk shows.  John McCain came out this morning against Bernanke.  So here’s what we know.  As of this morning (noon CT, January 24) …

Bernanke needs 60 votes to end a filibuster of his nomination (known as cloture).  After cloture, he then needs 51 to be reappointed.  So, the bogey is 60 for cloture.

Senators that announced they will vote for Bernanke

• 27 (19 democrats, 8 republicans).  The bold names are those that voted for Bernanke in the Senate Finance committee.  16 in the committee voted “aye”.  So, Bernanke picked up another 11 senators since the committee’s vote.

Senators that announced they will vote against Bernanke

• 16 (4 democrats, 11 republicans, 1 independent).  The bold names are those that voted against Bernanke in the Senate Finance committee.  7 in the committee voted “no”.  So, Bernanke lost another 8 since senators since the December 17 committee vote.

Analysis

So far 41 Senators have publicly declared for or against Bernanke.  63% (27) are for and 16 (37%) are against.  Remember he needs 60 of 100 votes, so this is very close.

Additionally, since the December 17, 2009 Senate Finance committee vote, Bernanke has picked up an additional 11 votes and lost another 8 votes.  Or, Bernanke picked up 58% of declared Senators and lost 42% since he passed the Senate Finance committee.  Again, very close to the 60 of 100 he needs.

Senators that announced they are undecided about Bernanke

• 20 (13 Democrats, 7 Republicans) have publicly said they are undecided about Bernanke.  No one on the Senate Finance Committee is undecided.  But, we can be fairly sure many of these Senators have serious reservation about Bernanke despite Obama’s endorsement and winning approval from the Senate Finance Committee.  Expect a majority, if not a solid majority, of these undecided Senators to vote “no” unless something happens in the next few days to change the political dynamic (such as a stock market crash as discussed below).

Senators that have announced nothing about Bernanke

• Above we identified the position of 63 Senators on Bernanke (for, against or publicly stated they are undecided).  That leaves 37 that have said nothing about Bernanke.  21 are democrats, 15 are republicans and 1 independent.  Given how this issue was moved front and center on Friday, expect a lot of these Senators to publicly take a position in the next 72 hours.

Conclusion

Bernanke’s reappointment vote is coming down to the wire, it is going to be close.  Recall that Bernanke was reappointed in August by Obama and the Senate Finance committee approved him on December 17.    Now with seven days until his term expires, his nomination has gone from a sure thing to in doubt.

And, if you think this is not political, consider the 36 senate senate up for election in December:

• 8 said they would vote “aye” (5 democrats, 8 republicans)
• 9 said they would vote “no” (3 democrats, 6 republicans)
• 4 are publicly declared undecided and all are retiring and not running again ( 2 republicans and 2 democrats)
• 15 have made no public statements, all are running for reelection (8 democrats, 6 republicans)

In other words, senators up for reelection are saying “aye” at a rate of 47%, not enough to get Bernanke reappointed let alone achieve 60% for cloture.  Party affiliation does not matter.

Thank the MA senate election and the desire of Senators to not support something that is unpopular.  Is Bernanke unpopular?  The following is from a CNBC survey taken in December.  Bernanke was about as popular as Bernie Madoff.  Do you want to say yes to a guy this unpopular if you’re in a tight reelection race?

<Click on table for larger image>

What Saves Bernanke?

In the last 18 months, the threat or an actual stock market crash seems to force Congress to do unpopular things.  In September 2008, after TARP failed to pass its first vote, the stock market crashed 777 DJIA points that day.  All that week everyone from Warren Buffett on down hyperventilated that failure to pass TARP would mean destruction in the financial markets.  A week later it passed.

In January 2009 it was learned that Tim Geithner had a “tax problem.”  Everyone from Warren Buffett on down hyperventilated that failure to approve Geithner would mean destruction for the financial markets.  Geithner passed Senate confirmation even though six other Obama nominees withdrew because of similar tax problems (including former Senate majority leader Tom Daschle).

Friday the stock market was down 220 DJIA points in part on fears that Bernanke might not get reappointed.  We disagree with this analysis.  We believe the market is down on fears the administration has no “plan B” if Bernanke goes down and it will take months for them to find a new Fed chief when the critical exit strategy needs to be formulated and implemented.  As noted above, Bernanke is not that popular so we do not believe it is about him.  It’s about consistency and continuity.  However, this might be a distinction without a difference.

Again everyone from Warren Buffett on down is hyperventilating that failure to approve Bernanke would mean destruction for the financial markets.  The question is if this threat and 220 DJIA point decline is enough to push Bernanke over the finish line.  Or, do the markets have to get significantly worse this week to scare the Senate into approving Bernanke?

Or guess is that Friday’s action is not enough as there are too many other cross currents between bank taxes, new banking rules (the “Volcker rule”) and the impact of the MA senate race to say last week’s decline was all about Bernanke.

In other words, if Bernanke does not pass, the markets get worse as the next Fed chief is months away and cannot be as dovish as “helicopter Ben” and his two trillion balance sheet.  If the markets do not get worse, Bernanke does not pass as the sense of urgency dissipates.

Unless Friday was enough to scare the Senate to approve Bernanke, and we do not believe it was, it seems like the Bernanke situation is near-term bearish.

In Bernanke we trust!? The nominal crowd says Yea as the S&P futures are of course rallying pre market but the REAL (after inflation) money crowd says Nea as gold is up by about the same amount. I understand the markets desire to have Bernanke reappointed, which seems will be the case this week, from a continuity standpoint but until the dual mandate focus of the Fed is altered, whoever replaces him would highly likely not have much of a different approach. Asian stocks continued their Chinese cool down pullback led by Bank of China which said they will raise capital to fill a balance sheet hole. Just as the rest of the world is thinking about reversing the steroid shot of stimulus, the Bank of Japan said they will step up QE should their economy slip again. Greece will try to sell 5 yr notes this week and their bonds and stocks are bouncing. Existing Home Sales are key today.