Shams, Scams, Schemes & One Big Clunker.

The computer traded stock market rallied Thursday on better then expected GDP results. All I heard from the fraudsters on CNBC, was what are the naysayers going to do now? The economy is back! The shorts are finished! I knew that CNBC was in the business of fraud, but what struck me was the Bloomberg News was also waving the pom poms. It seems that the media is finally getting tipsy drinking the cool aid. The market rallied furiously Thursday. Even though my shorts were hedged going into the GDP report, I just knew that Part 9 of The "Great Sham" was taking hold. If you want to know:

Part 1 = Fannie, Freddie, Citigroup, & AIG backstops
Part 2 = TARP
Part 3 = TLGP & the roughly 13 other Government liquidity programs.
Part 4 = Permanent Open Market Operations or POMO
Part 5 = Stress Tests
Part 6 = Cash For Clunkers
Part 7 = FHA Rouse
Part 8 = Housing Tax Credit

Part 9 starts out with the much better then expected 3rd Quarter GDP figures.

From USA Today:

"Gross domestic product expanded at a 3.5% seasonally adjusted annual rate in the quarter ended in September, a rise that leaned heavily on government spending. Some of the largest components of growth came from spending on cars and house building -- two areas propped up by federal programs."

"Without stimulus programs such as "cash for clunkers" and a first-time home buyer's credit, "real GDP would have risen little, if at all, this past quarter," Christina Romer, president of the White House Council of Economic Advisers, said in a statement."


What I want to know is how in the world the market being up some 200 points on Thursday is helping the fortunes of the nation's 15.1 million unemployed?

Many smart bloggers are correctly saying that the 3.5% growth, about 1% point came from sales of motor vehicles and parts which directly benefited from cash for clunkers. Another 1/2% of GDP growth came from private residential investment, of which home building is a big component. If you are thinking $8000 Tax Credit you are correct.



Take out 0.5% for Housing which is 100% government run, 0.9% from inventories, and 1% from Cash For Clunkers, and what do you have? You have a Clunker of an Economy!

Now many people in the media would like you to believe that TARP has been successful as some financial institutions have made headlines for paying back TARP funds, the vast majority still owe the government billions. TARP lent $238 billion to more than 680 banks, only 44 banks have repaid the funds, for a total of $71 billion. That in itself is an outrage, but the bigger outrage and real bailout wasn't TARP.

It was lending and guarantee programs from the Federal Reserve, FDIC, and ultimately the Treasury. The Fed had a three borrowing programs before the crisis started in the summer of 2007, when two Bear Stearn's hedge funds failed. At the height of the bailout, there were 13 programs.

These programs enabled Wall Street firms to borrow money at historically cheap rates. At such levels, it isn’t hard to turn a profit from the spreads between borrowing and lending. Much of the money that taxpayers have pumped into the financial system has ended up at banks that are lending it back to the government by buying Treasury securities. What a wonderful concept! The FED makes money available to the banks at 0%, The banks lend it to back to Treasury/Fed at a markup of course, and the banks make money off our tax dollars. All along paying millions to lobbyists so they can continue to do so.

How can we forget the famous bailout of AIG? Unlike TARP, AIG doesn’t need to pay back the $85 billion that the FRBNY provided to pay off the insurer’s credit default swap trades at 100 cents on the dollar. Why you say they don't need to pay it back? Because they cant. They just tapped the government for billions more, right in time for bonus season.


Bloomberg ran this piece on Tuesday:

http://www.bloomberg.com/apps/news?pid=20601109&sid=a7T5HaOgYHpE

Goldman received $14 billion when AIG canceled its trades. Then Goldman was paid an additional $5.6B for selling the underlying investments behind its swaps to a government created toxic asset fund, called Maiden Lane III.

I have written about Maiden Lane here:

http://tradersutra.blogspot.com/2009/07/maidon-lane-llc-ulimate-siv-ponzy.html

http://tradersutra.blogspot.com/2009/08/frb-balance-sheet-and-credit-crisis-2.html

What worse is why are we paying Society General $16.5B and Deutsche Bank $8.5B to settle CDS at 100% when Citigroup was settling them for less then 40%?

http://tradersutra.blogspot.com/2009/06/more-on-gs-and-boys-at-aig.html

So the market was up Thursday. All was good. But Friday was another day. This was the day when the U. Of Michigan Sentiment Data came in line but the market really took it on the chin when distressed securities investor Wilbur Ross warned of massive commercial real estate losses. I have also written about this very frequently.

http://tradersutra.blogspot.com/2009/04/cre-get-ready-for-next-down-leg.html

http://tradersutra.blogspot.com/2009/02/commercial-real-estateanother-time-bomb.html

http://tradersutra.blogspot.com/2009/06/commercial-real-estate-defaults-rising.html

http://tradersutra.blogspot.com/2009/07/next-wave-of-failures.html

I have roughly 20 more posts on the next leg of defaults most notably CRE.

But, does Wall Street care? Nope. They just keep the shenanigans going.

http://tradersutra.blogspot.com/2009/08/return-of-king.html

Its the ultimate game of Extend and Pretend.



The Sham Banks have been swimming in losses since the collapse of the credit markets in mid-2007.

Real estate research firm Foresight Analytics estimates banks should have booked losses on around $110B of defaulted commercial real estate and construction loans. But so far they have taken their medicine in only about 1/3 of those cases. That means the banks could face a backlog of $70B or so defaulted but unreserved loans as we head into the teeth of down cycle in CRE where the bulk of bubble era loans are due to be repaid or refinanced between 2010 and 2012. Regional and community banks, rather than the giant TARP-taking entities, will bear the brunt of this onslaught. Banks with between $100MM and $10B in assets have almost $900B of commercial real estate exposure. That's three times their capital. We are at the beginning of this problem not the end.

Then we have non performing assets. Nonperforming asset levels were 17% higher in regulatory filings than in public statements, suggesting that some big banks are understating problem loans as they go through the restructuring process. Troubled debt restructurings have doubled over the past year, as banks extend loan maturities and cut interest rates or loan balances, particularly on troubled residential loans.

What about FASB and repatriation of OBS/SIVS? Did anyone notice when BOFA CEO/Born Thief Ken Lewis alerted the street that the bank would have to bring back some $125B in OBS assets/crap back onto BOFA's balance sheet? Is it not funny or coincidental that BOFA has not caught a bid since that statement?

Then we come to Wells.

Wells Fargo is a giant Mortgage Hedging operation disguised as a lending and deposit institution.

http://tradersutra.blogspot.com/2009/10/pure-simple-wells-fargo-is-disgrace.html

Add in Congress, K-Street, The Treasury, FRB, and the Media we have a powerful cocktail to get the masses drunk, while Wall Street continues to loot the country.