Tuesday, January 25, 2011

Treasury Announces Sale Of 465 Million Citigroup Warrants

Video inside of Geithner with Charlie Rose.

Editor's Note: Please see our story from last week on Citigroup profit and bonus.

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Here's some background from last week's Treasury press release on tomorrow's auction of Citigroup warrants.

Source - Treasury.gov

WASHINGTON - The U.S. Department of the Treasury today announced its intention to dispose of certain warrant positions received in consideration for investments made under the Capital Purchase Program (CPP), the Targeted Investment Program (TIP) and as part of a loss-sharing agreement. During the current quarter, Treasury intends to conduct auctions to sell its warrant positions in Citigroup Inc., Boston Private Financial Holdings, Inc., and Wintrust Financial Corporation.

Apart from the warrants, Treasury has fully sold all other securities issued to it by Citigroup Inc., and each of the other financial institutions has fully repurchased Treasury´s preferred stock investment. The warrant sales anticipated during the current quarter, if consummated in full, would represent Treasury´s disposition of its remaining holdings in these financial institutions. The proceeds of these sales will provide an additional return to the American taxpayer from Treasury´s investments in these financial institutions beyond the dividend payments it received on the related preferred stock.

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Now the details from today's press release...

Treasury Department Announces Public Offerings of Warrants to Purchase Common Stock of Citigroup

Source - Treasury.gov

WASHINGTON -- The U.S. Department of the Treasury today announced that it has commenced a secondary public offering of 255,033,142 warrants to purchase the common stock of Citigroup Inc. (the “Company”) (the “A Warrants”) and a secondary public offering of 210,084,034 warrants to purchase the common stock of the Company (the “B Warrants”). The proceeds of this sale will provide an additional return to the American taxpayer from Treasury’s investment in the Company beyond the dividend payments it received on the related preferred stock and the profit received from the sale of shares of common stock and trust preferred securities of the Company. The offerings are expected to price through a modified Dutch auction. Deutsche Bank Securities Inc. is the sole book-running manager and Cabrera Capital Markets, LLC and Loop Capital Markets LLC are the co-managers for the offerings.

Deutsche Bank Securities Inc., in its capacity as auction agent, has specified that the auctions will commence at 8:00 a.m., Eastern Time, on January 25, 2011, and will close at 6:30 p.m., Eastern Time, on that same day (the “submission deadline”). During the auction period, potential bidders for the A Warrants will be able to place bids at any price (in increments of $0.01) at or above the minimum bid price of $0.60 per warrant, and potential bidders for the B Warrants will be able to place bids at any price (in increments of $0.01) at or above the minimum bid price of $0.15 per warrant.

The warrants are being offered pursuant to an effective shelf registration statement that has been filed by the Company with the Securities and Exchange Commission (the “SEC”). Preliminary prospectus supplements related to the offerings will be filed by the Company with the SEC and will be available on the SEC’s website at http://www.sec.gov. Copies of the final prospectus supplements relating to these securities may be obtained, when available, from Deutsche Bank Securities Inc., Prospectus Department, Harborside Financial Center, 100 Plaza One, Jersey City, New Jersey 07311-3988, telephone: 1-800-503-4611 begin_of_the_skype_highlighting 1-800-503-4611 end_of_the_skype_highlighting, or by emailing prospectus.cpdg@db.com.

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And quick coverage from Marketwatch...

The offerings are expected to price through a modified Dutch auction held on Tuesday. In a press release, Treasury said it will sell one tranche of 255.03 million warrants at a mininum bid price of $0.60 per warrant and a second tranche of 210.08 million warrants for a minimum bid price of $0.15 per warrant. Deutsche Bank Securities Inc is the sole book-running manager for the auctions. The proceeds of the sale will provide an additional return to taxpayers from Treasury's investment in Citigroup to keep the bank holding company from collapsing. Treasury sold the last of its Citigroup common shares in December.

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Video - Geithner on Charlie Rose - July 22, 2010

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Geithner's 2 appearances on Charlie Rose in 2010...


Domodedovo blast masterminds proud of terror 'fundraiser' - Peter Lavelle

Moscow on high alert after Domodedovo airport terror

5 kilo TNT shrapnel suicide bomb used in Domodedovo airport attack

Bankruptcy, not bailouts, a better path

Thomas Sowell
Detroit News

Government budget crises can be painful, but the political rhetoric accompanying these crises can also be fascinating and revealing.

Perhaps the most famous American budget crisis was New York City's, back during the 1970s. When President Gerald Ford was unwilling to bail them out, the famous headline in the New York Daily News read, "Ford to City: Drop Dead."

Ford caved and bailed it out, after all.

The rhetoric worked. That is why so many other cities and states — not to mention the federal government — have continued with irresponsible spending and are now facing new budget crises, with no end in sight.

