Bank Stress Test Results Will Be Delayed

It is amazing how strong the stock market has been given this nonsense.

The Federal Reserve will postpone the release of stress tests on the biggest U.S. banks while executives debate preliminary findings with examiners, according to government and industry officials.

The results, originally scheduled for publication on May 4, now may not be revealed until toward the end of next week, said the people, who declined to be identified, according to Bloomberg. A new release date may be announced as soon as tomorrow, they said.

Bloomberg continues:

Regulators and bank executives are concerned about how the disclosure is handled because weaker institutions could suffer a collapse in their stock prices.

Yup, news of a bank being partially nationalized will do that to the stock.

The Grande Dame of Monetary Theory Speaks

Anna Schwartz (93) has granted an interview to City Journal on the topic of the current economy and monetary policy. It is clear that even at her advanced age she remains at the top of her game. Hayek, Mises, Schwartz, Friedman, great economists seldom die young.

On Alan Greenspan and Ben Bernanke she says:

Alan Greenspan, too often preferred to manage the economy—a fatal conceit, a monetarist would say. Greenspan wanted to avoid recessions at all costs. By keeping interest rates at historic lows, however, his easy money fueled manias: first the Internet bubble and then the now-burst mortgage bubble. “A too-easy monetary policy induces people to acquire whatever is the object of desire in a mania period,” Schwartz notes.

Greenspan’s successor, Ben Bernanke, has followed the same path in confronting the current economic crisis, Schwartz charges. Instead of the steady course that the monetarists recommend, the Fed and the Treasury “try to break news on a daily basis and they look for immediate gratification,” she says. “Bernanke is looking for sensations, with new developments every day.”

Here's Schwartz on the stimulus package:

President Obama’s stimulus is similarly irrelevant, she believes, since the crisis also has nothing to do with a lack of demand or investment. The credit crunch, which is the recession’s actual cause, comes only from a lack of trust, argues Schwartz. Lenders aren’t lending because they don’t know who is solvent, and they can’t know who is solvent because portfolios remain full of mortgage-backed securities and other toxic assets.

I would add that the slowdown in money supply over the summer of 2008 was the specific cause of the intensification of the downturn this fall. It's surprising, given that she is the ultimate monetarist that she does not mention this.

Schwartz on systemic risk:

What about “systemic risk”—much heard about these days to justify the government’s massive intervention in the economy in recent months? Schwartz considers this an excuse for bankers to save their skins after making so many bad decisions. “The worst thing for a government to do, though, is to act without principles, to make ad hoc decisions, to do something one day and another thing tomorrow,” she says. The market will respond positively only after the government begins to follow a steady, predictable course. To prove her point, Schwartz points out that nothing the government has done to date has really thawed credit.

On the coming inflation:

Schwartz indicts Bernanke for fighting the wrong war. Could one turn the same accusation against her? Should we worry about inflation when some believe deflation to be the real enemy? “The risk of deflation is very much exaggerated,” she answers. Inflation seems to her “unavoidable”: the Federal Reserve is creating money with little restraint, while Treasury expenditures remain far in excess of revenue. The inflation spigot is thus wide open. To beat the coming inflation, a “new Paul Volcker will be needed at the head of the Federal Reserve.”

At this point, I would take a Paul Volcker, but we really need even better.

Obama: Master of Smooth Rhetoric and Operational Madness

Peter Boettke analyzes President Obama in light of last night's speech. I think Boettke nails it. Obama comes off as a man of reason, even though his policies may be mad. I would further suggest that Obama must have contempt for just about everyone, if he is also lying about his true goals, e.g., as Boettke asks "how sincere does one believe..[Obama's] claim that the US government wants to return the banking system and the auto-industry to the private sector as quickly as possible really is?"

Here's more from Boettke:

Ok, who listened to President Obama's press conference last night discussing his first 100 days in office? If not, track down a transcript. First, despite the fact that the questions are scripted and it is not an open give and take forum, Obama is masterful at making one think it is an open and critical dialogue in which the best argument wins. His rhetoric appeals to anyone who finds reasonableness a virtue --- which should be anyone. Conservative pundits often point back to Reagan as the example of rhetorical master, but Reagan was a rhetorical master based on an ideological
principle --- "Mr. Gorbachev Tear Down This Wall" or "Trust But Verify" when
dealing with the "Evil Empire". Obama is a rhetorical master for the egg-head class. We want rigorous debate, we want all sides heard, we come at this with no ideological blinders on, but instead let good argument and evidence win the day. We listen hard, think even harder, and make up our minds based on reason and evidence. He uses this rhetoric so much, we believe it. Politics not by principle nor by interest, but politics as good conversation, where good is defined by the norms of academic debate in the ideal. It is as if the intellectual culture of the University of Chicago has come to Washington...

Whatever doubts one might have, one must admit that to egg-heads the professorial style that Obama adopts and the ease with which he speaks to us is pretty effective that he is a man of "reason" and not ideological emotions run amok all the while his administration is engaged in a series of hyperactive ideological moves to transform the US economy. Obama is masterful in his rhetoric, but the consequences will be devastating in reality if the mainline of economic thinking (from Adam Smith to F. A. Hayek and Milton Friedman) is the more accurate portrayal of reality. The most ambitious ideological dreams do run afoul of a refractory reality.

Boettke's full post is here.

So What Really Went Down at the May 2007 Plunge Protection Team Meeting?

Anyone with info please email me, confidentiality of sources guaranteed.

The Chrysler Bankruptcy: Plain and Simple A Battle Between Fascism and Capitalism

About 40 financial entities including many hedge funds own roughly 30 percent of Chrysler's debt.

In the normal ways of bankruptcy, their title to Chrysler's assets is superior to that of most other entities. That is, they should receive their money before any money goes out to most others and before options are discussed as to whether Chrysler remains an ongoing business and what shape that business should take.

When the debt holders analyzed the risk and bought the debt, they did so with this belief.

But, the demands by the hedge funds that this basic obligation be met has forced Chrysler into bankruptcy, since the Obama Administration would like to ignore the rights of these debt holders and force a restructuring that gives debt holders less than is rightfully owed to them, and more to a newly restructured Chrysler that heavily favors the demands of the United Auto Workers that chiefly, under the Obama plan, would be reflected in the formation of a VEBA that would end up owning a 55% stake in the new Chrysler.

A VEBA or Voluntary Employee Beneficiary Association is a voluntary association of employees; The organization must provide for payment of life, sick, accident, or other similar benefits to members. Bottom line, with VEBA's 55% share of Chrysler, it's a cover for an employee takeover.

Of the hedge funds demands for what is clearly a legally correct demand, Obama said, "I don't stand with them."

Of further note is a release by 20 "Non-TARP" debt holders that said they had been sidelined during negotiations between lenders and the government.

The group, which said it holds $1 billion in Chrysler debt, complained that the four banks agreeing to the plan were "obviously conflicted" because they had accepted money from the government's Troubled Asset Relief Program.

The group said its offer to the Treasury Department to reduce its claim to 40 percent was "flatly rejected or ignored."

Thus, while the Administration claims that it is not interested in running banks, when key decisions must be made that are important to the government, TARP recipients side with the government, when non-TARP conflicted financial entities act differently. This pure and simple is fascism, i.e. important government influence or control over corporate actions.

The next battle ground will be the bankruptcy courts. Will the courts uphold the rule of law or will they bend to Obama Administration pressure?

The results from that battle will be an important signal as to how far along the road to fascism we are. An Obama win will not be promising for the future of free markets and the rule of law.

The Recent GDP Number: The Good, The Bad and the Future

The shock headline number was the drop of 6.3% in GDP for Q1. However, drilling deep into the number suggests that, as I have been pointing out with regard to other recently released data, the worst is over.

Here's NYT's Catherine Rampell who shows how by drlling down a bit the GDP number suggests the worst is probably over:

The areas showing the worst declines were generally lagging indicators — the backward-looking measures that continue to trend downward even after the overall economy has already begun to turn around. But one of the chief leading indicators — those measures that are more predictive of the future of the economy — fared a little better.

Consumer spending and residential investment (basically, housing) are usually considered leading indicators. That means growth in those areas usually precede growth in other areas of demand when an economy is on the path to recovery. While residential investment did fall in the first quarter of this year, consumer expenditures showed a modest uptick of 2.2 percent after declining 4.3 percent the previous quarter.

