Don't trust the banks? Financial pros don't either

An in-depth article in the Atlantic says that Dodd-Frank (why is he overrated, anyway?) and other financial measures of the past four years have done almost nothing to make banks more transparent or more trustworthy.

And, that financial world experts know that, and that's why bank stocks remain depressed and more. Here's a good selection:

More and more, the people in the know don’t trust big banks either. .... Some four years after the crisis, big banks’ shares remain depressed. Even after a run-up in the price of bank stocks this fall, many remain below “book value,” which means that the banks are worth less than the stated value of the assets on their books. This indicates that investors don’t believe the stated value, or don’t believe the banks will be profitable in the future—or both. Several financial executives told us that they see the large banks as “complete black boxes,” and have no interest in investing in their stocks.

And, this issue is scary. Scary indeed, as a look at Wells Fargo shows:

Like other banks, Wells Fargo uses a three-level hierarchy to report the fair value of its securities. Level 1 includes securities traded in active, public markets; it isn’t too scary. At Level 1, fair value simply means the reported price of a security. If Wells Fargo owned a stock or bond traded on the New York Stock Exchange, fair value would be the closing price each day. 

Level 3 is hair-raising. The bank’s Level 3 estimates are “generated primarily from model-based techniques that use significant assumptions not observable in the market.” In other words, not only are there no data about the prices at which these types of assets have recently traded, but there are no observable data to inform the assumptions one might use to generate prices.  

Even worse, Wells Fargo has significant "exposure" to Enron-type Special Purpose Vehicles. But, because of the opacity of its reporting, you, I and even the best of journalists don't know how dangerous this "exposure" is.

First, the roots are bipartisan, going back to Larry Summers and other neolib Democrats leading the charge in the late 1990s to repeal Glass-Steagall. (Frank, though voting against the repeal, in his words was at best equivocal in his opposition.)

Second, that bipartisanship has increased through campaign finance corruption.

Third, there would be one way to stop it. FORCE Congressional pensions to be invested with these deceitful banksters.

Fourth, per the article's authors, we could make the rules much fewer, but much more broadly written. It was that way at one time, they note, and courts gave regulators more leeway.

The Jamie Dimons of today who complain about "overregulation"? They like it that way.

Britain to crack down on Libor manipulation

Yes, this move may be full of loopholes, but, it’s a real step forward, and, like a Tobin tax, something that neither Mitt Romney nor Barack Obama would ever propose in the US.

In short, Britain’s Financial Services Authority is tightening the rules on the London Interbank Offered Rate, or Libor, which is a tool used by large banks to calculate interbank lending.

As part of the financial chicanery that led to the Great Recession, banks on both sides of the Anglo-American Atlantic allegedly manipulated Libor rates, and allegedly, current US Treasury Secretary Tim Geithner knew about it while head of the New York Federal Reserve Bank and did nothing. (See poll at right and search old articles.)

So, the British stripped Libor oversight from the British Bankers’ Authority and instead moved it to the government regulatory agency, the equivalent of the new financial services agency here in the US taking some power away from the American Bankers’ Association.

Britain’s FSA plans to increase auditing of Libor-related trading to make sure that chicanery isn’t still happening. It also wants to make it a criminal offense to do so! That’s the part Mitt and Barry will never, ever do.

“There’s always a possibility for collusion,” (FSA Managing Director Martin) Wheatley told an audience at Mansion House, the 260-year-old home to the lord mayor of London that is adorned with gilded statues and chandeliers. “But under the new regulatory structure, people would be taking a high risk.”

Indeed, Wheatley is being honest about how much this may or may not help. But, he’s also determined to try.

Reason 10,100 to vote Green - Geithner, Fed, Libor, criminality

Tim Geithner

Looks like Dear Leader, by extension, is even dirtier in relation to the banksters than we might even have dreamed, up to this point.

Seems like the New York Federal Reserve, helmed at the time by Preznit Kumbaya's current, and original, Secretary of the Treasury, Tim Geithner, already knew in 2008 that Barclay's, at least, was fudging on Libor rates.

Here's the start of the information about Timmy G. and gang apparently turning a deliberately blind eye toward London Interbank Offered Rate interest-rate manipulations by Barclays, manipulations which have already made hot news across the pond in Great Britain, but have yet to register here in the U.S. Maybe this will register:

Although the New York Fed conferred with Britain and American regulators about the problems and recommended reforms, it failed to stop the illegal activity, which persisted through 2009.

British regulators have said that they did not have explicit proof then of wrongdoing by banks. But the Fed’s documents, which were released at the request of lawmakers, appear to undermine those claims.

And, oops, the NYT kind of buried the lede. Timmy G. and gang already had some "knowing" in 2007:

The New York Fed learned about concerns over the integrity of Libor in summer 2007, when a Barclays employee e-mailed a New York Fed official, saying, “Draw your own conclusions about why people are going for unrealistically low” rates. Barclays wrote in a September report, “Our feeling is that Libors are again becoming rather unrealistic and do not reflect the true cost of borrowing.”

