Whats the Real Story - Morning Glory!
Yesterday several financial companies were given permission to repay their TARP shenanigans. 10 of the 19 banks were given clearance. The market yawned of course, and erased early losses again!
As expected, nowhere in Benedict Geithner's prepared statement was there even a brief mention of that "other" significant shenanigan, the TLGP (Treasury Loan Guarantee Program). This is the subsidy that banks have used over the past 6 months to pad their trading positions. And as TARP is to bank equity, so the FDIC's TLGP is to debt.
I have spoken about TLGP before, the banks are able to issue debt at much lower interest rates, not to stimulate lending but to finance their trading positions. Why do you think Crude Oil is at 70?
The debt guarantee issue is a global phenomenon, not only focused on the US. In fact, the total stipend provided by developed countries to their banking systems currently amount to roughly half a trillion dollars, so when banks succeed in trying to pay off about 10 times more than they did today, please let me know, otherwise I will go back to bed.
The Economist (Love The British) has a great summary:
Still, there is a long way to go. Paying off the first $68 billion is a healthy start, but western governments own roughly $450 billion in banks. If markets or the economy slump again, investors’ appetite for new shares will evaporate. Of the ten banks, eight had been pressed by the government to take funds in October, amid efforts to shore up the banking system. Although some individual institutions may try to claim that they took the money unwillingly, government intervention was necessary to prevent the entire system from collapsing as banks were found to own hundreds of billions of dollars of hard-to-value assets.When will The Obama Administration come clean on TARP/TLGP?
Even today all banks remain plugged into government life support systems. Central banks provide generous collateral rules for borrowing, in an effort to provide banks with liquidity. Some banks have managed to issue debt without government guarantees, but the system needs to refinance some $25.6 trillion of wholesale funding by 2011: without an implicit state back stop this would be impossible. And the value of banks’ assets is being sheltered by central banks’ asset purchasing programmes and in some cases flattered by more generous accounting rules. The truth is that the West has a thinly capitalised banking system that is being allowed to earn its way back to health. Save for defence and space exploration it is hard to think of a privately-run industry more dependent on the state.
When will they stop putting shiny hooker lipstick on the pig that is called the US Financial System?
When will the Media stop talking up the Equity Markets, totally oblivious to whats actually happening in fixed income land?
When did $70 Crude suddenly become positive?
When did 350k Job Losses become acceptable?
When did a crumbling Treasury Market and higher borrowing costs be positive for the economy?
When did Housing Bottom? Did I miss that?
Have we seen positive GDP Revisions?
The real story is TLGP. Not TARP. Why? Because Obama and Geithner don't want the masses to know.
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