What would have happened if Ford had stuck to his guns and not set the dangerous precedent of bailing out local irresponsibility with the taxpayers' money?

New York would have gone bankrupt. But millions of individuals and organizations go bankrupt without dropping dead.

Bankruptcy conveys the plain facts that political rhetoric tries to conceal. It tells people who depended on the bankrupt government that they can no longer depend on it. It tells the voters who elected that bankrupt government, with its big spending promises, that they made a bad mistake that they would be wise to avoid making again in the future.

Read Full Article

How The Federal Reserve And The Zombie Banks Are Monetizing The National Debt Right Before Your Eyes

Tim Geithner and Ben Bernanke

Ben Bernanke and Tim Geithner Dollar

Ben Bernanke smiles

Ben Bernanke

A true must read. The spender and the printer. Governments and central banks do not have the same constituencies. The power to print would be a frightening force in the hands of politicians, much as it is for the Fed.

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The spender and the printer

Governments and central banking do not mix

Source - Gonzalo's Blog

Governments spend money. They spend money on social programs to keep the people docile and happy, wars to keep up the illusion of safety and security, and—almost as an afterthought—infrastructure. Ordinarily, they get the money for all of these things from taxes and other fees that the government collects.

On the other hand, central banks print money. Most of the world’s economies depend on fiat currency—currency that has value because someone says it has value. The person who says it has value is the central bank. They are the custodians of the currency—they take care that it retains its value.

Tons of people say that a fiat currency is unstable, and doomed to fail, and that we will all rue the day that we accepted that abomination into our lives!—and blah-blah-blah, rant-rant-rant.

But in most cases—all cases, actually, regardless of what the tin-foil hat brigade might rant—fiat currency works like a charm. The proof of this is the last 40 years: All of the world’s major currencies have been fiat since at least 1970. The dollar has been fiat since 1973, and by certain definitions, fiat since 1933, or even 1913—and it’s still around. That’s been because of the Federal Reserve (the U.S.’s name for its central bank).

Central bank independence is key for a successful fiat currency. If the government ever got its hands on the central bank’s printing presses, all hell would break loose. Rather than raise taxes and collect fees—which are politically unpopular—the government could (and would) direct the central bank to print all the money needed to carry out the government’s various programs.

This is monetization.

What would happen once monetization took place is pretty obvious: So much of the currency would be printed by the government that businesses and ordinary people would lose faith in the currency as a stable medium of exchange. Since fiat money depends on people’s faith in it, this would become a self-reinforcing situation: The currency would fall leading to people losing faith in it, leading to the currency falling even more.

This is the mid-stages of hyperinflation. Eventually, the currency would become worthless, wrecking the economy of the currency.

It’s happened more times than one would imagine. But the last time it happened in an advanced economy was Germany in 1922, the so-called Weimar episode. Since then—even during total war in WWII—there has not been an incident of hyperinflation in any advanced economy. (Though as I wrote in Was Stagflation in ‘79 Really Hyperinflation?, there have been bouts of high inflation that had all the traits of incipient hyperinflation.)

A collapse in the currency is why the government and the central bank are kept separate from one another—the fear of monetization, and what could happen, keeps the two apart.

However, now, in the good ol’ U.S. of A., monetization is taking place—and it is happening right before our eyes, even though no one is realizing it. This monetization is invisible to sophisticated analyses, but obvious to anyone looking at the situation. Like one of those stealth fighter jets that are visible to the naked eye of a goat herder, but invisible to the radar and infrared and other sophisticated equipment of the professional military? Same thing:

It’s what I call stealth monetization.

What happened in the Fall of 2008? Essentially, banks found themselves holding debts that would never be repaid—which meant the banks could never pay back the money that they in turn owed to depositors and other creditors.

The bad debts the banks owned—the so-called “toxic assets”—were bonds made from the real-estate and commercial real-estate mortgages, as well as other collateralized debt obligations. Since the properties underlying these bonds had fallen in price—because their prices had been a speculative bubble to begin with—the bonds made from these bundles of loans would never be fully paid off.

In other words, they were bad loans. Therefore, the banks which had made the loans—the banks which owned these toxic assets—would lose so much money that they would go bankrupt. If they did go broke, the U.S. and world economies would take a massive hit.

So in order to avert this fate, the Federal Reserve bought these toxic assets from the banks—but the Fed didn’t pay the market value for these toxic assets, which were pennies on the dollar: Instead, the Federal Reserve paid full nominal value for the toxic assets—100¢ on the dollar. The banks the Fed bought these toxic assets from became known as the Too Big To Fail banks—for obvious reasons.

