The wizards of smart at Silicon Valley Bank loaded up on mortgage backed securities in the last few years, and when they needed to raise cash recently they had to sell some at a big loss

$1.8 billion.

That sparked the run.

The problems have been known for months by people like Chris Whalen.

This guy below actually tweeted out some particulars in January. This was no surprise.

Except to the federal regulators, who were completely asleep at the switch.

This is what happens when your bond portfolio is full of low-yielding securities. No one wants them when you have to sell them in the new higher interest rate environment. It's not a problem if you will "hold to maturity".

SVB wasn't very smart loading up on this stuff. Apparently they did not even hedge this otherwise foolish over-large position.

Hell, it's probably all California MBS, too. Think the outrageously overpriced homes, refinanced at rock bottom rates, of the very elite who have all their personal and business banking at SVB which is now blowing up. And all the second tier businesses and their employees dependent on them.

It's an inferno devouring their wealth from every side.

And they are screaming like stuck pigs for a bailout.

 

 

Ten years after fall of Lehman, lawyer still tracking down borrowers who committed fraud

From the story in The Denver Post, here:

“What I kept seeing over and over again is how greed manifests itself,” he said. “There was an unprecedented amount of fraud.” ... People lied about their income, they lied that a home would be a primary residence, they lied about how indebted they were, they even lied about who they were, using other people’s identities to take out loans.

“It was crime on a massive scale, but nobody viewed it that way,” he said.

Banking expert Chris Whalen sums up 2008 the same way, here:

People keep asking what we think of the 10-year anniversary of the collapse of Lehman Brothers.  Our answer is that not much has changed.  Lehman once had the best performing bank in the US and then it was gone.  Why?  Fraud on loans and securities.

It seems our biggest problem, from the top of our society all the way on down to the bottom, is that it is shot through with liars.

Remember that next time you read a poll, or a resume.

Let God be found true, though every man be found a liar. -- Romans 3:4

PIMCO's Bill Gross wakes up to the wall hit by TCMDO, but not fully

Others saw this in April 2013.

Here's Bill Gross in September 2014:

The current outstanding total [credit] approximates $58 trillion and has been expanding at an average annual rate of 2% for the past five years, and 3.5% for the most recent 12 months. Put simply, if credit needs to expand at 4.5% per year, then the private and public sectors in combination must create approximately $2.5 trillion of additional debt per year to pay for outstanding interest. They are underachieving that target in the U.S., which is the reason why GDP growth struggles at 2% real or lower and nominal GDP growth seems capped at 4.5% or lower. Credit creation is essential for economic growth in a finance-based economy such as ours. Without it, growth stagnates or withers.

-------------------------------------

What Bill Gross doesn't seem to appreciate is the gravity of this slowdown historically to total credit expansion of just $1.14 trillion annually. TCMDO, total credit market debt outstanding, in the post-war DOUBLED every 6 to 11 years until 2007. That implies that normal credit expansion until 2007 was between 6% and 11% PER ANNUM. At 8.5%, an average level, TCMDO should grow well in excess of $4 trillion annually at these levels. 4.5% isn't going to cut it. And the actual 2% or even 3.5% is a catastrophe compared with the historical record.

By 2013, according to historical norms, TCMDO could have already reached $100 trillion if it matched the fastest pace on record under Jimmy Carter and Ronald Reagan. Instead it's stuck at $58 trillion in 2014.

The system has hit the wall. Decades of economic shrinkage, to borrow Chris Whalen's phrase, lie ahead, and we're already in the first one.

Incidentally, nonfinancial corporate debt has grown on average $567 billion annually between 2010 and 2014, accounting for about 50% of the average increase in TCMDO. And in 2013, corporations bought back something like $600 billion worth of their own stock. 

Banks probably will need ZIRP until March 2015 to be fully recapitalized from the crisis

In March 2013 Warren Sulmasy estimated that banks had lost $1 trillion in the crisis, and had recapitalized as little as $300 billion of that by that time.

Chris Whalen has estimated that ZIRP yields banks profits of $100 billion quarterly at the expense of savers who are not fairly recompensed for their deposits under the Federal Reserve policy known as zero interest rate policy.

So theoretically by March 2014, one year on from Sulmasy's estimate, banks had recouped an additional $400 billion, with $300 billion yet to go, which should take us to the spring of 2015 before we can say that banks should have been made completely whole from the crisis.