By contrast, nonresidential investment in structures and equipment and software — usually considered lagging indicators, since companies make adjustments to their building and investing after they already have a sense of how their businesses are doing — showed some of the steepest declines...

many people overemphasize growing unemployment numbers (not part of today’s G.D.P. report, by the way) as a signal for where the economy is headed. But job market conditions usually lag far behind other measures of the business cycle, since companies often make messy, uncomfortable firing and hiring decisions after they’ve dealt with other types of cutbacks and expenses.

Mainstream Nonsense

DrudgeReport is fronting with the below AP photo. It is highly misleading if that is supposed to give the impression of a New York subway.

I have been in midtown Manhattan for the last week, I have seen exactly one person with a mask. She wasn't wearing it on her nose and mouth, it was down around her neck. She was walking into the New York Palace Hotel with luggage and I'm guessing she was probably wearing it on a flight into the city. Other than that midtown Manhattan is mask free.

What is all this scarce stuff about, on a flu that doesn't seem to be killing anyone outside Mexico?

The 17th Floor of 650 Fifth Avenue

From what I hear, it might pay for the SEC to set up a satellite office at the 17th Floor of 650 Fifth Avenue. That is, if they get permission from the Bidens.

Ponta Negra may not be the only funny firm up there.

HR 1207 Now Has 100 Co-Sponsors

Fed chairman Ben Bernanke's, put a happy face on the Fed, PR campaign needs a little tweaking, it appears.

Latest word is that Ron Paul's bill (HR 1207) calling for an audit of the Fed (It has never been audited in its entire history) now has 100 co-sponsors.

This Flu Season Panic in Style

Not your drab government issued masks. Free markets can even make panic cool.





(ViaMark Perry)

End the Fed by Ron Paul

Noticed this on Amazon: End the Fed

NYT Gets the "Auto" Bailout

It's a bailout of the unions.

The NYT headline: As Detroit Is Remade, the U.A.W. Stands to Gain

The story:

In the devastating slump that has forced two of Detroit’s automakers to the brink of bankruptcy, the United Automobile Workers union stands to become one of the industry’s few winners.

According to restructuring plans proposed this week, the union will have more than half the stock in Chrysler and a third of General Motors, meaning it will have tremendous influence, with the government, in determining the future of the companies.

Alert: Plunge Protection Team Meets Today

This morning, Secretary Geithner will convene the President’s Working Group on Financial Markets (PWG), a.k.a., the Plunge Protection Team, at the Treasury Department. The PWG includes the Secretary of the Treasury, who serves as its chairman, and the Chairmen of the Board of Governors of the Federal Reserve System, Securities and Exchange Commission, and the Commodity Futures Trading Commission.

Tracking Your Local Unemployment Rate

Google recently added a search result that pulls out and graphs public data. Search for any state or county and the word “unemployment,” and you will see an interactive chart showing that jurisdiction’s historical unemployment rates. There are also options to compare rates in multiple regions.

(viaNYT)

Bullish News On Real Estate, Out Of Milken Conference

Lew Ranieri, who made a billion dollar fortune off the S&L real estate collapse in the 1980's and who is known as the "father of mortgage securities", told the Milken Conference in a breakout session:

I'm actually very enthusiastic about housing. I haven't said that in five years. … Not only are we within shouting distance of a bottom, we are standing at the beginning of an amazing brave new world. … Affordability has never been this good.

Regarding the Fed's keeping rates below market rates, Ranieri said:

What you're doing is creating one of the greatest wealth transfers we've ever seen. … A large portion of consumer wealth that was destroyed by the housing collapse is being reset … at the cost of bondholders, at the cost of taxpayers

Ranieri is a major league insider and thinks everything the Fed and the Treasury are doing to prop up the markets are just great, but he does know real estate, and what he is saying falls in line with what I'm detecting about real esate and the overall economy. The worst is over. Ah, that is, until the inflation hits.

Alert: Christy Romer Testimony Tomorrow

Christy Romer, chair of the President’s Council of Economic Advisers, will appear before the Joint Economic Committee, tomorrow.

WTF Is Going On?

This flu "pandemic" is starting to sound like Henry Paulson's bailout propaganda. None of the spiel fits the facts, and the announced planned government actions seem out of sync with the facts.

First, we have a World Health Organization official saying there have been only 7 deaths not 152:

"Unfortunately that [150-plus deaths] is incorrect information and it does happen, but that's not information that's come from the World Health Organisation," Ms Allan told ABC Radio today

Further, the cases outside Mexico seem to be mild.

But, then we have this from WHO:

The World Health Organization warned on Wednesday that a global flu pandemic was imminent, raising its threat level as the swine flu virus spread and killed the first person outside of Mexico, a toddler in Texas.

On Twitter, Jack Krupansky wisely remarks:

What would it mean to have a "pandemic" of an illness that has "mild", non-fatal symptoms? That seems like an absurdity.

And Lew Rockwell makes a twitter post that suggests he may know more than he is saying:

Does anyone believe the swine flu story is entirely on the up and up?

UPDATE: During his press conference this evening, President Obama may have answered to some degree the concerns I have expressed in this post. He seemed to indicate the alerts are not about a present danger, but a caution being taken because the H1N1 virus is a new virus where it is not entirely known how it will impact the country or the world, versus an older virus where it would be much clearer as to how it would develop.

We shall see.

Tom Woods Clues Us In On the Clueless

With apologies to Billy Joel, Tom Woods cuts Air America host Thom Hartmann once, he cuts him twice. But, you'll still be looking for Woods to cut some more.

A great educational piece from Woods, when you are not rolling on the floor splitting your gut laughing. Woods may have missed his calling. He channels Don Rickels, Grucho Marx and George Burns in this piece.

A word of advice, if you are clueless right winger or clueless left winger, don't sit in the front row seats if Tom Woods is scheduled to speak.

Fed Leaves Target Rates Unchanged; Sees Gradual Improvement in the Economy

The following release was issued by the Fed following its two day FOMC meetng that ended this afternoon:

Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time. Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of financial and economic developments.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

The Geithner Meeting on Credit Card Reform

The following organizations participated in the discussion today with Secretary Geithner, Congresswoman Carolyn Maloney and Roxana Araujo of Hollywood, FL on the need for national credit card reform.

An odd mix. Was this for show, or is Geithner going to take into consideration input from this motley crew?

 

AARP

NAACP

National Small Business Association

National Urban League

SEIU

Consumer Action

US PIRG

Consumer Federation of America

Consumers Union

Center for Responsible Lending

Pew Charitable Trust

Demos

Housing Works

New America Foundation

University of Maryland, School for economics

District of Columbia Baptist Convention

George Washington University

National Foundation for Credit Counseling

Backdoor Bank Nationalizations

It's much, much worse than I thought. Under the cover of the "stress test" results, it appears that the U.S. government is about to nationalize a significant number of the largest banks in the country.

Bloomberg reports:

At least six of the 19 largest U.S. banks require additional capital, according to preliminary results of government stress tests, people briefed on the matter said.

Here's where the nationalization comes in. Bloomberg continues:

While some of the lenders may need extra cash injections from the government, most of the capital is likely to come from converting preferred shares to common equity, the people said. The Federal Reserve is now hearing appeals from banks, including Citigroup Inc. and Bank of America Corp., that regulators have determined need more of a cushion against losses, they added.

What's most instructive about this government push toward forcing banks to convert to common stock (that will be held by the government) is that there appears to be no sound financial reason for such a conversion. Commentators across the political spectrum seem to have all reached this conclusion.

Here's Paul Krugman:

OK, I don’t get the latest bank-rescue idea: converting TARP preferred shares to common equity. It really does seem to fall into the shuffling-the-deck-chairs category.

Here's James Kwak:

...it makes no sense. That is, there’s nothing fundamentally wrong with converting preferred for common, but it doesn’t create anything of value out of thin air...There is a minor benefit to the bank because now it doesn’t have to pay dividends on the preferred. But otherwise you’ve just shuffled together the claims of the last two groups of claimants - the preferred and the common shareholders..