How did the Fed buy these dodgy assets? Simple: In 2008 and ‘09, the Fed “expanded its balance sheet”. That’s fancy-speak for, “The Federal Reserve created about $1.5 trillion out of thin air.” That’s essentially what they did. The Fed just decided, “We’re going to create $1.5 trillion”—and lo and behold, $1.5 trillion came to be.

What did the Fed do with this $1.5 trillion it conjured out of thin air? Why, it used it to buy up all the toxic assets and other dodgy assets from the TBTF banks.

What did the TBTF banks do with all this cash? Why, they turned around and bought U.S. Treasury bonds.

U.S. Treasury bonds are called “assets” by sophisticated finance types—in fact, sophisticated finance types call all bonds “assets”. But they’re really just debt—including Treasuries. U.S. Treasury bonds are certificates of debt that the U.S. Federal government issues, in order to finance its shortfall, the deficit.

The U.S. Federal government has been running monster deficits for a number of years now—but lately, it’s gotten pretty bad. In 2009 as well as 2010, the Federal government shortfall was over $1.4 trillion. This is roughly 10% of total U.S. gross domestic product—both in 2009 and 2010: A staggering sum of money. And it is likely that for 2011, the deficit will be another $1.5 trillion or so.

The Federal government has so much outstanding debt that it is unlikely to ever be able to pay it back.

A lot of people think this. A lot of sensible people think that a day will come when the markets no longer believe in the Federal government’s promise to pay back its debt. A lot of sensible, smart people think that, one day, no one will buy any more Treasuries—

—yet every week, Treasury bonds get sold with numbing regularity. The U.S. Federal government has never put Treasuries up for auction which did not get bid on.

Who are the people who buy these Treasury bonds? The primary dealers—that is, the Too Big To Fail banks.

In other words, the TBTF banks are financing the Federal government’s massive deficits. How are they doing it? With money the Federal Reserve gave them for their toxic assets.

This is one leg of stealth monetization.

Buying up toxic assets following the 2008 Global Financial Crisis was not the only way that the Federal Reserve got money into the hands of the TBTF banks, and thereby the Federal government—the other thing the Fed did was open up “liquidity windows”.

Liquidity windows are simply the mechanism by which the Federal Reserve lends money to the banks. The interest rate the Fed assigns to this money it lends to banks is called the Fed discount rate.

Right now—and for the past several months—the Fed discount rate has been 0.25%. That’s right: One quarter of one per cent. The interest is substantially lower than the inflation rate. This means that the Fed has essentially been giving away free money to the banks.

What are the Too Big To Fail banks doing with this free money? Why, they are buying Treasury bonds: The TBTF banks are borrowing money from the Fed at absurdly low rates, and then turning around and lending it to the Federal government by way of Treasury bond purchases.

This is the other leg of stealth monetization.

In these two ways, the Federal Reserve has been monetizing the Federal government’s debt. The Fed bought up toxic assets from the TBTF banks, which then went and bought Treasuries. And the Fed is lending money for free to the TBTF banks, which are then buying Treasuries.

Take a step back, and you get the picture: The Too Big To Fail banks are the sewer system by which the Federal Reserve supplies money to the Federal government for all its deficit spending.

This is stealth monetization.

It’s not even particularly stealthy, actually—it’s happening right out in the open. It’s just that nobody is pointing it out—or perhaps because it is an obscure, complicated system, nobody has realized what it actually is.

But it’s monetization, pure and simple. The Fed is printing up all the money the Federal government wants and needs.

To put it more bluntly—and disturbingly—the pedophile is in the room with Dakota Fanning.

One of the pernicious effects of this stealth monetization is the dis-incentive it gives banks to lend money to small- and medium-sized businesses. Everyone—including the Fed—is complaining that the banks aren’t lending to businesses. But I don’t know why they’re complaining—it makes perfect sense.

See, the TBTF banks get money for free from the Fed, and then they turn around and lend it to the Federal government by way of buying Treasury bonds. Treasury bonds are paying absurdly low yields, because they’ve been bid up so high by all those freshly minted dollars that the Fed printed up. But to the TBTF banks, it doesn’t matter how low the Treasury yields are—it’s still guaranteed profits. Lending money to the Federal government is totally safe.

But a loan to a small- or medium-sized business? It’s a risk—and a risk for only a slightly higher profit. The business might miss a payment, or even go broke. Plus it’s a hassle, to lend to a busines—all that administrivia! The paperwork, the loan applications, the due dilligence—blah-blah-blah-blah!

“Screw it,” say the TBTF banks. “Let’s just buy Treasuries.”

That’s how the American government’s massive deficit is sucking up all the available funds. Why bother lending to the private sector, when the Federal government is paying good interest on the Treasury bonds, and the Fed is lending an endless supply of money for free?