ZIRP should most definitely end by then, or things are worse than we imagine.

Business as usual: a government of the banks, by the banks and for the banks.

Jim Cramer reads fellow Democrat Tim Geithner and suddenly discovers frugality: both men are only five years behind the curve

THE MARKET IS UP 11% SINCE CRAMER SAID SELL IN SEPTEMBER 2013

Jim Cramer, quoted here:

"I think America's gone frugal. Just like our parents, or grandparents, or even great-grandparents changed their patterns of behavior somewhat radically after the Great Depression, I'm thinking we've changed ours, too."

Here's a newsflash for you Jim: America went frugal already more than five years ago. Why do you think things are the way they are?

See Mish's "The Age of Frugality" here, from October 19, 2008, which noted that frugality had finally (!) made the cover of a magazine after he'd been talking about it since at least March:

"Frugality has finally made front page. BusinessWeek is commenting on The New Age of Frugality."

Cramer thinks there's a new opportunity in the "new" frugality. Remember, this is coming from the same guy who told you in October 2008 to get out of the market if you needed your money in the next five years. If you took his advice, you missed one of the most incredible bull markets in the history of investing. Unfortunately, being five years behind Jim doesn't realize we've already reaped the opportunity of the new frugality.

The future?

I'm still with Chris Whalen and Ambrose Evans-Pritchard: DECADES of economic shrinkage ahead. We've already enjoyed the prosperity which the debt we racked up provided. Civilizationally speaking: It's time to pay for all that.

Sorry old boy.

Unnumber'd Maladies each Joint invade,

Lay Siege to Life and press the dire Blockade;

But unextinguish'd Av'rice still remains,

And dreaded Losses aggravate his Pains;

He turns, with anxious Heart and cripled Hands,

His Bonds of Debt, and Mortgages of Lands;

Or views his Coffers with suspicious Eyes,

Unlocks his Gold, and counts it till he dies.

-- Samuel Johnson, 1749

The Fed is subsidizing all banks to the tune of $100 billion per quarter in artificially depressed income to depositors

Chris Whalen, last November, here:

Chief among the data points to be noted is that net interest expense, which is the money paid to depositors at banks, continues to fall.  While all banks earned about $118 billion in interest income last quarter, they paid just $13 billion to depositors, a graphic example of the “financial repression” used by the Fed to subsidize the US banking industry.  Via QE, the Fed is subsidizing all banks to the tune of over $100 billion per quarter in artificially depressed interest cost and income to depositors of all stripes.

Total Credit Market Debt Has Grown Less Than 9% In The Last Three Years

The debt deflationary depression continues.

Total credit market debt owed (TCMDO), now unhelpfully renamed by the Federal Reserve "All Sectors; Credit Market Instruments; Liability" and perfectly Orwellian in doing away with both information-rich terms "debt" and "owed", has grown 8.76% from the recent April 2010 low to April 2013, about $4.64 trillion.

To put that in context, there have been episodes going back to 1949 when this measure has exploded 50% in three years' time so that doubling times for TCMDO have been as short as 6 years. The longest periods between doubling have been around 11 years long, and since 1949 have averaged about 8 years. The last time the metric doubled was in July 2007, at just under $50 trillion. At almost six years out from that date, we could well have been close to witnessing the number double again to $100 trillion by now based on past experience, or certainly something like half the way there, say to $70-$75 trillion. But here we are instead, at less than $57.6 trillion. It's like we hit a brick wall, the brick wall of a repossessed house most likely.

Say what you will against such a debt-based economy, its fundamental immorality, unsustainability and limits, but that's the economy we have, where the real money in the post-war has been in growth in borrowing, not in the money supply. From this perspective we have entered a long debt-deflationary depression, to get out of which borrowing will have to pick up to at least the point where TCMDO doubles at the extreme of the post-war experience, say by 2018, 11 years on from 2007.

Unfortunately for us, if the last three years are indicative of the new normal pattern of very slow debt expansion, it will take until about the year 2042 for TCMDO to double again to $100 trillion, another 29 years, an unprecedented slowdown in the American way of life.

This is what Chris Whalen meant when he warned in 2010 of decades of economic shrinkage ahead.

Housing, Shmousing. Here's What's Really Been Happening.