Uhh, in the real world, this would be called criminal malfeasance.  But, not in the world of Timmy G.

Instead, it gets labeled "market chatter" and swept under the rug.

Plus, the 2007 date also undercuts the NY Fed's claim that it had too much other stuff on its hands in 2008 to worry about this issue.

Here's more on that 2007 "knowing":

When the New York Fed raised concerns in 2008, Barclays has been trying to manipulate the interest rate for nearly three years, and the practice continued until 2009.

Emphasis added on those "nearly three years." So this goes back to early 2006, or even 2005. And, little Timmy G. was NY Fed president already back in 2003.

And, to spin things out further. If Mitt Romney's a perjurer for making a false statement to the SEC, then what is Geithner, whose blind eye, to be charitable, on this issue, helped the Bain Capitals of the world make even more money on financial manipulation years later?

So, Timmy G. was abetting apparently criminal activity by at least one big bankster three full years before he became Secretary of the Treasury. (Actually, it appears there were two separate manipulation plans, but ... Barclays got a non-prosecution deal ... from Team Obama. And a pretty weak one. That said, how do we know it's living up to terms of the deal?)

(Update, July 25 — Unfortunately, Geithner's House testimony on the issue turned partisan, with Democrats feeling they had to cover his back. And, no wonder why:

“We took the initiative to bring those concerns to the broader regulatory community,” Mr. Geithner said, referring to the Commodity Futures Trading Commission and Securities and Exchange Commission. “I believe we did the necessary and appropriate thing very early in the process,” he said.

But Mr. Geithner on Wednesday also acknowledged that he did not alert federal prosecutors to the wrongdoing.

Oops.

Now, House Dems claim Geithner deserves kudos for championing Libor reforms. Excuse me, but where are those reforms?)


And ... do you really expect this administration to lay the hammer down on other banksters as a result of any information Barclays squirts out?

Meanwhile, Geithner's boss has a "checking" account worth at least $500,000 with the biggest bankster of them all. And, speaking of that, it looks like the losses are higher than first reported on Jaime Dimon's botched trades.

Supposedly, the NY Fed is "examining the valuation of the trades." Yeah, right. It's either Keystone Kops incompetence, or Richard J. Daley-type Chicago police, investigating with an "open hand."

Meanwhile, former TARP Inspector General Neil Barofsky's "Bailout" is out, and Yves Smith explains that it shows even more what a hack Geithner was. (And is, I'll add.)

Explain to me again (picture that Gene Wilder photo with Photoshopped lettering that you may see on Facebook) just how liberal Team Obama is.

Meanwhile, this makes David Brooks' recent column about why today's elites behave as they do kind of interesting. He calls the Barclays types (though writing too early to include Dimon, if would do that) "brats." So, does that make Timmy G. an even bigger brat? The brat-fox "guarding" the brathouse?

Some election-related thoughts below the fold.

Team Obama suing banksters - real or a head fake?

Well, after Dear Leader's minions, including and starting with Little Timmy Geithner, along New York Fed members and others, have spent months attacking N.Y. Attorney General Eric Schneiderman, color me skeptical at least, and cynical at most, that any talk of a federal lawsuit against banksters for their alphabet soup diarrhea of CDOs, CDSs, etc., is anything more than a hill of diarrhea-inducing beans.

UPDATE: The suit's been filed. Adding to my skepticism? It names no dollar amount for damages sought. (Fannie Mae and Freddie Mac reportedly lost $196 billoin on the alphabet soup crap.)

Look, here's how this will likely play out.
1. Team Obama goes through motions of filing suit.
2. Goddam Sachs, Citigroup, Morgan Stanley et al plead remorse.
3. Said banksters eventually agree to a settlement. (This is part of "doing God's work," of course.)
4. Money for said settlement is pennies on the dollar, payable over a decade or more. Updated with the new link, 10 percent of this is about $20 billion. And, not coincidentally, that's what Team Obama suggested in initial settlement talks. Even prorated by company size among the 17 defendants, that's, say, $3 billion for Bank of America. BofA had that much profit in one quarter in 2010.
5. Said money is used by Team Obama to create a successor to HARP and HAMP called HEMP: "Home Equity Maintenance Program." God, I love being snarky.
6. Said program is started, oh, say, July 2012? Just in time for the Democratic National Convention and some appropriate re-election PR?
7. Team Obama tells Schneiderman: "We really, really tried. This is the best we can do. Now, for the last time, stop bothering the banksters."

Meanwhile, the mainstream media is piling on Schneiderman, at least the WaPost. Naked Capitalism wonders if its ownership of Kaplan, and Schneiderman's investigation of for-profit colleges, just might have something to do with that.