This is why private-sector businesses are not getting any loans, no matter how long the Fed keeps interest rates at rock-bottom levels—the Federal government is hoovering up all that money, leaving the private sector with nothing, not even lint.

Ben Bernanke and the Lollipop Gang at the Fed do not seem to understand the disincentive they have created—in fact, they just keep on adding even more liquidity: Backstop Benny has announced that QE2 is on the way—that is, further “expansion of the balance sheet”, so as to create more money to give out to more banks—

—so they can buy more Treasuries from the Federal government.

Other banks which are not TBTF are getting squeezed—everyone acknowledges that the banking industry is really hurting. But the TBTF banks are racking up monster profits, with monster bonuses.

That’s because they’re monsters—or more precisely, they are zombies: The American Zombie banks.

Now this is all good and fine, but is there a simple way to verify that this stealth monetization is indeed what is going on?

Yes—look at the markets:

Over the past few months, we have seen two things occurring simultaneously: Treasury bond prices are rising (and therefore their yields are declining), and the dollar has been falling against all commodities and all other major currencies.

This is a contradiction. This cannot be happening simultaneously for any sustained length of time—unless there is some exterior factor making this contradictory situation happen.

It is a contradiction because, if over a sustained period of time the dollar is losing value against commodities and other major currencies, then it would not make sense for investors to be putting more money into Treasuries and bidding up their prices. Not when their yields are at such absurdly low levels.

Stealth monetization: That’s what’s bidding up Treasuries, even as the markets are losing faith in the dollar.

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Spoiler ALERT -- Do not miss #7:

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Have you seen these photos...

New Slideshow - From Time Magazine - See a pic of Bernanke at age 13, hair slicked back, playing the saxophone - These are VERY RARE photos

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Check out this one...

Editor's Note - Fans of women's swimming might want to make sure to see pic #4...

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More slideshows:

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Judge temporarily delays loan document shredding

WILMINGTON, Delaware (Reuters) – A U.S. bankruptcy judge temporarily blocked bankrupt subprime lender Mortgage Lenders Network USA from destroying 18,000 boxes of original loan files after federal prosecutors said documents in them may be needed as evidence in more than 50 criminal investigations.

In a hearing Monday before U.S. Bankruptcy Judge Peter J. Walsh, a representative from the Delaware U.S. Attorneys' Office said she did not know details of any of the investigations.

But she said prosecutors and FBI offices around the country had requested time to access to the boxes and assess whether the contents contain needed evidence before the judge permits any destruction.


Walsh granted a 30-day delay, and said he would hold another hearing on Mortgage Lenders' request.

A series of recent court rulings have increased the importance of original loan documents, holding that they are essential for investors to prove ownership of mortgages and to have the right to foreclose.

Connecticut-based Mortgage Lenders Network closed down and filed for bankruptcy protection in February 2007, and now is being liquidated.

Dozens of subprime lenders went out of business in 2007 with the collapse of the housing market. There is increasing tension as trustees for several of these defunct lenders seek to destroy documents to save storage costs, while law enforcement officials and advocates for homeowners and investors in mortgage-backed securities argue that the documents should be preserved.

Concern about missing mortgage documents emerged beginning in October 2010, with disclosures that large numbers of original loan documents were missing and that falsified ones were being submitted in foreclosure cases.

In a separate hearing Monday in the same court, U.S. Bankruptcy Judge Christopher Sontchi allowed defunct American Home Mortgage, once one of the largest subprime lenders, to destroy most of the 4,100 boxes of original loan files it still has.

But the judge granted a request by Margaret Becker, a lawyer in Staten Island for the Legal Aid Society, to require the American Home trustee to set aside and cull through a few hundred of the boxes which may contain records still relevant to possible foreclosures.

Becker said many low income homeowners were victims of deception about how much their loans actually would cost, and records from the boxes could help prove that they had been defrauded.

"These documents are critical for borrowers to demonstrate to foreclosing courts the deception and fraud that was a routine part of this mortgage industry," Becker said.

Sean Beach, a lawyer for American Home's liquidation trustee, said the company under an earlier court order already had destroyed or returned to loan servicers 50,000 boxes of "hard copy loan files."

(Reporting by Scot J. Paltrow; Editing by Tim Dobbyn)

Florida's Housing Bubble - What $1.4 Million Bought At The Height Of The Insanity

Only 47% of working age Americans have full time jobs

Ilargi: VK, roving reporter for The Automatic Earth, has been playing with the numbers from the January 7 employment report issued by the U.S. Bureau of Labor Statistics. It seems valuable to look at unemployment from this, a different, angle. Some of it may even surprise you.