RC Whalen, here, in January:

"[J]udicial states remain mired in foreclosure backlogs that still stretch ahead for years to come.  Because Barack Obama and Tim Geithner refused to restructure the truly sick parts of the US housing sector (and the zombie banks with these exposures), only sectors where speculative capital can be deployed quickly and easily are showing signs of life.  You don’t see private equity firms buying homes in Scarsdale, NY, or Greenwich, CT, now do you?  Even ignoring the horrible effects of SS Sandy, was NJ housing really recovering?"  

When the People Lose Control of the Public Finances, Tyranny Often Follows

Herbert Hoover has captured the imagination of a number of writers recently, from Walter Russell Mead to R. Christopher Whalen.

Now James Grant weighs in too at The Wall Street Journal, here, contrasting Hoover's fear of tyranny with our desire for it:

Herbert Hoover, who learned a thing or two about debt and adversity, warned in his memoirs that, unless the dollar was convertible into gold, the people would lose control of the public finances, "their first defense against tyranny." Simon Johnson and James Kwak, the authors of "White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You" could not seem to disagree more. To them, the problem today isn't paper money but a government that hovers too little and taxes too lightly. More regulation—especially financial regulation—and selectively higher taxes are the answers, they contend. ...

Johnson and Kwak are special pleaders. Human life being uncertain, they wish to protect us from it. How much risk of sickness, unemployment or indigence do you, a mere individual, wish to bear on your own? "The question we leave you with is this," the pair write: "Are you and your family willing to face these risks alone, not knowing what will happen in the future, or do you want to live in a society that will protect you from misfortunes that lie beyond your control? For that is what the debate over the national debt boils down to, and its outcome depends on you."

More than likely, the outcome does not depend on you, whoever you are. It rather turns on the intellectual climate in which the people at the top frame public choices.

And Mr. Grant makes another good case for the choice of free men: gold.

In Case You Missed It, Noted Libertarian RC Whalen Endorsed Newt Gingrich

RC Whalen's expertise with all things banking frequently is on display at ZeroHedge, where his endorsement of Newt Gingrich appeared, no doubt to the chagrin of its many liberal readers.

Here is the concluding paragraph:

"To me Newt is the only credible conservative in the presidential race for 2012, but one who brings a mixture of core American values, real world experience and a pragmatic, compassionate approach to a range of issues.  Gingrich wants to facilitate real change in America, while Romney only wants to run the welfare state better.  And Newt Gingrich is not afraid to call Barack Obama a socialist in a national presidential debate.  That is why I support Newt Gingrich for the Republican nomination for the presidency."

Marxism Won In America: The New Deal and Great Society Stem From Socialism

So says R. Christopher Whalen here:

[D]espite America’s pretensions to being a free market, democratic society, the Marxian world view won the battle for ideas in the 20th Century. The New Deal and Great Society efforts to increase the scope of government in America all stem from the socialist ideas of FDR and his political heirs in both parties.

A genuine conservatism and a truly conservative Republican Party must stand for dismantling both.

Capitalism Hasn't Failed in America. It Just Hasn't Been Tried For A While.

So says Chris Whalen here, in reply to Roubini:

[D]espite America’s pretensions to being a free market, democratic society, the Marxian world view won the battle for ideas in the 20th Century. The New Deal and Great Society efforts to increase the scope of government in America all stem from the socialist ideas of FDR and his political heirs in both parties.

Which explains, among other things, Paul Krugman.

The Nation Rips Bill Clinton a New One for Enabling Financial De-Regulation Under Gingrich

An argument, here, with which we happily agree, except there's no discussion of the de-regulation of the homeowner, who, since 1997, has been able to forego taxes on up to $500,000 of gains on the sale of a principal residence every two years.

Smart couples plausibly have been able to milk this provision very profitably by flipping homes up to five times since then, until everything fell apart in 2008.

And don't forgot all those HELOCs whose capital was misallocated to financing automobile purchases, vacations, and other consumption not even remotely having to do with "home improvement."

The current housing debacle shows among other things, as Chris Whalen has suggested, how the entire post-war commitment to housing was a giant, civilizational misallocation of capital. More than anything, it was a failure of a sentimentality which developed in the wake of the de-moralization which forever destroyed the naivete of a nation. The de-regulation of the financial industry at the end of that road was only the logical conclusion of this process, its final outworking, not its cause.

