The New York Times reporter, Joe Nocera had a ‘clandestine’ listen in on JPMorgan Chase’s CEO employees only conference call. It’s quite revealing.
The $700 billion rescue package was sold to us as: Hurry, don’t blow this up; the financial system is in meltdown; the system is frozen and we need to buy up bad home mortgages that will get the banks lending again and Joe-the-plumber back on his feet.
It’s quickly becoming –
The Big Boys Bailout: The Paulson bait and switch – NYTimes
So When Will Banks Give Loans?
It was Oct. 17, just four days after JPMorgan Chase’s chief executive, Jamie Dimon, agreed to take a $25 billion capital injection courtesy of the United States government, when a JPMorgan employee asked that question. It came toward the end of an employee-only conference call that had been largely devoted to meshing certain divisions of JPMorgan with its new acquisition, Washington Mutual.
[.]
In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist.
(He didn’t mean to, of course, but I obtained the call-in number and listened to a recording.)
“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”
Read that answer as many times as you want — you are not going to find a single word in there about making loans to help the American economy.
On the contrary: at another point in the conference call, the same executive (who I’m not naming because he didn’t know I would be listening in) explained that “loan dollars are down significantly.” He added, “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” In other words JPMorgan has no intention of turning on the lending spigot.
It is starting to appear as if one of Treasury’s key rationales for the recapitalization program — namely, that it will cause banks to start lending again — is a fig leaf, Treasury’s version of the weapons of mass destruction.
In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. As Mark Landler reported in The New York Times earlier this week, “the government wants not only to stabilize the industry, but also to reshape it.” Now they tell us.
Indeed, Mr. Landler’s story noted that Treasury would even funnel some of the bailout money to help banks buy other banks. And, in an almost unnoticed move, it recently put in place a new tax break, worth billions to the banking industry, that has only one purpose: to encourage bank mergers. As a tax expert, Robert Willens, put it: “It couldn’t be clearer if they had taken out an ad.”
Friday delivered the first piece of evidence that this is, indeed, the plan. PNC announced that it was purchasing National City, an acquisition that will be greatly aided by the new tax break, which will allow it to immediately deduct any losses on National City’s books.
As part of the deal, it is also tapping the bailout fund for $7.7 billion, giving the government preferred stock in return. At least some of that $7.7 billion would have gone to NatCity if the government had deemed it worth saving. In other words, the government is giving PNC money that might otherwise have gone to NatCity as a reward for taking over NatCity.
I don’t know about you, but I’m starting to feel as if we’ve been sold a bill of goods.
~~~~~~~
(emphasis added)
I’ve always held doubts about having a fox in charge of security at the chicken coop. The same fox who ate the chickens is charged with cleaning up the feathers…and supervise the raising of our newly hatched chicklets.
On April 24, 2004, there was a meeting at the SEC that led to-
U.S. regulator’s 2004 rule let banks pile up new debt
As rumors swirled in March that Bear Stearns faced imminent collapse, Christopher Cox was told by his staff that Bear Stearns had $17 billion in cash and other assets – more than enough to weather the storm.
Drained of most of that cash three days later, Bear Stearns was pushed into a hastily arranged merger with JPMorgan Chase – backed by a $29 billion dowry of taxpayers’ money.
Within six months, other lions of Wall Street would also either disappear or transform themselves to survive the financial maelstrom – Merrill Lynch sold itself to Bank of America, Lehman Brothers filed for bankruptcy protection, and Goldman Sachs and Morgan Stanley converted themselves into commercial banks.
…..Many events in Washington, on Wall Street and elsewhere around the United States have led to what has been called the most serious financial crisis since the 1930s.
But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The Securities and Exchange Commission’s failure to follow through on those decisions also explains why regulators did not see what was coming.
On that bright spring afternoon, the five members of the SEC met in a basement hearing room to consider an urgent plea by the big investment banks. They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast growing but opaque world of mortgage-backed securities, credit derivatives – a form of insurance for bond holders – and other exotic instruments.
Five investment banks led the charge, including Goldman Sachs, then headed by Henry Paulson Jr. Two years later, he left Goldman to become the U.S. Treasury secretary.
A lone dissenter – a software consultant and expert on risk management – weighed in from Valparaiso, Indiana, with a two-page letter to warn the commission that the change would be a grave mistake. He never heard back from Washington.
[.]
After 55 minutes of discussion, which can be heard on the Web sites of the agency and The Times and its international edition, the International Herald Tribune, William Donaldson, then the SEC chairman and a veteran Wall Street executive, called for a vote. It was unanimous. The decision, changing what was known as the net capital rule, was completed and published in the Federal Register a few months later.
With that, the five big independent investment firms were unleashed.
In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the SEC also decided to rely on the firms’ own computer risk models, essentially outsourcing the job of monitoring risk to the banks. Over the following months and years, all would take advantage of the looser rules.
The leverage ratio – a measurement of how much the companies were borrowing compared to their total assets – rose sharply at Bear Stearns, to 33 to 1. In other words, for every dollar in equity, it had $33 of debt. The ratio at the other companies also rose significantly.
(emphasis added)
As it turns out the $700 billion rescue package is being diverted.
Read again how that article is framed, “to throw it’s weight behind the central bank’s effort to unlock the credit markets” No, no, no – GE does not need to stand at the begging bowl…they’re just easing the stigma…for others. We know otherwise and
So when will those bad mortgages get bought up? Here’s another dirty little secret: They were chopped up into one hundred bits of paper and sold so which every investor has to agree and anyway, there’s not enough money. It’ll cost trillions. But not being shy, they’ll return to ask for more — to print more trillions and stick us with the bill.
The 2009 U.S.Deficit is estimated at $2 trillion
Eventually, the dollar will….. It’s NOW, our creditors, the Chinese are alarmed. Look into this window to see Chinese thinking in regards to the dollar. Usually they speak in subtleties. This rather blunt article by Reuters is startling.
U.S. has plundered world wealth with dollar: China paper
BEIJING (Reuters) – The United States has plundered global wealth by exploiting the dollar’s dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday.
The front-page commentary in the overseas edition of the People’s Daily said that Asian and European countries should banish the U.S. dollar from their direct trade relations for a start, relying only on their own currencies.
A meeting between Asian and European leaders, starting on Friday in Beijing, presented the perfect opportunity to begin building a new international financial order, the newspaper said.
The People’s Daily is the official newspaper of China’s ruling Communist Party. The Chinese-language overseas edition is a small circulation offshoot of the main paper.
Its pronouncements do not necessarily directly voice leadership views. But the commentary, as well as recent comments, amount to a growing chorus of Chinese disdain for Washington’s economic policies and global financial dominance in the wake of the credit crisis.
“The grim reality has led people, amidst the panic, to realize that the United States has used the U.S. dollar’s hegemony to plunder the world’s wealth,” said the commentator, Shi Jianxun, a professor at Shanghai’s Tongji University.
[.]
“The U.S. dollar is losing people’s confidence. The world, acting democratically and lawfully through a global financial organization, urgently needs to change the international monetary system based on U.S. global economic leadership and U.S. dollar dominance,” he wrote.
Shi suggested that all trade between Europe and Asia should be settled in euros, pounds, yen and yuan, though he did not explain how the Chinese currency could play such a role since it is not convertible on the capital account.
Ripple effects are usually observable six to twelve months out.
Summer 2009 will be brutal.