The total non institutional civilian labor force (Americans 16 years and older who are not in a institution -criminal, mental, or other types of facilities- or an active military duty) is reported as 238.889 million. Of these, we see:
  • Employed: 139.206 million people (58.3% of labor force)

  • Unemployed: 14.485 million people (6.1% of labor force)

Obviously, that can't be the total picture, we're only at 64.4%. This is why:
  • Part time employed for economic reasons: 8.931 million people. This concerns people who want a full-time job but can't get one.

  • Part time employed for non-economic reasons: 18.184 million people. Non-economic reasons include school or training, retirement or Social Security limits on earnings, but also childcare problems and family or personal obligations.
But the by far largest category "missing" from both the Employed and Unemployed statistics is the "Not In Labor Force": 85.2 Million people.

The BLS definition states: "Not in the labor force (NILF). A person who did not work last week, was not temporarily absent from a job, did not actively look for work in the previous 4 weeks, or looked but was unavailable for work during the reference week; in other words, a person who was neither employed nor unemployed." (Clearly, this does include lot of unemployed people).

To summarize: 108.616 million people in America are either unemployed, underemployed or "Not in the labor force". This represents 45.5% of working age Americans.

If you count the "Part time employed for non-economic reasons", you get 126.8 million Americans who are unemployed, underemployed, working part time or "Not in the labor force". That represents 53% of working age Americans.

So only 47% of working age Americans have full time jobs. While the official unemployment rate is 9.4%. Something's missing somewhere.


A few more factoids on the topic:
  • Today, the long term unemployed make up 42% of total unemployed. That is to say, of course, those who are actually counted as unemployed instead of "Not in the labor force".
  • 43.2 million Americans receive foodstamps. That's 18.1% of all working age Americans. If they all have on average 1.5 dependents, which is probably a reasonable estimate, a full one third of the US population receives at least part of their food through this system.

Of course, these are not really stamps anymore, or any sort of paper, they’re now "food stamp debit cards". Michael Snyder at Economic Collapse dug up an ABC News article from April 2009, which deals with the fact that JPMorgan Chase is one of the main servicers of the "food stamp debit cards" (in 26 states). JPMorgan also services child support debit cards (in 15 states) and unemployment insurance cards (7 states).

Granted, some things may have changed somewhat since the article was written, but even just the very ideas that are the foundation of schemes like these are worth looking at. Because, naturally, JPMorgan does this to make a profit. Says ABC:
Take Indiana. JP Morgan gets 62 to 64 cents for each food stamp case handled monthly there. With 296,245 cases right now, that means the state is paying JP Morgan $183,672 a month on top of any other fees it collects. Indiana eliminated 100 full-time employees when it hired JP Morgan to make the program cost-neutral [..].

But the greatest statement the article makes, and the reason ABC looked into this in the first place, is that JPMorgan outsourced its call and service centers for the "food stamp debit cards" to India. If that isn't indicative of the level to which ethics and morals have sunk, I don't know what is. You could conceivably create a lot of jobs for Americans in these service centers, which would get them off food stamps! For starters.

Another great example of the loss of morality was noted by Pedro Nicolaci da Costa at Reuters late last week:
Accounting tweak could save Fed from losses
Concerns that the Federal Reserve could suffer losses on its massive bond holdings may have driven the central bank to adopt a little-noticed accounting change with huge implications: it makes insolvency much less likely. The significant shift was tucked quietly into the Fed's weekly report on its balance sheet and phrased in such technical terms that it was not even reported by financial media when originally announced on January 6.

But the new rules have slowly begun to catch the attention of market analysts. Many are at once surprised that the Fed can set its own guidelines, and also relieved that the remote but dangerous possibility that the world's most powerful central bank might need to ask the U.S. Treasury or its member banks for money is now more likely to be averted.

"Could the Fed go broke? The answer to this question was 'Yes,' but is now 'No,'" said Raymond Stone, managing director at Stone & McCarthy in Princeton, New Jersey. "An accounting methodology change at the central bank will allow the Fed to incur losses, even substantial losses, without eroding its capital."

The change essentially allows the Fed to denote losses by the various regional reserve banks that make up the Fed system as a liability to the Treasury rather than a hit to its capital. It would then simply direct future profits from Fed operations toward that liability. This enhances transparency by providing clearer, more frequent, snapshots of the central bank's finances, analysts say. The bonus: the number can now turn negative without affecting the central bank's underlying financial condition.

"Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible [..]". "The timing of the change is not coincidental, as politicians and market participants alike have expressed concerns since the announcement (of a second round of asset buys) about the possibility of Fed 'insolvency' in a scenario where interest rates rise significantly [..]"

You just have to love this one: at the stroke of a pen, it has become impossible for the Federal Reserve to incur losses. They're all simply written down as "liabilities to the Treasury". Yes, that would be you! And the Fed can keep on buying any and all toxic paper they can lay their hands on. They can accept as collateral "assets" from Wall Street that are not worth the paper they're written on (and there's a lot of that) and stick you with the bill by pressing a key.