Here's Tyler Cowen:

If you don’t give a bank any more money, it doesn’t have any more money.

Bob Murphy comes up with the only reason that makes any sense as to why the government wants conversion:

...pretend for a moment that the politicians and bureaucrats in DC care about power

What appears to be going on here is another BIG LIE from the government. This time it is about the reason for the conversion. Make no mistake, it is about control and power. The politically favored, e.g., Goldman Sachs, will be allowed to run free and wild, while the banks where the government will now have significant ownership positions will have more restraints on them than an enemy combatant undergoing a waterboarding.

In a very short time, the government will have control ownership positions in some of the largest banks in the country and in the auto industry companies, Chrysler and General Motors.

This is not your grandfather's free market economy.

Goldman Sachs Hires Barney Frank Staffer To Be Its Lobbyist

The Goldman Sachs relationship with Congress has just gotten even more intimate. Goldman has grown another tentacle, designed to grab directly at the House Financial Services Committee chair Rep. Barney Frank, D-Mass.

The new top lobbyist, Michael Paese, was recently the top staffer to Frank. He has been a registered lobbyist for the Securities Industries and Financial Markets Association since he left Frank's committee in September and will join Goldman as director of government affairs.

ViaTimCarney

Biden Son and Brother Near Epicenter of Two Ponzi Schemes

It's now public, Francesco Rusciano of Ponta Negra has formally had his assets frozen by a Federal Judge at the request of the SEC.

"Rusciano went to great lengths to deceive investors, and the SEC is committed to ensuring that money managers who provide inaccurate information to investors and fail to uphold their fiduciary duties are held responsible for their misconduct," said Rose Romero, Director of the SEC's Fort Worth Regional Office.

Back in March, as a blind item, I reported that this was likely to come down:

Very Suspicious Trading...

...coming out of a New York based hedge fund. They report no monthly losses in two years of currency trading. Such perfecto trading has not been seen since Hillary Clinton did it in cattle futures.

They appear to have offices, or at least a mailing address, on Fifth Avenue in a building once owned by the Shah of Iran's Pahlavi Foundation. Notorious tenants have included: Marc Rich and Ivan Boesky, though there is zero indication that they have any involvement in what appears to be a Ponzi Scheme.

This one is about to break wide open.

What I didn't know at the time was that the vice-president's son and brother are playing cameo roles in this saga.

John Hempton of Bronte Capital is doing the leg work on this one:

The address given in the second Ponta Negra marketing document is 17th Floor, 650 Fifth Avenue New York. I can’t find any reference to Ponta Negra there – but there is a fund-of-hedge-funds based there. It is Paradigm Global Advisors and they manage roughly 270 million dollars according to the Wall Street Journal and 500 million on some other estimates I have seen.

Now Paradigm is a name that will ring a few bells. The firm is owned by Hunter and
James Biden. Hunter is Vice President Joe Biden’s son and James is the Vice President’s brother...

Paradigm Global does not have an entirely pristine reputation. Here is a Wall Street Journal article about a fund that they co-branded with Stanford Financial (click here).

I copied the picture from that WSJ article.

According to the WSJ article Paradigm claims that the Bidens never met or communicated with Mr Stanford. I believe them. They lent the name Paradigm to
the Paradigm Stanford Capital Management Core Alternative Fund without ever having met the principals of Stanford. Such is the standard of due diligence on Wall Street.

I was worried at first that Ponta Negra might be a legitimate fund headquartered in another cubicle on the 17th Floor of 650 Fifth Avenue. It turns out that there are several funds also HQ'd there. Paradigm it seems does all the signage on the floor – but once you get past the couple of Paradigm people on the front desk you find several doors behind which reside several hedge funds – a hedge fund hotel if you want. Most of the offices were empty mid-morning – which was very surprising. These funds are largely marketed by Paradigm.

Still there could be a fund (Ponta Negra) independent of Paradigm on the 17th floor. There could be – they too would need to employ a Jeffrey Schneider as a marketing agent. To quote the Wall Street Journal story:

A Paradigm marketer, Jeffrey Schneider, confirmed accounts provided by others that he brought in the Stanford business. Stanford would bring clients to the fund and Paradigm would manage it, according to Mr. LoPresti. The fund is mentioned on the Web site of a Stanford entity called Stanford Trust Co. as one of its "investment management strategies."

Ok – by this point you should at least be open to the possibility that the Vice President’s son and brother employ someone who uses the good Biden name
and a stolen client list to market Ponzi schemes.

There is no allegation here that the Bidens are involved. Just that their standard of due diligence is low. Very low.

The Stanford that Hempton is referring to is this one.

As I have said many times, the bad guys always try to get near centers of power. Joe Biden was a very powerful Senator when Stanford and Rusciano sought to do business with his son and brother.

It appears that the most likely explanation for the Bidens' possible involvement with two bad guys is that they are clueless about finance, probably set the business up, in part, to trade off of the Senator's power, and never had a clue as to the types of bad guys that would circle around to give the appearance of being close to such power.

Oliver Stone Signed to Direct 'Wall Street 2'

Hollywood Reporter writes:

The plot line for the new "Wall Street" iteration has not been divulged, but it will pick up with corporate raider Gordon Gekko, the character for which Douglas won a best actor Oscar more than 20 years ago. Gekko's larger-than-life presence will once again loom over a younger upstart looking to navigate the shark-tank world of today's Wall Street...Allan Loeb ("21," "The Baster") was hired to rewrite the long-developing project in the fall and has apparently turned in a script strong enough to corral Stone, who reportedly was very cool to the idea of a sequel. Ed Pressman, who produced the original film, is producing the follow-up as well.

The original Wall Street delivered a mixed message. The excitment and world of the day to day activities of Bud Fox were portrayed very accurately.

But, there also was quite a bit too much politically correct nonsense about the evils of takeovers, and moralizing about insider trading. The underground popularity of the film to this day on Wall Street is in large part possible because the politically correct stuff is ignored.

No one on the Street remembers the politically correct message, but they all have their favorite Gordon Gekko line, such as:

Lunch is for wimps.
--
What's worth doing is worth doing for money.
--
The most valuable commodity I know of is information.
--
Ever wonder why fund managers can't beat the S&P 500? 'Cause they're sheep, and sheep get slaughtered.
--
Blue Horse Shoe Loves Anacot Steel

What Wall Street will Stone and Michael Douglas show us this time? The savvy hedge fund traders or the evil Henry Paulson types that are in bed with the government?

Is Switzerland Headed Toward Bankruptcy?

During the boom years, a huge carry trade developed between Switzerland and Eastern Europe.

Easter European home buyers borrowed in Swiss Francs (at low rates) and converted their local currencies to make mortgage payments. Now they can no longer make their payments.

In an interview with the Swiss daily, Tagesanzeige, economist Arthur P. Schmidt warns Switzerland faces bankruptcy becasue of this (Translation from German by Edward Harrison) :

Swiss banks have given billions of credit to Eastern Europe - now the customers cannot pay back the money. Switzerland is threatened with the fate of Iceland, says economist Arthur P. Schmidt.

In countries such as Poland, Hungary and Croatia, the Swiss franc has become an important currency. Thousands of households and small firms took out loans in Swiss francs, and not in the national currency zloty, forint, or kuna because of ower interest rates. In Hungary, 31 percent of all loans are in Swiss currency. Amongst household loans, they are almost 60 percent.

Borrowers in distress.

Now, the financial crisis has ended the era of cheap credit. As a result, Eastern European currencies are falling. At the end of September, one had to pay 46 francs for 100 Polish zlotys. Today it is 30 francs. That means more and more borrowers are having problems with interest payments and repayment. So the question is what effect this has on the Swiss financial marketplace. One who sees a dark future for Switzerland is economic expert Artur P. Schmidt. He believes that the Swiss franc is in danger because of the loans in Eastern Europe.

In Poland, Hungary and Croatia, the Swiss franc has become an important foreign currency - the dollar, so to speak, of Eastern Europe. Thousands of households and businesses have franc loans.

Why?

The rapid growth in many countries of Eastern Europe was stimulated through loans in Swiss francs. Swiss banks and offshore institutions loaned the local banks francs, which passed the francs onto their customers. The loans were attractive because borrowers pay interest rates much lower than required for loans in local currency.


