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Dear CIGAs,
It made Wall Street rich beyond their wildest dreams and parented a great equity rally, but did nothing whatsoever for Middle America, the real economy, nor did it fix the systemic OTC derivative problem lurking within the banking community.
TARP: One Year Later
Hank Paulson’s plan was supposed to save the economy. But did it end up merely enriching bankers?
By Matthew Philips | Newsweek Web Exclusive
Nov 12, 2009
On Nov. 12, 2008, Treasury Secretary Hank Paulson announced a dramatic shift in the strategy to deal with the rolling financial crisis. Rather than use the $700 billion TARP funds to buy troubled assets from banks, as originally promised, he would dole it out in the form of cash; capital injections in exchange for preferred stock. Kind of like shots of speed. Six weeks before, Paulson had gotten down on one knee to beg House Speaker Nancy Pelosi to support the original plans. But conditions had changed, Paulson argued. The economy was getting worse and he wasn’t going to apologize for adapting.
His first few press conferences were awkward, uncomfortable affairs, particularly the one on Sept. 15—the Monday that Lehman Bros failed—when he took a spot behind the White House press podium and, smiling nervously, began, “I hope you’ve all had a nice weekend … yeah.” The implication was that he, of course, had not, having spent his weekend deciding the fate of Lehman Brothers, and orchestrating the shotgun marriage between Bank of America and Merrill Lynch. In the early going, it seemed Paulson was cracking under the pressure, barely able to conceal the strain of holding the fate of the crumbling economy in his hands. During those first weeks of the financial crisis, the markets usually tumbled after a clunky Paulson press conference. Wall Street’s reaction Nov. 12 was no different. The Dow slid 411 points on news that the Treasury was no longer going to buy the toxic assets as it had promised.
To a degree, the announcement was a fait accompli. Paulson had already spent a large chunk of the authorized bailout funds, including $115 billion in strong-armed equity deals forced on the country’s nine largest banks and $40 billion to AIG. Populists were already grumbling that TARP was just a handout to the people who’d created the mess. Which is why Paulson sold the switch as one directed at consumers. With the securitization market at a standstill, consumer lending had effectively ceased. No student loans, no lines of credit, no mortgages. By injecting capital straight into banks and other financial institutions, Paulson grabbed hold of the biggest lever he could and gave it a hard tug. In a way, it was the nuclear option.
That was a year ago. And how has it played out? Critics say Paulson’s decision to switch up the TARP is at the root of the where we are today, with record Wall Street bonuses, zombie banks, and a festering bipartisan suspicion that nothing’s changed. Still, a closer examination shows that Paulson made the right decision. Its original inception was ill-conceived and would have likely led to an even bigger financial catastrophe. The problem isn’t that Paulson decided to give the banks the money, it’s that he didn’t ask for enough in return. Not to mention that TARP has been administered with a transparency that is at best opaque. Tracking the funds over the last year, figuring out who got what from where, has been like following laundered money, leading to a situation rife with conspiracy theories and potential conflicts of interest. “It hasn’t done what [Paulson] said it would,” says Jerry O’Driscoll, a former vice president of the Dallas Federal Reserve and a senior fellow at the Cato Institute. “Yes, it saved some banks from going under, but did it restore the health of the banking system? Absolutely not.”
Jim Sinclair’s Commentary
Looks like a new joint Asian economic plan.
The West has no plan. Guess who will win.
APEC summit concludes, leaders issue declaration to urge new growth paradigm
2009-11-15 18:00:48
By Xu Lingui
SINGAPORE, Nov. 15 (Xinhua) — Leaders of the 21-member Asia- Pacific Economic Cooperation (APEC) on Sunday issued a declaration pledging to undergo economic structural reforms, resist trade protectionism in order to develop a new growth model to sustain the weak global recovery.
The declaration also marks the conclusion of the 8-day APEC Leaders Week meetings that drew thousands of the world’s top politicians, economists, businessmen at a time when the world economy, led by Asia, is recovering from the worst recession since the 1930s.
“Our robust policy responses have helped to set the stage for recovery. But economic recovery is not yet on a solid footing,” said the declaration, made public by Singapore Prime Minister Lee Hsien Loong, U.S. President Barack Obama, Japanese Prime Minister Yukio Hatoyama, Chinese President Hu Jintao and 18 other regional leaders.
“Looking beyond supporting the recovery, we recognize the necessity to develop a new growth paradigm for the changed post-crisis landscape. We cannot go back to ‘growth as usual’,” the declaration said.
Leaders vowed to put in place next year a comprehensive long-term growth strategy while maintaining the emergency stimulus policies — estimated at 1 trillion U.S. dollars — until a durable recovery has clearly taken hold.
Jim Sinclair’s Commentary
It is as if debt was no problem at all. It is as if no one in command cares.
The dollar is a death throw.