It's time to seriously start wondering why the US still holds elections. Given that Congress can be bypassed this way through a sort of accounting that if it isn't yet illegal certainly should be, and which will burden Americans with trillions of dollars in additional debt, we might as well let Simon Cowell and Ryan Seacrest organize Indecision 2012.

One thing, though, for all members of Congress: when you get to debate raising the debt ceiling this spring, make absolutely sure that these newfangled "liabilities to the Treasury" are included in the national debt. It's either that or Mammon rules for real. And I'm not trying to be funny here. This feels sort of like when a collection agency comes to your door to collect on your lost wagers, you proudly show them a piece of paper that states the debt has been transferred to your as-yet unborn grandchild, so they can't legally touch you.

One more thing, Congress: in addition to the new "liabilities to the Treasury", you need to also count liabilities to Fannie Mae and Freddie Mac towards the national debt. It's always been insane that they were not, but it threatens to get much, much crazier still, says Louise Story in the New York Times:
Banks Want Pieces of Fannie-Freddie Pie
As the Obama administration prepares a report on the future of Fannie Mae and Freddie Mac, some of the nation’s largest banks are offering a few suggestions. Wells Fargo and some other large banks would like private companies, perhaps even themselves, to become the new housing finance giants helping to bundle individual mortgages into securities — that would be stamped with a government guarantee.

The banks have presented their ideas publicly through trade groups. Housing industry consultants and people familiar with recent meetings at the Treasury Department say these banks view the government’s overhaul of the mortgage market as a potential profit opportunity. Treasury officials have met with executives from several institutions, including Wells Fargo, Morgan Stanley, Goldman Sachs and Credit Suisse, according to a public listing of the meetings.

The administration’s report, to be released later this month, is expected to be sweeping and could address basic questions like whether a government guarantee is needed at all for middle-class homeowners. While other arms of the government are dedicated to making loans available to lower-income borrowers, Fannie and Freddie have helped lower rates for the bulk of homeowners. Some Republicans are trying to narrow this broad role, and on Thursday, several conservative researchers released a proposal on how to do so.

But banks, for their part, have told the administration that removing the guarantee would wipe out the widespread availability of the 30-year mortgage, fundamentally reshaping the American housing market. Though some other countries do not promote long mortgages, some analysts warn that such a change would be devastating to the market here. At firms like Goldman, analysts are predicting that a government guarantee on a broad swath of mortgage securities will survive in some form.[..]

Even if large banks are not allowed to give a government guarantee, they might have control over the private companies by investing in them or by placing representatives on their boards

Yes, I know, solving Fannie and Freddie is a Herculean task. Nobody wants to shake the housing market any more than it already has been. That is, of course, nobody except for potential homebuyers. And yes, dissolving Fannie and Freddie will greatly increase the "official" US debt. It will also mean the end of the major Wall Street banks.

But if the only alternative is to give those banks, who would long be broke and live on only as zombies and even that only because of accounting tricks, the ability to hand out loans and invest in securities (and potentially other derivatives) backed by a 100% US government guarantee (how thick can you lay on moral hazard?), you will be directly responsible for destroying your grandchildren's America.

Yes, the demise of Wall Street, and of housing prices, will mean a tough time ahead for everyone. But at least you’ll still have such items as pride and honor and dignity and patriotism and an American Dream left. Giving in to the model of Wall Street as government backed lenders, investors and speculators, while the dangers of doing so are plain for everyone to see, just to a gain a little bit of time, would rob you of all of these items. Your grandchildren would spit on your graves. Is it worth it?

Bernanke The Accounting Magician - Unnoticed Rule Change Means The Fed Will NEVER Incur A Balance Sheet Loss Again (Reuters)

Very, very interesting pick-up from Reuters below. Here's some background linkage from the past week. Both are quick reads...

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Accounting tweak could save Fed from losses

Source - Reuters - Jan. 22

(Reuters) - Concerns that the Federal Reserve could suffer losses on its massive bond holdings may have driven the central bank to adopt a little-noticed accounting change with huge implications: it makes insolvency much less likely.

The significant shift was tucked quietly into the Fed's weekly report on its balance sheet and phrased in such technical terms that it was not even reported by financial media when originally announced on January 6.

But the new rules have slowly begun to catch the attention of market analysts. Many are at once surprised that the Fed can set its own guidelines, and also relieved that the remote but dangerous possibility that the world's most powerful central bank might need to ask the U.S. Treasury or its member banks for money is now more likely to be averted.

"Could the Fed go broke? The answer to this question was 'Yes,' but is now 'No,'" said Raymond Stone, managing director at Stone & McCarthy in Princeton, New Jersey. "An accounting methodology change at the central bank will allow the Fed to incur losses, even substantial losses, without eroding its capital."