Now, this system has been shaken?

Yes, the system has only worked as long as the exchange rate between the franc and the currencies were reasonably stable. But that is not currently the case. For example, the Hungarian forint and Polish zloty have lost over a third of their value  against the Swiss franc in recent weeks. Because of the devaluations of the national currencies, the debt to Switzerland has increased by more than one-third. Many of the Eastern European countries have serious payment difficulties, and are virtually bankrupt.

What does this mean for Switzerland?

It is likely that a significant proportion of the total 200 billion U.S. dollars of Eastern European loans were issued in Swiss francs. According to a report by the Bank for International Settlements worldwide franc loans equivalent to around 675 billion U.S. dollars are in circulation - which was about 150 billion directly from Switzerland, 80 billion of Great Britain and about 430 billion U.S. dollars through offshore financial centres. How many of these loans have gone bad is not known. But even if the failure rate is 20 percent, the banks would lose a lot of money.


Is the federal government going to intervene now?

If the banks require a massive writedown of such loans, above a certain magnitude, the government must intervene. This is already happening via the Swiss National Bank. In Poland, it has made several billion francs available to the local central bank so that Polish banks can cover the loans. At the same time, the Swiss National Bank inquired by the European Central Bank whether it could borrow money in an emergency. This is a clear warning sign that the Swiss franc could be under huge devaluation pressures in the near future.

Rather than outright bankruptcy, I see the Swiss central bank printing the money necessary to prop up Swiss banks. Thus, the destruction of the Swiss franc as a safe haven currency against irresponsible money printing by the central banks of other countries will occur. A great currency may be no more (Which could be considered an even worse form of bankruptcy.) .

Advisors to GM Bondholders: It's All Political

Advisors to bondholders representing nearly half of GM's corporate debt said in an emailed statement that the current offer is "neither reasonable nor adequate" and complained that it was made unilaterally.

"We believe the offer to be a blatant disregard of fairness for the bondholders who have funded this company and amounts to using taxpayer money to show political favoritism of one creditor over another," the group said. "Today's posturing makes it clear that the company and the auto task force would rather discount the thousands of individual investors and retirees who own GM bonds than undergo earnest negotiations.

Will the Obama Team play the Paulson card now and try, through brute political power, to attempt to force the current structure of the deal on bondholders? Stay tuned. This is not your grandfather's capitalism, and it is getting less so everyday.

It's A Union Bailout via Dictator Obama

As I pointed out long ago, President Obama is easy to understand. He rewards those who helped him get elected. That's why Goldman gets to stand in front of the Treasury money spigot. And the GM bailout is about protecting the unions. Back in December, I wrote:

I have said from the beginning, this talk of a bailout of the big three automakers is in significant part a bailout of the United Auto Workers (That's why the Democrats are behind it). The big three in bankruptcy would not stop producing cars, they would simply become more efficient, which would include lowering wages for auto workers, resulting in much less power for the UAW.That's why this bailout versus bankruptcy is so important to the UAW.

Larry Kudlow is shocked by all this, but he is one of the very few non-insiders that finally understands:

What is going on in this country? The government is about to take over GM in a plan that completely screws private bondholders and favors the unions. Get this: The GM bondholders own $27 billion and they’re getting 10 percent of the common stock in an expected exchange. And the UAW owns $10 billion of the bonds and they’re getting 40 percent of the stock. Huh? Did I miss something here? And Uncle Sam will have a controlling share of the stock with something close to 50 percent ownership. And no bankruptcy judge. So this is a political restructuring run by the White House, not a rule-of-law bankruptcy-court reorganization.

Bottom line: Obama's dictator tendencies are showing.

ECRI Weekly Economic Leadng Index Continues to Climb

A weekly measure of U.S. future economic growth rose slightly by +0.07% vs. +-0.24%, while its annualized growth rate rose to levels last seen in early October 2008, suggesting economic recovery for the near future, according toThe Economic Cycle Research Institute.

The index's annualized growth rate -- continuing its six-month upswing -- rose to negative 18.6 percent from the prior week's rate of negative 19.7 percent.It was the highest yearly growth reading since Oct. 10, 2008, when the rate was minus 17.0 percent."With WLI growth rising to a 27-week high, U.S. economic growth, which is now at a record low, will soon begin to improve," said Lakshman Achuthan, managing director at ECRI.

(htJackKrupansky)

Dr. Connected Stays Gloomy, Gets More Connected

Nouriel Roubini, who counted President Obama's top economic advisor, Larry Summers, as a silent partner in his forecasting firm, remains bearish on the economy. Re the outlook for the U. S. economy, in an interview with the WaPo, he said:

Next year, I believe that the growth rate is going to be low -- 0.5 percent for the U.S., compared to the consensus view of [plus] 2 percent. I believe the unemployment rate this year is going to go well above 10 percent and will be well above 11 percent next year, so even if we are technically out of a recession, we are going to feel like we are in a recession.

He also now sits on the Congressional Budget Office's Panel of Economic Advisers.

California Housing Prices Up for the First Time Since August 2007

California's housing-market slump showed hints of improvement in March, with sales of existing single-family homes increasing 64% from the prior-year period and median home prices rising month-to-month for the first time since August 2007, according to a trade group report.
California's inventory of unsold homes in March fell to a three-year low of five months, according to a report released Monday by the California Association of Realtors, WSJ reports. That compares with 12.2 months of inventory the group reported for March 2008.

The state saw sales of 522,980 existing single-family homes in March, compared with 319,290 in the year-earlier period, the report said. Home prices remained sharply down from a year ago: The March median price of $253,000 was up from $247,590 in February 2009 but down 39% from March 2008 levels.

Current bullish news out of California regarding the housing market is significant because of the fact that CA has been one of the epicenters of the housing collapse, and also because CA does not face the weather related factors that you see in the northeast. However, it should be noted that the number of sales in March 2008 were especially low.

How To Survive Obama Healthcare

Obama healthcare is coming. It will be more expensive (despite the propaganda) and of much poorer quality, than the semi-free market we now have. It will be very invasive of your privacy and will limit your care options. This is what happens with all bureaucratic agencies. It is in the nature of the beast, and a beast is exactly what it will be. The less you have to do with it the better.

I write about this future negative Obama healthcare plan with a certain lightness to my spirit, since I have just read a fascinating column on healthcare, written by Lila Rajiva.

The column is about living without health insurance. It is generally aimed at those on a tight budget. However, as I read the column, I saw one piece of advice after another that struck me as being a very useful methods that could be employed as alternatives to any future Obama healthcare program.

Upon reading it a second time, I am convinced that everything she has written in the article offers important options to what will be Obama healthcare.

I have never written this about an article before, but Rajiva's article should be read and thought about in relation to your health, often. It should be saved on your computer and a hard copy should be printed out. There's a lot of wisdom packed into the article. Read the copy you have printed out, once a month, to see how well you are keeping up with structuring your own healthy life, as opposed to relying on Obama.

And then when the Obama health care babble starts, you will have a health care program of your own that will keep you healthy and keep you free of Obama healthcare socialism.

Legal Disclaimer:The author of the following article,Lila Rajiva, is not a medical or legal expert. Nothing in the article should be construed as medical or legal or professional advice of any kind. Readers should consult their own physician and attorney before making a decision about their insurance, or about self-medicating, or about using any alternative therapy mentioned in the article.Neither the author or the publisher is in anyway responsible for any physical, mental, emotional, financial, or any other harm or injury that might come to anyone from following anything written in this article, or any recommendation arising from it, in this country or any other, now or at any time in the future.

NYT: Geithner's Clubby Relationship with Wall Street's Power Elite

NYT's Jo Becker and Gretchen Morgenson fill in a lot of detail in the obvious close, relationship Geithner has with Wall Street's power elite (as especially with Goldman Sachs employees and former Goldman Sachs employees):

He proposed asking Congress to give the president broad power to guarantee all the debt in the banking system, according to two participants, including Michele Davis, then an assistant Treasury secretary....“People thought, ‘Wow, that’s kind of out there,’ ” said John C. Dugan, the comptroller of the currency, who heard about the idea afterward
---

[As New York Fed president] He was the federal regulator most willing to “push the envelope,” said H. Rodgin Cohen, a prominent Wall Street lawyer who spoke frequently with Mr. Geithner.