Banksters fess up to illegal mortgage problems

Wells Fargo, Bank of America and Citigroup, as part of annual financial filings with the SEC, admitted that state attorneys general investigations (and a lame-o one by the feds so far) into their, well, illegal use of MERS software in mortgage paperwork filings could well be a financial deadweight and not just a perception issue.

“The current environment of heightened regulatory scrutiny has the potential to subject the corporation to inquiries or investigations that could significantly adversely affect its reputation,” Bank of America said in the filing.

The state and federal inquiries “could result in material fines, penalties, equitable remedies (including requiring default servicing or other process changes), or other enforcement actions, and result in significant legal costs,” Bank of America said.

Wells Fargo said in its filing that it was “likely that one or more of the government agencies will initiate some type of enforcement action,” including possible “civil money penalties.”

Well, boo-hoo. Dr. America prescribes 30CCs of "cramdown" for the sick bankster patients.

More seriously, here's my tentative grand bargain:
1. State AGs as a group, agree to suspend investigations, both on the illegal use of MERS, and on banks wrongfully repo-ing deliquent-mortgage homes to which they don't have clear title in particular, for 18 months.
2. In exchange, without admitting guilt for past use, the banks agree that MERS, by not providing actual paperwork to county clerks, is illegal in all such states with such a requirement, and stop using it ASAP. (I'm assuming they're still using it, in the middle of this mess.)
3. Banks agree to triple their current mortgage-modification programs.
4. Banks agree to reveal what "minimum," as percentage of mortgage principle, they currently have as a cutoff rate for walkaway deals and other mortgage modifications, and to lower that minimum by 10 percentage points.

That's just some back-of-the-napkin figuring. I'm guessing that, given this was part of an SEC filing, that doing all of that would still hit the bottom line no harder than would state financial penalties, should the banksters dig in their heels.

First, let's kill all the bankers, at least the lying idiots

With apologies to Shakespeare, who'd understand ...

Financial researcher Richard X. Bove, taglined in his NYT op-ed as the senior vice president of equities research at a brokerage firm, curiously doesn't want his firm to be identified.

Or not so curiously.

Since he can't figure out the difference between causal correlation and statistical correlation. And, can't or won't do simple analysis.

Bove notes that, in the past two years, the total loan volume of American banks has dropped by 8 percent, while business loans have fallen by 25 percent and mortgages by 15 percent.

That said, almost ALL of the total amount of falloff in all loans combined is from mortgages and business loans. Well, until his poor banker friends start renegotiating more mortgages and eating more mortgages they were stupid enough to write in the first place, the mortgages bottom line ain't changing. Business loans? Well, banks are generally less likely to write small-biz loans in a recession, no matter the change in banking laws. And, he NOTES that!

The size of the credit market is smaller today because banks will no longer make risky loans to marginal borrowers.

But, doesn't factor it into his calculations.

But wait, he gets even stupider, or more deceitful.

Next, we get to the empirical self-contradiction, of statement 1:

At the end of 2008, Federal Deposit Insurance Corporation data showed that the American banks it insured — around 8,000 of them — had $13.84 trillion in assets. At the end of the second quarter of this year, they held a total of $13.22 trillion — a decline of $620 billion.

And statement 2:

However, the main reason bank lending has declined may be that the banks’ capital requirements have increased, and this encourages them not to lend.

My emphasis added

There are so many problems here.

First, banks' capital requirements haven't magically increased that much overnight. Second, bank mergers have theoretically reduced overhead. Third, that $300 billion drop in mortgages probably reflects at least $300 billion of bad mortgages that are nonperforming.

But, we're told none of this by X. Bove from Company X.

And, fourth, note that weasel phrase "may be." You won't see it in the rest of the column, because X. Bove from Company X has an ax to grind with Dodd-Frank and other legislation and regulatory change that obviously has caused these problems.

X. Bove from Company X can't leave room for "may be."

Even if he's right on all the numbers AND better sorted them out, though ... back to problem No. 1.

He still hasn't done anything beyond showing a statistical correlation; he hasn't proven a causal one.

He finally says that the "animus against banks" is therefore stifling recovery.

Sounds like X. Bove from Company X is a fat-cat type who doesn't want to support more responsible lending even as big banks give out bonuses.

As for community banks? Some of them spit the bit on underwriting crapola mortgages more than any nonbank loan originator like Countrywide.

C'mon, Mr. X. Bove from Company X, some truth here, you lying bastich.

First, we kill all the bankers, at least the lying idiots.

Update: Here's the non-onerous, phased-in regulatory agreement, Basel III, that has X. Bove bitching. And, from somebody more fiscally renowned than X. Bove, Felix Salmon, here's why it's a good thing.

Participate in a Nigerian 419-type scam – go to jail

Do not pass go and do not claim you were trying to “get them before they got me.”

That’s what happened to a real estate broker in Ohio, found guilty of two counts of bank fraud. The Sixth Circuit Court of Appeals has upheld Anthony Ross’ conviction.