The change essentially allows the Fed to denote losses by the various regional reserve banks that make up the Fed system as a liability to the Treasury rather than a hit to its capital. It would then simply direct future profits from Fed operations toward that liability.

This enhances transparency by providing clearer, more frequent, snapshots of the central bank's finances, analysts say. The bonus: the number can now turn negative without affecting the central bank's underlying financial condition.

"Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible," said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer.

"The timing of the change is not coincidental, as politicians and market participants alike have expressed concerns since the announcement (of a second round of asset buys) about the possibility of Fed 'insolvency' in a scenario where interest rates rise significantly," Smedley and his colleague Priya Misra wrote in a research note.

In response to the worst financial crisis and recession since the Great Depression, the U.S. central bank pulled out all the stops on monetary policy. It not only slashed interest rates effectively to zero, but also committed to buy some $2.3 trillion in Treasury and mortgage securities in order to keep long-term borrowing costs down.

For weeks now, worries had been percolating among investors about the possibility that the central bank might run into trouble when it eventually decides to unwind some of those extraordinary measures.

In particular, analysts feared the Fed might be forced to sell either its Treasury or mortgage-backed securities at a steep loss in a rising interest rate environment, or end up having to pay a higher interest rate on bank reserves than it receives on the securities it holds.

Fed Chairman Ben Bernanke, asked about the possibility in congressional testimony earlier this month, said even the most extreme circumstances would not have very large implications.

"Under a scenario in which short-term interest rates rise very significantly, it's possible that there might come a period where we don't remit anything to the Treasury for a couple of years. That would be I think a worst-case scenario," Bernanke said.

However, the Fed has tended to assume that interest rates would be rising sharply only if the economy were recovering very rapidly. Fed policymakers seem to be ignoring the possibility that the country could face a bout of so-called stagflation -- a period of high inflation with depressed economic activity like that seen during the 1970s.

Continue reading page 2 at Reuters...

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Ron Paul owns Bernanke - further proof...

This is outstanding and not posted before.

Video - Ron Paul speaks to Bernanke who is present but is not shown

February of 2007, before the bubble burst...

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Bernanke The Accounting Magician - Unnoticed Rule Change Means The Fed Will NEVER Incur A Balance Sheet Loss Again (Reuters)

Very, very interesting pick-up from Reuters below. Here's some background linkage from the past week. Both are quick reads...

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Accounting tweak could save Fed from losses

Source - Reuters - Jan. 22

(Reuters) - Concerns that the Federal Reserve could suffer losses on its massive bond holdings may have driven the central bank to adopt a little-noticed accounting change with huge implications: it makes insolvency much less likely.

The significant shift was tucked quietly into the Fed's weekly report on its balance sheet and phrased in such technical terms that it was not even reported by financial media when originally announced on January 6.

But the new rules have slowly begun to catch the attention of market analysts. Many are at once surprised that the Fed can set its own guidelines, and also relieved that the remote but dangerous possibility that the world's most powerful central bank might need to ask the U.S. Treasury or its member banks for money is now more likely to be averted.

"Could the Fed go broke? The answer to this question was 'Yes,' but is now 'No,'" said Raymond Stone, managing director at Stone & McCarthy in Princeton, New Jersey. "An accounting methodology change at the central bank will allow the Fed to incur losses, even substantial losses, without eroding its capital."

The change essentially allows the Fed to denote losses by the various regional reserve banks that make up the Fed system as a liability to the Treasury rather than a hit to its capital. It would then simply direct future profits from Fed operations toward that liability.

This enhances transparency by providing clearer, more frequent, snapshots of the central bank's finances, analysts say. The bonus: the number can now turn negative without affecting the central bank's underlying financial condition.

"Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible," said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer.

"The timing of the change is not coincidental, as politicians and market participants alike have expressed concerns since the announcement (of a second round of asset buys) about the possibility of Fed 'insolvency' in a scenario where interest rates rise significantly," Smedley and his colleague Priya Misra wrote in a research note.

In response to the worst financial crisis and recession since the Great Depression, the U.S. central bank pulled out all the stops on monetary policy. It not only slashed interest rates effectively to zero, but also committed to buy some $2.3 trillion in Treasury and mortgage securities in order to keep long-term borrowing costs down.

For weeks now, worries had been percolating among investors about the possibility that the central bank might run into trouble when it eventually decides to unwind some of those extraordinary measures.

In particular, analysts feared the Fed might be forced to sell either its Treasury or mortgage-backed securities at a steep loss in a rising interest rate environment, or end up having to pay a higher interest rate on bank reserves than it receives on the securities it holds.