---

An examination of Mr. Geithner’s five years as president of the New York Fed...
shows that he forged unusually close relationships with executives of Wall Street’s giant financial institutions.

His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.

---

His calendars from 2007 and 2008 show that those interactions were a mix of the professional and the private.

He ate lunch with senior executives from Citigroup, Goldman Sachs and Morgan Stanley at the Four Seasons restaurant or in their corporate dining rooms. He attended casual dinners at the homes of executives like Jamie Dimon, a member of the New York Fed board and the chief of JPMorgan Chase.

Mr. Geithner was particularly close to executives of Citigroup, the largest bank under his supervision. Robert E. Rubin, a senior Citi executive and a former Treasury secretary [and former Goldman CEO], was Mr. Geithner’s mentor from his years in the Clinton administration, and the two kept in close touch in New York...

While the New York Fed’s rules do not prevent its president from holding such one-on-one meetings, that was not the general practice of Mr. Geithner’s recent predecessors, said Ernest T. Patrikis, a former general counsel and chief operating officer at the New York Fed.

“Typically, there would be senior staff there to protect against disputes in the future as to the nature of the conversations,” he said.

---

In fashioning the bailout, his drive to use taxpayer money to backstop faltering firms overrode concerns that such a strategy would encourage more risk-taking in the future. In one bailout instance, Mr. Geithner fought a proposal to levy fees on banks that would help protect taxpayers against losses.

The bailout has left the Fed holding a vast portfolio of troubled securities. To manage them, Mr. Geithner gave three no-bid contracts to BlackRock, an asset-management firm with deep ties to the New York Fed.

---

Mr. Geithner played a pivotal role in the next bailout, which was even bigger — that of the American International Group, the insurance giant whose derivatives business had brought it to the brink of collapse in September. He also went to bat for Goldman Sachs, one of the insurer’s biggest trading partners...

A.I.G.’s chief executive at the time,Robert B. Willumstad, said he had hired bankers at JPMorgan to help it raise capital. Goldman Sachs had jockeyed for the job as well, but because the investment bank was one of A.I.G.’s biggest trading partners, Mr. Willumstad rejected the idea. The potential conflicts of interest, he believed, were too great.

Nevertheless, on Monday, Sept. 15, Mr. Geithner pushed A.I.G. to bring Goldman onto its team to raise capital, Mr. Willumstad said.

Mr. Geithner and Mr. Corrigan, a Goldman managing director, were close, speaking frequently and sometimes lunching together at Goldman headquarters. On that day, the company’s chief executive, Lloyd C. Blankfein, was at the New York Fed.

---

Mr. Geithner has also faced scrutiny over how well taxpayers were served by his handling of another aspect of the bailout: three no-bid contracts the New York Fed awarded to BlackRock, a money management firm, to oversee troubled assets acquired by the bank.

BlackRock was well known to the Fed. Mr. Geithner socialized with Ralph L. Schlosstein, who founded the company and remains a large shareholder, and has dined at his Manhattan home

---

According to a recent report by the inspector general monitoring the bailout, Neil M. Barofsky, Mr. Geithner’s plan to underwrite investors willing to buy the risky mortgage-backed securities still weighing down banks’ books is a boon for private equity and hedge funds but exposes taxpayers to “potential unfairness” by shifting the burden to them.

ALERT: FOMC Meeting

The regularly scheduled meeting of the FOMC begins tomorrow.

Expect a release from the FOMC Wednesday afternoon.

Report on the Death Of Felipe Solis

Here's a report from the Mexican paper El Notre on the death of Felipe Solis, who greeted President Obama just days before his death. The English text is from a Google translation, followed by the original report in Spanish. It appears that Solis entered the hospital the day after greeting President Obama. High tech assassination attempt, you decide? :

Obama serves and dies for 7 days 

(25 April 2009) .- NORTH / Staff 

MEXICO .- On Thursday, April 16, Felipe Solis, director of the National Museum of Anthropology, received the President Barack Obama to run over the Mexica room, admiring the Aztec Calendar and dinner on campus. 

This past Thursday, a week after the visit, Solís died with a picture similar to the flu. 

At dawn on Friday, 17 managers reported that their partners began to feel an affection of the throat, chest pain and other symptoms similar to those of influenza, but thought it was a cold. 

However, Saturday was to go into a hospital in the city, where the cold developed into pneumonia case, which was aggravated by a cadre of diabetes. 

Even as Solis said in a coma, but later showed signs of recovery. 

The hope was short lived: The levels of glucose and pneumonia shot is not relinquished until the 23 died Thursday, clinically, of a heart attack. 

Your knowledge of Aztec culture and its place in Solis used all diplomatic visits of Heads of State or representatives of European monarchies to the museum.

--------

Atiende a Obama y muere a los 7 días (25 abril 2009).- EL NORTE / Staff MÉXICO.- El jueves 16 de abril, Felipe Solís, director del Museo Nacional de Antropología, recibió al Presidente Barack Obama para que recorriera la Sala Mexica, admirara el Calendario Azteca y cenara en el recinto. Este jueves pasado, una semana después de la visita, Solís falleció con un cuadro similar a la influenza. Al amanecer el viernes 17, el directivo reportó a sus colaboradores que comenzó a sentir una afección en la garganta, dolor en el pecho y otros síntomas similares a los de la influenza, pero pensó que era un resfriado. Sin embargo, el sábado tuvo que internarse en un hospital de la ciudad, donde el supuesto resfrío evolucionó en neumonía, que se agravó con un cuadro de diabetes. Incluso, a Solís lo declararon en coma, pero después mostró signos de recuperación. La esperanza duró poco: Los niveles de glucosa se dispararon y la neumonía no cedió, hasta que el jueves 23 falleció, clínicamente, de un paro cardiaco. Por su conocimiento de la cultura azteca y su puesto, Solís acostumbraba participar en todas las visitas diplomáticas de Jefes de Estado o representantes de monarquías europeas al museo.

The Talented Dr. Murphy

Well, maybe Bob Murphy isn't bored after all.

He just sent me an email while he was doing a radio interview about his new book. Multi-tasking while doing a radio interview, now that's talent. I may have to listen to one of the recordings of his interviews, that he has been plastering all over the internet, just to hear what a multi-tasking interview sounds like.

His email was about my earlier post, Protecting The Monetary Cranks. While he acknowledges that my interpretation of his email was justifiable, he writes to me that his true intention re the email had nothing to do with economics at all in any fashion .

Murphy reminds me of another topic we have been discussing via email, and Murphy, with the intricate mind that he does have , has put a certain part of the Sumner post in the context of the other discussion.

More Indications the Flu May Be Mild Outside Mexico

For whatever reason, at this point the flu seems to be mild in non-Mexicans who have caught the bug. The latest from Canada:

Canada confirmed six cases, but they were already recovering.

Russia, Poland, France, Japan, the United States and the Flu

Russia:

Russia suspended imports of all meat from Mexico and the U.S. states of Texas, California and Kansas shipped after April 21 on concern about the spread of swine flu, the country’s veterinary watchdog said.

Poland:

The Polish Foreign Ministry has issued a statement that recommends that Poles postpone any travel plans to regions where the outbreak has occurred until it is totally contained.

Japan:

In Japan, airports tightened checks on passengers arriving from Mexico, with quarantine officials giving out face masks and using thermography imaging cameras to screen for passengers with a fever.

France

A French government crisis group began operating Saturday. The government has already closed the French school in Mexico City and provided French citizens there with detailed instructions on precautions.

The United States:

Last night the US authorities were still allowing people to cross the border from Mexico, where it is thought that the swine flu emerged. But customs officials at the San Ysidro and Otay Mesa crossings were given protective clothing.

Protecting The League of Monetary Cranks

I think Bob Murphy is trying to stir up some trouble. There are obviously no radio shows he has to do this evening to promote his new book.

He sent a private email (well, it was private) to me with a link to a blog post by the economist Scott Sumner, who has formed The League of Monetary Cranks.

I think Bob believes that, based on Sumner's outlining of who would fall into the League, that I am smack dab in the middle of the League. And, Bob, knowing how I respond to affronts in a calm, bland manner, has probably microwaved some popcorn and is ready for my Sunday evening response to Professor Sumner. Well, I hate to disappointment Bob, but I proudly accept Bob's implied nomination of me into the League of Monetary Cranks.

