Simon Johnson Warns.
On NPR, Simon Johnson calls for a systemic nationalization of failed banks. He says that each of the 19 big banks must undergo a genuine stress test, and perhaps a brief period of time to try for private recapitalization, and then the failed and insolvent must be taken over by the FDIC writ large. Yet. Yet. Simon Johnson warns that the sooner the better because, like Russia in the chaos of the mid 1990s, assets disappear in a crisis, just vanish (he says this with a small laugh). His nationalization program is well known: push Citigroup and others (BAC) into candor, fire the boards, strip put the bad assets and re-privatize the stable parts quickly. What is not well-known is what he means by assets disappearing. He means theft, plunder, piracy. Is this happening already? Is it useful for the bankers and hedgies who understand the parts of Citi and BAC, who have access to officers or ex-officers, to position themselves to get ahold of pieces of the bank as it crumbles. Johnson says that during chaotic strife, no one knows where anything is. Simon Johnson says that it is called "asset-stripping" or "tunneling." He then tells the story of an honest bank minister in Russia, now deceased, who tried to halt the tunneling out of value from state owned assets in the privatization mania in Russia under Yeltsin. Simon Johnson recalls that the honest Russian banker would say that "periods of chaos and confusion are perfect for people who want to make off with valuable assets." "Things disappear," says Simon Johnson. "Honestly all kinds of strange and imperfect things happen." It ended badly for the honest man and for Russia. Is this happening now with C? For example, who still owns C stock at $1.22? CNBC Charlie Gasparino writes of Sandy Weill (right), the man who built Citigroup in the 1990s until he was driven out after the dot.com bubble burst. As late as 2006, Weill owned more than 15 million shares of Citi, then trading in the mid 40s, worth up to $750 million. Does Weill still own C? And if he does not, does Weill know what parts of C he would seek to revive or renovate in the event of nationalization, break-up and re-privatization? Does Weill's hand-picked successor Chuck
Prince (who was fired one disconsolate weekend in the fall of '07 by a cranky, opaque C board) know where there are assets that can be seized upon at a cheap price and then quickly made profitable? In sum, no less a dignitary that Simon Johnson is suggesting that
there may be more than one game in the collapse of C stock, and BAC stock. Drive it down to force it into pieces, then grab the pieces. Look at the report on the ex officers of Countrywide, who are now buying up foreclosed mortgages and turning them over for a profit. They admit they wrecked things with the predatory and lunatic practices, but they are beyond the regulators now, they are happy to blame-shift, and they are making money with properties they helped destroy. Would this not work the same way for Citigroup officers and major shareholders, or for wolves in hedgie clothing who know where the good stuff is hidden? Simon Johnson says that we have kept these big banks going with loans and cash since last September 2008. Plenty of time to plan, to designate, to execute and to wait to pounce. It worked in Russia and created the commodity oligarchs. Would it work in America and create the financial oligarchs?
And is Treasury Involved in the Planning of the Break-Up and Plunder?
Simon Johnson also mentions the peculiar detail that Treasury decided, when it negotiated the 36% purchase of the common stock, that Vikram Pandit would stay as CEO at Citigroup. Meaning that Treasury and the Obama finance chiefs (right, Larry Summers, Peter Orszag, Timothy Geithner, Christina Romer) is already running C to the extent that it can name the manager and ask the board members it does not like to leave. I add that Simon Johnson points to James Baker calling for nationalization as well. The name I watch is Nouriel Roubini, who told Aaron Task and Henry Blodgett at Yahoo Finance last Friday (right) that C and BAC are already nationalized in part, and that it was like being a little pregnant. Roubini recommends that the Treasury just go ahead and get the job done. Again, Roubini does not know why Treasury is waiting? He does not believe the banks can recover with any combination of public and private intervention. Roubini calls them zombie banks. Simon Johnson also refers to the banks as zombies, as in the Japan banks of the 1990s. Johnson and Roubini are certain that Citigroup and other big banks (Bank of America) are far gone into zombie hood. There is no alternative other than the lost decade scenario. Again though, the lost decade may be pleasing to a small gang of predators who aim to pick off the good bits. I
am being suspicious, paranoid, bloody-minded, speculative, ruthless toward the Treasury under Hank Paulson and Treasury under Geithner. Yet greed and fear, greed and fear, these are captivating motives. Why is Citi's stock at $1.22 and sinking and yet no one at Treasury is screaming, "Get rid of it!" No one knows. Stubborn? Stupid? Part of a conspiracy? Didn't Treasury Secretary Hank Paulson tell New York Fed Chair Tim Geithner to sell Bear Sterns to a member of the New York Fed board Jamie Dimon for cheap, helped by a $30 billion Fed loan at good rates, on the wild weekend of March 15. Was that shrewd management by regulators or collusion with predators and pay-off during chaos?
We have lost the language. We have become so accustomed to hyperbole (crisis, crisis, chaos, crisis…); we no longer pay much attention. When we hear words like ‘predatory’ and ‘theft’, we focus on the latest popular game of blaming the ‘filthy’ (rich). No doubt it’s come to that. But we miss the other, perhaps more telling signals, like the local garden center running out of seeds for growing vegetables and fruit.