Fed Chairman Ben Bernanke, asked about the possibility in congressional testimony earlier this month, said even the most extreme circumstances would not have very large implications.

"Under a scenario in which short-term interest rates rise very significantly, it's possible that there might come a period where we don't remit anything to the Treasury for a couple of years. That would be I think a worst-case scenario," Bernanke said.

However, the Fed has tended to assume that interest rates would be rising sharply only if the economy were recovering very rapidly. Fed policymakers seem to be ignoring the possibility that the country could face a bout of so-called stagflation -- a period of high inflation with depressed economic activity like that seen during the 1970s.

Continue reading page 2 at Reuters...

---

Ron Paul owns Bernanke - further proof...

This is outstanding and not posted before.

Video - Ron Paul speaks to Bernanke who is present but is not shown

February of 2007, before the bubble burst...

---

GM's China sales pass US for first time in history

DETROIT (AP) - General Motors says it sold more cars and trucks in China last year than it did in the U.S. for the first time in its 102-year history.

The company sold 2.35 million vehicles in China. That's about 136,000 more than it sold in the U.S.

GM says sales in fast-growing China were up 28 percent, but rose only 6.3 percent in the U.S. GM's sales were up 12 percent worldwide as it recovered from a 2009 bankruptcy.

Despite GM's growth, Toyota held onto the title of world's largest automaker. The Japanese company reported 8.42 million sales worldwide last year. That's 30,000 more than GM's 8.39 million.

GM expects growth to continue. On Monday the company will add a shift to a Flint, Mich., truck plant to handle increased demand.


Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

US Treasury Sec Admits US Default Imminent

Timothy Geithner, U.S. Treasury Secretary, admitted in a letter to congress dated January 6th, that the United States Treasury would be forced to default on its credit obligations without clearance from Congress to raise the amount of money that the treasury is allowed to borrow.
After citing a list of "extraordinary measures" Congress has had to resort to in the past to avoid entering a state of default, Geithner stated, "Once these steps have been taken, no remaining legal and prudent measures would be available to create additional headroom under the debt limit, and the United States would begin to default on its obligations. The extraordinary measures include, "suspending sales of State and Local Government Series (SLGS) Treasury securities; suspending reinvestment of the Government Securities Investment Fund (G-Fund); suspending reinvestment of the Exchange Stabilization Fund (ESF); and determining that a "debt issuance suspension period" exists, permitting redemption of existing, and suspension of new, investments of the Civil Service Retirement and Disability Fund (CSRDF).
That the United States has already defaulted on its obligations is beyond dispute, at this point, as its the rate at which its debt service obligations is growing exceeds the rate at which the United States GDP could possibly grow, meaning that without drastic cuts to government spending, the debt can only continue to grow.
Before our very eyes, the so-called leadership of the world's largest economy is intentionally bankrupting the country and devaluing its currency in what can only be a precursor to rampant inflation. Since the integrity necessary to manage this problem does not exist within the United States political system, the rest of the world has no choice but to stand by and watch the value of their United States Treasury Bills diminish incrementally on a daily basis. Selling them will only exacerbate the problem, but the question must be asked, how long until the remedy is preferred over the miserable condition?
Geithner goes on to say, in a remarkable baring of the national soul,
However, if Congress were to fail to act, the specific consequences would be as follows:
The Treasury would be forced to default on legal obligations of the United States, causing catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009.
A default would impose a substantial tax on all Americans. Because Treasuries represent the benchmark borrowing rate for all other sectors, default would raise all borrowing costs. Interest rates for state and local government, corporate and consumer borrowing, including home mortgage interest, would all rise sharply. Equity prices and home values would decline, reducing retirement savings and hurting the economic security of all Americans, leading to reductions in spending and investment, which would cause job losses and business failures on a significant scale.
Default would have prolonged and far-reaching negative consequences on the safe-haven status of Treasuries and the dollar's dominant role in the international financial system, causing further increases in interest rates and reducing the willingness of investors here and around the world to invest in the United States.
Payments on a broad range of benefits and other U.S. obligations would be discontinued, limited, or adversely affected, including:
U.S. military salaries and retirement benefits;
Social Security and Medicare benefits;
veterans' benefits;
federal civil service salaries and retirement benefits
individual and corporate tax refunds;
unemployment benefits to states;
defense vendor payments;
interest and principal payments on Treasury bonds and other securities;
student loan payments;
Medicaid payments to states; and
payments necessary to keep government facilities open.
I personally am stunned. No mention is made of sales of assets held by the United States government. Rather than liquidate its own real estate to cover its debt, the defective and fiducially delinquent U.S. government plans to first eradicate the incomes of its poorest citizens.
If this document is not a harbinger of impending civil unrest on a national scale in the United States, I can't imagine what is. Big big changes are on the horizon though. Of that there is no doubt.
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