U.S. Treasury Confident Congress Will Increase Debt Ceiling
By Rebecca Christie
Nov. 13 (Bloomberg) — The Obama administration is confident Congress will raise the country’s debt limit by year end to avert a showdown similar to the one that shuttered parts of the government in 1995, administration officials said.
The White House wants an increase of at least $1 trillion to $1.5 trillion, according to a person familiar with the deliberations between lawmakers and the administration. Record budget deficits are pushing the national debt closer to the $12.1 trillion statutory limit.
The administration’s request, higher than a proposed increase already passed in the House of Representatives, would get the government through the November 2010 midterm congressional elections without needing another increase. Earlier this month, Treasury officials acknowledged they’ll need more borrowing room by year-end to avoid market disruptions.
“Market participants still remain on edge, especially since many have concerns over the rising debt loads that were kicked off this year,” said George Goncalves, chief fixed- income rates strategist in New York at primary dealer Cantor Fitzgerald LP.
The administration officials said the White House is open to any legislative vehicle that will raise the debt limit, by any amount. Although the Obama administration has pledged to bring deficits down to “sustainable” levels in the longer term, Treasury Secretary Timothy Geithner has focused recently on the need to keep up spending on economic assistance programs until the unemployment rate, which reached a 26-year high of 10.2 percent in October, comes down.
Jim Sinclair’s Commentary
Shocking. That is all I can say.
22 Percent of Florida Mortgages Non-Current
11 Nov 09
A staggering 22 percent of all mortgages in the state of Florida are non-current, according to a new report from Lender Processing Services.
By non-current, they mean loans that are either delinquent or in some stage of foreclosure; perhaps more troubling is the fact that 10.4 percent of home loans in Florida are in foreclosure.
The LPS October Mortgage Monitor also revealed that the nation’s foreclosure rate was 3.12 percent as of September 30, up 2.6 percent from a month earlier and 88.9 percent year-over-year.
And remember that’s with all the government intervention, foreclosure moratoria, loan modifications, and the like; the national mortgage delinquency rate was 9.37 percent as of September 30.
The report also highlights the large shadow inventory of foreclosed properties that could wreak havoc on home prices and a possible housing recovery.
Jim Sinclair’s Commentary
Sparring is no way to treat your banker.
China is NOT dollar bound.
China-U.S. spar over currencies ahead of Obama visit
Sun Nov 15, 2009 4:08am EST
By Patricia Zengerle and Yoo Choonsik
SINGAPORE (Reuters) – The United States and China sparred over exchange rates at a meeting of Asia Pacific leaders on Sunday, pointing to tricky talks ahead for President Barack Obama when he flies to China to address economic tensions.
The discord surfaced at a summit of the Asia Pacific Economic Cooperation (APEC) forum in Singapore when a reference to ”market-oriented exchange rates” was cut from a communique issued at the end of two days of talks. An APEC delegation official said Washington and Beijing could not agree on the wording.
That underscored strains likely to feature when Obama flies to Shanghai later on Sunday following moves by Washington to slap duties on various Chinese-made products and a growing drumbeat of pressure on Beijing to let its yuan currency strengthen.
It also suggested investors should be cautious about betting on a yuan appreciation after a central bank statement last week appeared to give the green light for strengthening.
“China has pledged to keep monetary policy moderately loose, and their concern is still the economic recovery,” said currency strategist Enrico Tanu Widjaja at OCBC Bank in Singapore. “They will probably let the yuan strengthen when they start tightening policy.”
Jim Sinclair’s Commentary
The timeline of the July 17th 2009 monetary summit meeting has expired.
China is not dollar bound.
UPDATE: China: Loose US Policy, Weak USD Creating Speculation
By Aaron Back and Juan Chen
* NOVEMBER 15, 2009, 4:47 A.M. ET
BEIJING -(Dow Jones)- China’s chief banking regulator on Sunday sharply criticized loose U.S. monetary policy, including the weak U.S. dollar, saying the situation is creating massive speculation in global asset markets.
The U.S. Federal Reserve’s promise to keep U.S. interest rates at extraordinarily low levels for an extended period “has already led to a massive U.S. dollar carry trade and massive speculation,” Liu Mingkang said at the International Finance Forum in Beijing, which began just hours before U.S. President Barack Obama was scheduled to land in China on his first ever visit.
Even as key trading partners like the U.S. and the EU and multilateral agencies like the World Bank and International Monetary Fund recommend more yuan appreciation, China – as the world’s biggest holder of U.S. Treasurys – continues to push back, defending its own exchange rate policy, while warning about unsustainable U.S. economic policies.
Liu said that the weak U.S. dollar and low U.S. interest rates are creating “unavoidable risks for the recovery of the global economy, especially emerging economies” and that the situation is “seriously impacting global asset prices and encouraging speculation in stock and property markets.”
The focus on the greenback has come after it sunk to a 15-month low last week. In a speech late Tuesday, Federal Reserve Bank of Dallas President Richard Fisher said he is aware that the Fed’s current stance of keeping interest rates low for an “extended period” was denting the dollar.