Now, however, that I am almost inside the League, I am wondering who the hell is at the door letting all these other guys in?

To understand what is going on here, let's first take a look at why I belong.

Sumner, uses Frederic Mishkin, monetary policy textbook author, as an object lesson of someone who should be in the League. He points to 4 beliefs of Mishkin.

1. It is dangerous always to associate the easing or the tightening of monetary policy with a fall or a rise in short-term nominal interest rates

That's me:

The Fed lowering interest rates does not necessarily mean the Fed is increasing the money supply.It depends on the "real interest rate", where I define the "real interest rate" as what the market rate would be without Federal Reserve money manipulations...This is a very important technical point to understand, not only are interest rates and the money supply different things, but cutting rates does not mean necessarily mean the Fed is easing money growth. Likewise, increasing rates does not mean the Fed is tightening money supply, if the "real" rate remains above the point where the Fed has raised rates too

2. Other asset prices besides those on short-term debt instruments contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms.

I certainly agree with this. I can for instance see the possibility of a period, and I think this will actually occur, when the Fed raises rates and inflation spirals much higher. This I hasten to add is because the Fed rate at such period is below the "real" rate, resulting in money aggregates climbing.

I should point out that at this point, Sumner makes an odd point about Mishkin:

Note that he doesn’t say that monetary aggregates contain important information, only asset prices.

I don't think Mishkin is saying that "only" asset prices are indicative of monetary policy. It is simply that someone watching market prices for clues as to Fed policy may see more important signals from asset prices rather than short term debt.

I don't have Mishkin's text in front of me (I'm travelling), but, if Mishkin is indeed saying something closer to what Sumner suggests, then he should be thrown out of the league. And, for suggesting that Mishkin does not consider monetary aggregates preeminently important, but still allowing him into a league of monetary cranks, I think it is fair to suggest that Sumner should be tossed out of the very League he founded. You can't be a monetary crank, and not think money supply is the preeminent causal factor in the economy. At this point Sumner sounds more like mainstream, than a crank.

3. Monetary policy can be highly effective in reviving a weak economy even if short term rates are already near zero. Sumner continues:

The sine qua non of a monetary crank is the bizarre belief that even depressions featuring zero interest rates can be magically cured by printing money.

I wouldn't use the term "cured", I think a depression can be reversed by money printing, but it is not a "cure", since the ultimate result is a problem greater than the depression itself, namely, runaway inflation, but I can let that slide (after commentary) and go along with the point.

4. Avoiding unanticipated fluctuations in the price level is an important objective of monetary policy, thus providing a rationale for price stability as the primary long -run goal for monetary policy.

This I disagree with, and apparently Sumner does also:

The only lesson that is slightly different from my own view is number 4

But, then, Sumner proclaims his own non-monetary guideposts as to how monetary policy should be conducted:

It is clear from his other writings that by “price stability” Mishkin means something more like 2% inflation. So I don’t really see any great difference from my own 5% NGDP growth target. That target shares 2% inflation “as the primary long-run goal for monetary policy.”

These are grounds again for throwing Sumner himself out of the League. How can you possibly watch a non-monetary target as a guide to monetary policy, rather than money aggregates themselves (Which, btw, should be constant) and consider yourself a member of the League of Monetary Cranks? I'm sorry, but Sumner has to go.

Outside of myself, the only other living economist, who comes to mind (There might be a couple of others, feel free to email me nominations), who can justifiably proudly wear the badge of the League of Monetary Cranks would be Stefan Karlsson. Posthumous indoctrinated members would include, Ludwig von Mises, Murray Rothbard, and Henry Hazlitt.

Geithner's Forgotten Children Statement

Treasury Secretary Geithner's remarks at the IMF and World Bank Group Development committee meeting were used by Geithner to focus on neglected children of the Obama administration.

It appears they will all be in on funneling the lucre.

While the focus prior to this Geithner statement has been on the IMF rather than the World Bank, in this statement, despite it being an IMF/World Bank meeting, it's all World Bank without the IMF being mentioned even once.

Geithner tells us the former Goldman man and current World Bank president, Robert Zoellick’s "plans to provide up to $100 billion of IBRD funding, the fast tracking of IDA commitments, the IFC’s trade finance programs, as well as facilities to support bank recapitalization and infrastructure financing."

Geithenr tells us he is all for this passing out of funds by the World Bank to alphabet soup agencies, and he wants more:

Going forward, we encourage the World Bank Group to continue to explore flexible approaches, such as guarantees, to leverage official and private capital to address development needs.

Paul Volcker has been making noises to the press since being ignored by the Obama administraton. Thus, we have Geithner even mentioning Volcker in this statement:

Let me highlight a few priority areas that I believe should underpin such reviews:

First is a commitment to good governance, which is key to institutional effectiveness. This includes efforts to strengthen institutional risk management capacity and combat fraud and corruption. On this point, I welcome the rigorous implementation of the Volcker Panel recommendations at the World Bank...

And, then, Geithner announced the birth of a new child:

We applaud the World Bank Group and our international partners for working together to launch the Climate Investment Funds, which will make an immediate impact in addressing climate change.

One can easily imagine the absurd projects this fund will finance. Paging Boone "I need money for windmills" Pickens.

The Bank Stress Test Was A Take Home Exam

Do you think the bank stress tests were all for show, and the eventual winners and losers have already been determined? Sort of like WWF wrestling matches?

From Zero Hedge:

(1) “more than 150 senior supervisors, on-site examiners, analysts and economists” spent a month reviewing the 19 BHC’s that hold two thirds of the country’s bank assets and account for one half of the loans

More than 150 means at least 151. Is the US Iceland or something? Ten trillion dollars in assets and five hundred trillion dollars in derivatives in one month? A typical single bank examination utilizes hundreds of examiners and takes several months. Clearly the next release of public sector productivity numbers is going to astonish.

That's less than 10 per bank--EPJ


(2) ”the firms were asked to project…..the firms were asked to provide…etc.”In other words, the banks tested themselves and the 150 examiners took their word for it. Any wonder they passed?...

“Supervisors evaluated firm loss estimates using a Monte Carlo simulation that projected a distribution of losses by examining potential dispersion around central probabilities of default.”

Ah…smells like Gaussian distributions. The old standard. We have seen how well that assumption works in these unusual times. An example of the dependability of using Gauss, taken from stock market movements in October, and calculated by Nassim Nicholas Taleb of Black Swan fame, showed that the price movements seen in October 2008 could be expected to occur---using estimates based on Gaussian distributions---once every 73,000,000,000,000,000,000,000 years.

For those of you not tied to Biblical strict constructionism, the Universe is around 18,500,000,000 years old. Looks like it will be a few quintillion years before we see October again...

Take a good look at just how complex and thorough this “test” was. An online dating questionnaire is more probing.

The Bank Stress Test
(Note this template is in the appendix to the Fed Report (pdf))

The SCAP Templates

Loan and Security Categories to be included in the Loss Estimates*
(Loss Amounts in Billions of Dollars)
Outstanding Balance

Q4 2008
Loss Estimates
2009
2010
TOTAL

LOANS
First Lien Mortgages
Prime
Alt‐A
Subprime
Second/Junior Lien Mortgages
Closed‐end Junior Liens
HELOCs
C&I Loans
CRE Loans
Construction
Multifamily
Nonfarm, Non‐residential
Credit Cards
Other Consumer
Other Loans

COMMITMENTS AND CONTINGENT OBLIGATIONS

List by type the amount and assumed losses related to commitment draw‐downs and other contingent obligations

SECURITIES

Available for Sale
Held to Maturity

TRADING ACCOUNT (including traded loans)

For the more adverse scenario only: report total dollar loss amount, table identifying positions captured and those not captured in the stress tests, risk factors stressed, and size of risk factor changes assumed.

* Form to be completed once for the baseline scenario and once for the more adverse scenario. If there are positions, businesses or risk exposures not captured on this template that would materially affect losses under the baseline or more adverse scenario, please include estimates of those losses in addition to the losses associated with the positions included on this template.