It’s already gone well beyond all that (the blame game). And when somebody suggests the possibility of worse yet to come, they’re labeled as ‘lunatic fringe’. Hyperbole: This is America, alright. We’re just going through a ‘rough patch’ - (understatement.); bouncing from crest to crest. (ADD) We see the three-year old at the wheel of the bus. But he will learn to drive in time, we say; as we collectively careen down the mountain pass, shortcutting all the hairpin turns down into the abyss.
It can’t happen here, we say. This is America, we say. No relation to the “Killing Fields” of Cambodia; Mao’s ‘Great Leap Forward’; Soviet gulags; Weimar, and Hitler’s subsequent rise to power; etc. They say we’ll have at most two, maybe four years yet of this. Republicans are already smacking their lips. “We’ll just sit, nod and wait,” they say.
I say, by that time it’ll already be to late. The museums will already have been plundered; the Bamiyan Buddha's smashed. We’ll be lucky to still be alive; enough to scratch the ground for what’s left of the tomato seeds. ...while back in Washington yet another gala is held, this time for Republicans who have come over to join their Democrat comrades for a brief favorable mention in the state-controlled press.
Will the Obama white house, in classic Russian style, try to enrich Democrats at the sacrifice of American and global investors?
"Stimulus" was a ham handed attempt to payback Democratic supporters, Construction unions, teachers, health care unions, and abortion clinics.
Will Treasury direct good assets towards Dem supporters, just like Silicon Valley did with their IPOs in the 1990s?
WHAT'S DRIVING DOWN BANK STOCKS?
Some will say bank stocks are being driven down by three things: 1) The elimination of the 'Uptick Rule', which was established under FDR to stop predatory short selling. This rule was eliminated by former SEC Chairman, Chris Cox. 2) Mark to Market accounting, which forces banks to give a price valuation on assets, some of which -- like toxic assets -- can't accurately be valued and, thus, are valued at next to nothing; 3) ETFs which are turbo-charged and able to sell short at a multiple of ordinary shorts.
As stated above, insiders may be driving down prices to plunder their own companies. However, if banks are nationalized, this usually means that all common stock owners are wiped out and it's hard to see why any insider with huge amounts of stock would want that. This is not to say that some bank/insurance/hedgie moguls are not sitting on the sidelines waiting to swoop down and pick at the remains -- or, just, short selling because it's extremely profitable -- or both.
However, if you want a conspiracy theory, how about this: What's happening with predatory short selling is nothing less than another 9/11 attack -- this time orchestrated to destroy the financial markets of the world. Too James Bondish? Not if you consider the tremendous amount of wealth held by 'outsiders' -- in Sovereign Wealth Funds, oil and other commodity countries -- which are controlled by just a few and whose interests do not necessarily coincide with that of our own.
Quick. Call the financial arm of Homeland Security. Oh, there isn't one?
There was supposed to be a "Plunge Protection Team", those superheroes of the Market who are having a little trouble roping this bear market.
There is a good article over at elliotwave.com called "Long on Walmarts short on Liberty".
Mike - You touch on something that is extremely interesting to me. The chronology of this debacle is open source. Virtually everyone understands how it all went down. What remains consistently unmentioned is who started the stampede? I understand that the economy was already hanging off a cliff. Who was it that gave it that final push?
They tell us that Bush was informed sometime in the morning (last year) that there was a run on money market funds underway; that if it was to continue for another couple of hours, the U.S. economy would collapse. After that, by 4PM, the world economy would collapse. It was on this basis that Bush was spooked into supporting TARP, at the same time threatening to invoke Martial Law.
Congress was then strong armed into passing the three-page TARP document into law - and we were off to the races.
Forgive me if I got some of the details wrong (I'm working from memory) but I'm sure you can tell from this what I'm referring to. My question is: Who caused the run on the money market funds? Was it a single individual? Or was it a group of people? How were they all connected? Contacted by whom? Was there an international trigger, perhaps?
If we could answer this question, we would know (metaphorically) who shot Archduke Ferdinand; who should be sitting in jail. The motive is already clear, this happening just before the U.S. election as it did. Another possible clue: I understand that Soros' hedge fund is the only one that made money while all the others lost their shirts.
Hello,
In tomorrow's FT, Francesco Guerrera reports that Lehman Brothers’ US liquidators have asked Barclays to explain what happened to an estimated $3.3bn (€2.6bn) earmarked for bonuses and other liabilities that the UK bank received when it acquired part of the bankrupt Wall Street firm last year.
This story is under embargo until 7:00 PM EST. Francesco is in New York and available for comment- if you'd like to speak with him, please contact me at details below. Also, please feel free to contact me if you'd like to receive the link and full text of the article once it's live on FT.com this evening. Thank you!
Peter - the corollary question to yours is "Who sent Obama?" How did a man whose resume contains so little accomplishment and was missing so much corroboration allowed to walk into the White House? The path was cleared, but by whom?
Take the combination of mark to market, naked short selling, and a media obsessed with destroying Bush XVIII and you have a recipe for mischief. I think you are right to look overseas - but I am not so sure Soros alone has the power. We know he was a Nazi collaborator (by his own admission) in his youth - collecting the wealth of his fellow Jews before their murder. With whom has he collaborated this time? The Chinese? The Russians? The Mullahs? Chavez? So many choices to choose from. Soros may have been the conduit, but he alone couldn't have had the reserves to pull it off without the backing of a sovereign fund.