The Current Shape of the 78 Year Emergency

Robert G. Wilmers, a defender of community banking, doesn't explicitly mention the abolition of Glass-Steagall, but he lays out some of the consequences of that nonetheless, one of which is that the FDIC is now on the hook for the mistakes of speculators, something it was never intended for:

In 1990, the six largest financial institutions accounted for 9 percent of all U.S. domestic deposits. As of Dec. 31, 2010, the six biggest banks accounted for 36 percent of deposits. ...

In 2010, the six largest bank holding companies generated $56.1 billion in trading revenue, or 74 percent of their $75.7 billion in pretax income. ...

The Big Six institutions earned more than 93 percent of the trading revenue generated by all American banks during the past two years. ...

The major Wall Street banks operate under the taxpayer-backed umbrella of the Federal Deposit Insurance Corp. and, as we saw in 2008, the Treasury Department and the Federal Reserve. To pay for the cost of such protection, legislators and regulators have forced thousands of Main Street banks like the one I run to absorb a larger, more expensive set of regulatory costs, including higher capital and liquidity requirements. ...

Regulators have failed to distinguish between trading activity and traditional banking, or to recognize that the activity of an institution, not its form, should be the proper focus of oversight.

New Rules Needed

Main Street banks are heavily regulated -- and have been for generations -- to ensure their safety, soundness and transparency. A new generation of regulation must now be applied to what has become a virtual casino. ...

Those financial institutions that engage in trading should live and die by the pursuit of their fortunes, rather than impose a burden on the whole economy.

It’s time to disentangle the trading of big financial institutions from their more traditional commercial banking operations and put an end to this unsafe business model.

Make sure to read his entire op-ed at Bloomberg, here.

Progressivism: Just Another Word For Fascism

As seen here:

"Reading various online threads, it never ceases to amaze me that advocates of what we will call a more liberal or progressive line of economic thinking inevitably embrace the corporate state [fascism] for solutions."

If You Don't Have the Note Today, You Don't Have No Game

Chris Whalen here shows the regrettable continuity between the problems of today and the 1930s with respect to the legal issues in judicial foreclosure and concludes with the following:

One thing you can depend upon is that there will be no fixing of what is wrong with the US real estate sector until Congress addresses once and for all the issue of delivery of a note as collateral for a mortgage backed security. Unless, and until, we fix the private mortgage securitization market, the housing sector will not stabilize and the chance of further deflation will remain a threat to economic recovery.

Former Supporter Perceives the Blended Strongman in President Obama

In remarks available here from the president of the Black Chamber of Commerce.

Harry Alford likens Obama to both a fanatical Marxist and to a brown-shirted Fascist.

R. Christopher Whalen has called attention to the blend here, relying on defeated Herbert Hoover's reflections in retirement.

It is a useful hermeneutic for explaining otherwise disparate tendencies in American politics.

It also kind of gives new meaning to being "a mutt like me."

RC Whalen Wants Us To Declare FDR's 'Emergency' Over Already

Some excerpts:

President Herbert Hoover said of the New Deal that it was an attempt to crossbreed Socialism, Fascism and Free Enterprise, part of a collectivist revolution led by FDR and carried within the Trojan horse of economic emergency. ...

The second half of volume three of President Hoover’ s memoir, The Great Depression, contains a scathing critique of his successor -- and also an admission of personal responsibility for the catastrophe. It features several times the word “ fascism ” to describe many Roosevelt-era prescriptions for fighting the Depression, a blunt reminder that much of what FDR did during these dark years was borrowed from the strong men of Europe — Mussolini in Italy, Hitler in Germany, and Stalin in Russia.

Don't miss the rest, here.

Chris Whalen Explains How the Taxpayers Bailed Out the Shareholders

They don't teach angry at church. You'll just have to go here. 

The Federal Reserve is a wholly owned subsidiary of the financial sector, and so are you.

Nine Years of Housing Inventory Owned by Banks

Which is why Chris Whalen calls the banks unwilling REITs (Real Estate Investment Trusts). This is a national catastrophe which threatens our very way of life. No one can sell. No one can move.

As reported here by the Wall Street Journal on October 30th:

As of September, [banks] owned nearly 994,000 foreclosed homes, up 21% from a year earlier. The shadow inventory stood at 5.2 million homes, down 7% from a year earlier. Grand total: 107 months of inventory.

And Obama's off on another junket at taxpayer expense, costing an estimated $200 million PER DAY according to widely circulated reports.

Why are Americans putting up with this?