Resources to Absorb Losses*
(Amounts in Billions of Dollars)
2009
2010
TOTAL

PRE‐PROVISION NET REVENUE
Net Interest Income
Non‐interest Income
Non‐interest Expense

ALLOWANCE FOR LOAN LOSSES
(1) ALLL at end of previous year
(2) ALLL at end of year
ALLL Resources: (1) – (2)
* Form to be completed once for the baseline scenario and once for the more adverse scenario.

Post‐Scenario Tier 1 Capital*
(Amounts in Billions of Dollars, end of period)
Q4 2008
2009
2010

Tier 1 Capital

Sum of Tier 1 Elements

Common Stockholders’ Equity
Risk‐Weighted Assets
* Form to be completed once for the baseline scenario and once for the more adverse scenario.

The Official List of Stress Tested Banks

The government confirmed the following list of the 19 banks undergoing stress tests:

J.P. Morgan Chase & Co.

Citigroup

Bank of America Corp.

Wells Fargo & Co.

Goldman Sachs Group

Morgan Stanley

MetLife

PNC Financial Services Group

US Bancorp

Bank of NY Mellon Corp.

SunTrust Banks Inc.

State Street Corp.

Capital One Financial Corp.

BB&T Corp.

Regions Financial Corp.

American Express Co.

Fifth Third Bancorp

Keycorp

GMAC LLC

St Francis Prep Flu Cases Appear Mild

Students from St Francis Prep in Queens, NY who were recently in Mexico and have fallen ill with flu like symptoms appear to have only minor discomfort. NyPo with the details:

Yesterday, city health officials confirmed that eight students "have probable human swine influenza" after testing positive for Influenza A, which officials say causes the swine strain of disease...

On Friday, officials tested nine kids at the 2,700-student school after some complained of nausea, dizziness, headache and other symptoms resembling
swine flu, which has already killed at least 81 people in Mexico and sickened
more than 1,300.

"In every single case, illness was mild," [New York State Health Commissioner Dr. Thomas]Frieden said of the St. Francis cases, adding that no one was hospitalized.

"Many of the children are feeling better."

Flu Tracking: "The Paperwork Is Easier in Canada"

First FEMA failures, then the banking sector regulatory failures, and now apparent failures at the CDC, is there really any good reason to expand regulation? Here's a shocking report from WaPo:

U.S. public health officials did not know about a growing outbreak of swine flu in Mexico until nearly a week after that country started invoking protective measures, and didn't learn that the deaths were caused by a rare strain of the influenza until after Canadian officials did....

It seems that U.S. public health officials are still largely in the dark about what's happening in Mexico two weeks after the outbreak was recognized.

Asked at a news conference yesterday whether the number of swine flu cases found daily in Mexico is increasing -- a key determinant in understanding whether an epidemic is spreading -- Anne Schuchat, an interim deputy director of the Centers for Disease Control and Prevention, said, "I do not know the answer to those questions."...

On April 16 or 17, Mexico notified the Pan American Health Organization of the outbreak, Hernández said. The organization, based in Washington, is the Americas' branch of the World Health Organization. Spokesmen for both groups were not able to say yesterday when the influenza or pandemic planning offices at WHO's Geneva headquarters learned or were informed of the Mexico outbreak.

In recent years, Mexico has done extensive pandemic planning with Canada and developed a close relationship with the National Microbiology Laboratory in Winnipeg. Tests on virus samples from the Mexican patients suggested the strain was different from this year's flu. So on Monday, Mexican officials sent lung and throat swabs to Canada to be characterized.

The CDC, in Atlanta, is one of WHO's four "reference laboratories" for flu. It routinely gets samples from Mexico and many other countries, and processes them with great urgency, Nancy J. Cox, the head of the flu lab, said last night. It, too, eventually received the Mexican samples.

"The only reason the samples went first to Winnipeg is because the paperwork is easier. We were in a rush," Hernández said...

htPEUreport

Is the Current Flu Virus the Result of a High Tech Assassination Attempt on President Obama?

I realize that writing this current post will put me out on the outer fringe of conspiracy theorists, but hear me out. There are enough oddities here that at an investigation of some sort should begin.

Here's my case. It is based on four facts.

1.During President Obama's recent trip to Mexico, Obama was received at Mexico’s anthropology museum in Mexico City by Felipe Solis, a distinguished archaeologist who died the following day from symptoms similar to flu, Reforma newspaper reported.

Clearly, if the man died the next day, he was highly contagious when Obama met him, and could have infected Obama easily. That, it appears, he didn't infect Obama could just be a matter of luck for Obama.

2. Given that it is possible that Obama could have been infected and that the virus appears to kill the healthy, then it is clearly possible that this could have been lethal to Obama if he caught it.

3. This flu is appearing at an odd time, suggesting the possibility of a synthetic virus and not a natural virus.

NYT , for example, reports:

Mexico’s flu season is usually over by now, but health officials have noticed a significant spike in flu cases since mid-March. The W.H.O. said there had been 800 cases in Mexico in recent weeks, 60 of them fatal, of a flulike illness that appeared to be more serious than the regular seasonal flu. Mr. Córdova said Friday that there were 1,004 possible cases.

4. As a layman, this virus seems to me to be quite the combination. NYT again:

The new strain contains gene sequences from North American and Eurasian swine flus, North American bird flu and North American human flu, said the Centers for Disease Control and Prevention.

I have no idea if such a combination is likely to occur in nature, or is more likely synthetic. I would like to hear from a panel of experts on it.

Here's fully what I would like to learn from an investigation:

When was it decided that Solis would greet the President?

Who were the people that knew, and when did they know, that Solis would be greeting the President?

To the degree possible, determine who did Solis come in contact with, or where did he travel, that could have been the source of his catching the flu.

From a panel of experts:

What is the likelihood that the virus was synthetically created?

An investigation that attempts to answer these questions will go a long way to answering the question as to innocent answers to the above questions, or answers that suggest even further investigation is required.

Obviously, if this was an assassination attempt, it was done at a very sophisticated level and not some lone nut. Possibly a country that had the wherewithal to do it and was not happy with the direction the President is taking on certain issues.

They keep Obama in a bubble. I see the way he travels around D.C. I would think it's pretty near impossible for a gunman to get to Obama (unless it is someone already around him who has a gun-- a guard losing it type thing) But sophisticated planners, who can do the hit through a third person who will have the virus and will be able to pass through security, while the real perpetrators are not even at the scene, that could only be executed by very serious players.

Keep this in mind. The population of Mexico City, where Obama was greeted by Solis, is roughly 8.8 million people. If we assume all the 1,000 reported cases of the flu in Mexico are in Mexico City, the odds of any specific person in Mexico City having the virus is .0125%. And this guy ends up greeting the President, when he is highly contagious? It's investigation time.

UPDATE: Mexico's health secretary, Jose Cordova, said Solis had a pre-existing illness and died of pneumonia unrelated to influenza.

The guy has pneumonia and allowed to greet the president? Oh yeah.

UPDATE 2 White House press secretary Robert Gibbs says "the president's health was never in any danger," when asked about reports that Obama's host on a museum tour in Mexico City died the next day, and had flu-like symptoms. The flu has a 24-48 hour incubation period, he said and Obama left Mexico nine days ago and has not shown symptoms of the flu nor has he been seen by a doctor or received preventative treatment. 

There was no mention by Gibbs of what Solis died of, i.e. flu, pneumonia, etc., other than that Obama is past the incubation stage for the flu. Thus, suggesting that the White House may believe that Solis had the flu virus and not pneumonia.

The Economics of a Flu Pandemic, Worst Case Scenarios

I am not an expert in the spread of flus. Thus, I have little to add from the technical side of the current flu near panic situation. But, I am a thinker, so here goes.

From discussions I have had in the past with experts in the fields of bio-terror/influenza etc, I am aware that the most serious flus are the ones that kill the healthy and leave the weak standing. They kill a lot when they are in circulation. The working theory as to why this occurs is that there is something in the flu that causes the immune system to work overtime and thus fills the lungs with liquid that, literally, drowns the person. It s an ugly death. A person with a weaker immune system will have a better chance of surviving, because he won't produce so much disease fighting liquid. Thus, if there ever was a time trundown your immune system, stay up late and get little sleep, now is it. Likewise, if you actually, catch the flu, my guess is that it wouldn't be a good time to catch a lot of sleep. Only, the weak will survive!! It's time to get yourself weak and lose the vitamins until we understand what is going on. IF what we are dealing with is the flu that kills the healthy.

Further, experts and the World Health Organization seem to indicate that Tamiflu may work against the disease. As I wrote before, find yourself a friendly physician and get yourself some, NOW. If this gets serious, Tamiflu will disappear from pharmacy shelves almost instantly. Tamiflu, btw, only works if you start taking it within the first 24 hours or so of your getting symptoms.

As for the economy, think total disaster. For me that means no business for hotels, airlines, restaurants, malls etc. But I guess things could get even worse. For those thoughts, I point you toward Ian Welsh. Welsh should obviously write disaster novels, since he can think way beyond me as far as worst case scenarios. I recommend you read his column at Huffington Post only so that if the worst does hit, you will have some frame of reference as to what could happen--and, thus, get you thinking along those lines of thought way ahead of the pack.

Being ahead of the pack will be important under such conditions and thus these words by Welsh really jumped out at me:

If you think that such a pandemic is likely to occur then the steps you should take are much the same you would take for any natural disaster. Because the banking system will likely be shut down during the crisis (and bank machines will likely not be restocked even if they do not go down due to loss of system personnel) you should have a stock of money at home to allow you to buy whatever you need which is available. If you can arrange to have independent power generation, you should do so. You should have a good supply of canned food and water. Make your estimate of how much you need and double or triple it. Others will not have planned and you do not want to find yourself not being able to help friends, family and neighbors. In addition you will want to have tradeables available for the black market. Money will be a poor second to having goods people want. In this regard stocking up on some medical items such as surgical masks and OTC medicines will be especially wise. I'm not encouraging profiteering, but you will need something you can trade which people want.

Badly.

I did say that Welsh was way advanced beyond me as a disaster thinker. Let's hope it doesn't get anywhere near this bad.

I believe a key bellwether, as to how bad things will get, will be the students at St. Francis Preparatory School in Queens, New York that are ill. They clearly have caught the flu, if a number of them die, we are in trouble. If they all survive, then possibly Americans will react to the flu differently than Mexicans have (Possibly because our immune system contains some type of anti-flu fighter from a previous bout of flu that Mexicans do not have in their system). According to the CDC, the reported cases in California and Texas were only mild cases, with no deaths.

But, the St. Francis students will be the best gauge.

Some News Leaks Out On Results of Bank Stress Tests

First, Fed officials said almost all the top 19 banks well exceeded requirements for quantity and quality of capital right now. BUT, to meet the potential needs identified under worse case scenarios, regulators want to see substantial buffers above the levels set out in minimum capital ratios, reports FT.

This means that even some of the biggest banks will be asked to raise more capital by US authorities.

Further, according to FT, people familiar with the situation said regulators indicated that Citigroup might need more capital beyond a planned conversion of preferred shares into common stock that will give the government a 36 per cent shareholding.

If Citi has to raise more funds from the government, the authorities might force out Vikram Pandit, its chief executive. However, they added that no decision had been made and each bank had a week to discuss the results of the tests with regulators

MAJOR: China Accumulating Huge Gold Position

China has quietly almost doubled its gold reserves to become the world’s fifth-biggest holder of the precious metal, it emerged on Friday, FT reports.

Hu Xiaolian, head of China's secretive State Administration of Foreign Exchange, which manages the country’s $1,954bn in foreign exchange reserves, revealed China had 1,054 tonnes of gold, up from 600 tonnes in 2003.

This signals one thing, China doesn't trust the dollar, and knows the Fed can't print gold.

Politically Correct BS from the Center For Disease Control

With a serious deadly flu threat emanating from Mexico, the CDC chooses to warn clinicians about patients who may have been in San Diego County, California or San Antonio, Texas but not a word about patients who may have travelled in Mexico.

This is exactly what the CDC had on its web site Saturday morning at 8:57 AM as a warning to clinicians:

Clinicians

Clinicians should consider the possibility of swine influenza virus infections in patients presenting with febrile respiratory illness who:

Live in San Diego County or Imperial County, California or San Antonio,Texas or

Have traveled to San Diego and/or Imperial County, California or San Antonio, Texas or

Have been in contact with ill persons from these areas in the 7 days prior to their illness onset.

If swine flu is suspected, clinicians should obtain a respiratory swab for swine influenza testing and place it in a refrigerator (not a freezer). Once collected, the clinician should contact their state or local health department to facilitate transport and timely diagnosis at a state public health laboratory.

Not a word about patients who may have travelled to Mexico!!!

TAMIFLU

From Reuters:

The WHO said the virus appears to be susceptible to Roche AG's flu drug Tamiflu, also known as oseltamivir, but not to older flu drugs such as amantadine.

CDC Says Too Late to Contain U.S. Flu Outbreak

From Reuters:

The U.S. Centers for Disease Control and Prevention said on Friday it was too late to contain the swine flu outbreak in the United States.

CDC acting director Dr. Richard Besser told reporters in a telephone briefing it was likely too late to try to contain the outbreak, by vaccinating, treating or isolating people.

"There are things that we see that suggest that containment is not very likely," he said.

He said the U.S. cases and Mexican cases are likely the same virus. "So far the genetic elements that we have looked at are the same." But Besser said it was unclear why the virus was causing so many deaths in deaths in Mexico and such mild disease in the United States

Of Concern (NOW URGENT-See UPDATE)

There is a serious outbreak of influenza in Mexico.

The new strain contains gene sequences from North American and Eurasian swine flus, North American bird flu and North American human flu, said the Centers for Disease Control and Prevention, NYT is reporting.

It has killed as many as 61 people and infected possibly hundreds.

A few years back I was briefed by a bio-terrorist expert/CIA advisor, on various types of flus. He told me the most dangerous flus were the ones that killed the healthy. The great Spanish flu epidemic of 1918 was such a flu.

This is what NYT is reporting about this outbreak:

Most of Mexico’s dead were young, healthy adults, and none were over 60 or under 3 years old, the World Health Organization said.

Even more curious about this breakout is the timing. NYT again:

Mexico’s flu season is usually over by now, but health officials have noticed a significant spike in flu cases since mid-March. The W.H.O. said there had been 800 cases in Mexico in recent weeks, 60 of them fatal, of a flu like illness that appeared to be more serious than the regular seasonal flu.

As if to emphasise the uselessness of more government regulation, to those who call for more government regulation of every aspect of life, if there ever was a time to warn about travel to Mexico, it is now. Yet, because of political reasons it won't happen. The NYT reports one helluva contradiction from the CDC:

“We are worried,” said Dr. Richard Besser, the acting head of the C.D.C. “We don’t know if this will lead to the next pandemic, but we will be monitoring it and taking it seriously.”

How serious? Not serious enough to warn Americans about trips to Mexico. The same government that makes grandmothers take off their shoes at airports, seems to be more concerned about Mexican tourism than a potential pandemic:

The C.D.C. refrained from warning people not to visit Mexico. Even so, the outbreak comes at an awful time for tourism officials, who have been struggling to counter the perception that violence has made Mexico unsafe for travelers.

It's the private sector news disseminators, e.g., me and NYT, that don't give a damn about Mexican tourisim.

As a pre-caution before the government shuts this avenue down, find yourself a friendly doctor, tell him that everyone in your family has flu symptoms and you need Tamiflu. Store the Tamiflu, and hope you will not need to use it. The terrorist expert told me that Tamiflu is the most likely flu treatment to work against a pandemic type flu. If this does get serious, the supplies of Tamiflu in existence are nowhere near enough for the general public.

UPDATE: You can be sure they made these kids take their shoes off at the airport. From NYT:

The New York City health department dispatched a team of investigators to a private school in Queens on Friday after dozens of students complained of symptoms that officials believed were consistent with a strain of swine flu that has swept Mexico City.

The agency said about 75 students at St. Francis Preparatory School had complained Thursday of nausea, fever, dizziness and aches and pains. Several of the students were said to have recently traveled to Mexico, where as many as 61 people have died and possibly hundreds more have been infected in an outbreak of swine flu in recent weeks.