Bernanke Comments last week --- Eeeekkkkkk

there is 5.2trln in off balance sheet veichles by the 19 largest banks. Tons of crap was hidden. Banks need to be recapitlized, so FASB relaxed m2m and off balance sheet rules. next year, off balance sheet rules go back into affect and GUESS WHAT, banks are now starting to dig deep into their pockets and lobby to fight that change!

I wonder why! The whole thing is a farce, but for now, everything is great for banks to earn their way back to health, until it isnt anymore. Everyone knows their are hidden losses, tons of bad marks, and spreading problems in highe quality debt classes..

http://optionarmageddon.ml-implode.com/2009/06/04/banks-fight-to-delay-yet-another-accounting-rule/

"Assets that aren’t on the balance sheet need not be reserved against. In other words, hiding assets off the balance sheet is a clandestine way to boost leverage.

Higher leverage = higher potential returns. But it also means greater risk of failure. Since bankers don’t bear the cost of their own failure—taxpayers do since big banks are “too big to fail”—they’ve large incentives to leverage themselves to the hilt.

Readers who’ve seen OA’s frequent updates on banks’ tangible common equity ratios will recall that the denominator of that calculation, tangible assets, is derived from assets on the balance sheet. We always include the caveat that this understates true leverage because it pretends off balance sheet assets don’t exist. We’ve no other choice. Even if OA had the analytical resources to determine this,* banks don’t provide sufficient disclosure to make it possible. And that’s the point, really. To hide assets.

This is all tragically ironic. But for taxpayer-financed rescues, the big banks were all dead last fall. Now they are fighting to preserve the business models that by right should have destroyed them.

The bottom line is that banks remain in complete denial about their addiction to leverage. Each time they OD, they are resuscitated by taxpayers and the Fed. Divorced from the consequences of their actions, naturally they stay hooked to the junk."

Urbandigs, your commentary is breathtaking but, I'm afraid, all too true, We've had so much greed & corruption & they are soooo seductive but who is going to stop the oligarchs?

Thank you, Noah. I think I have put the kool-aid away for now. There were a few moments when the bulls were tempting me to the dark (light) side, but I think I am back to the bleak side.

http://www.nytimes.com/2009/06/07/opinion/07cohanWEB.html

The "reply" button is just too easy to hit: anyone see this op-ed piece on the NYT? It says more or less the same thing.

Yea, I read that this morning over some eggs and bad coffee. Man, I am in finance, and I always ask questions of people that are smarter than me/been in the biz for longer, and everyone EVERYONE can't believe that we hit 7k's again. We have risen to far to fast, devalued the USD by issuing all this debt and the banks are sill a P.O.S. Luckily for me, I was able to hedge in both directions and do OK, but as for now, I am totally out of the market.

In addition to my own realizations, I can't stomach watching these bullshit "Monday night football" wanna be finance shows with the blowjob anchors and whoreish women saying that all is good and we have hit bottom and it is now pie in the sky. I mean just the other day, that bald schmuch (i am bald too) was saying that, "we have hit the bottom of the RE market and that all should buy". Hearing him say that just makes me want to smash him in the face and tell him he is one of the reasons we are in the shape that we are in.

Kinda scared and bothered right now, so please forgive my diatribe

that we HAVEN'T hit 7k's again... That's what I meant.

Alpine will say "Bernake knows NOTHING!!!!!!" Until Ben says something bullish, then he is a prophet of god.

I rather like this bit:

"Here’s something that should change in terms of transparency. The most recent price that any stock traded for should be published online in real time for all to see. And the public should have access to a new type of electronic ticker that provides market information in language that all can understand, not just the insiders.

As for those impossibly complex securities that caused so much of the trouble — among them derivatives, credit-default swaps and asset-backed securities — the S.E.C. should have the power to make public all the documentation surrounding these weapons of mass financial destruction, including all data about the current costs of buying and selling them and the cash flow underlying them. We also need widely accessible, real-time reporting of all trades in the bond market. We bet Mike Bloomberg’s company could help design such a system for our benefit."

I'd love to help design that system. Fun!

evnyc , but the problem is, is that some of the marks for these investments are usually a blending of several different managers "ideas" of what they are worth? Reading certain financials of companies, in the notes there are parts that declare that some of there investments are marked by them b/c there is no real market available to find valuations. There should be some body that can oversee this, and i am afraid that there aren't enough smart people to do it.

evnyc, i saw that op ed piece. i'm going to cut and paste some of it later in the important links thread. at first, given one of the authors, i was a bit skeptical. but i read the link, and read on, and there's nothing like someone who's been inside to know the crimes. "catch me if you can"

chunderboy, interstingly enough, the op ed piece that evnyc and i are talking about suggests hiring former traders. immediately i discounted the notion, but i've been thinking it over, and it may have some real merit depending on whom you hire.

"these weapons of mass financial destruction"

Warren Buffet coined this phrase, and yet HE uses derivatives all the time.

"including all data about the current costs of buying and selling them and the cash flow underlying them. We also need widely accessible, real-time reporting of all trades in the bond market. We bet Mike Bloomberg’s company could help design such a system for our benefit."

Such systems ALREADY exist at the inter-dealer brokers, and at the derivative clearing houses like ICE Trust and LCH.

aboutready , Yes, I read that as well, but to your point, who would you hire? There is a really good documentary on HULU called "House of Cards". It really did a good job of simplifying CDS'S CDO's etc.

Here is a really good point that was made by Greenspan, " I had a couple of hundred PHD's helping me, but there were still things about these investments that I couldn't understand" Thats a problem, cuz if he couldn't understand, do you think some punk trader would be able too?

http://www.hulu.com/watch/59026/cnbc-originals-house-of-cards

Yeah, I saw that back when it aired (February? March?). I remain skeptical of the idea that traders would be good at this, although I'd nominate Noah because I like his reasoning. As to the theoretical markets you bring up, chunderboy, I am too unsophisticated to have an opinion. I just thought a publicly available database, continually updated, would be an interesting challenge to create.

chunderboy, you've got to be kidding. Alan Greenspan has proved himself to be more stupid than the average pet turtle so even if he cant understand it, maybe the turtle (and some punk trader) can.

flatironj, in hindsight, yes he is less intelligent than Leonardo or the rest of the teenage mutant ninja turtles, but he was still the fed chair during a crazy bull market. In addition, although he may not have all the answers (obviously) he has PhD’s out the ying yang that work for him and collectively they still had more questions than answers.

chunder, come on over to the links to important economic news. we have some great links, try the William Black interview on Moyers. I saw that link you reference, it's a good piece.

and chunder, who knows who you'd hire? and i wouldn't put much value on anything that Greenspan said. many a time it's the guy in the pit who knows what's really going on, both good and bad.

it's only as opaque as we allow it to be.

chunderboy, I dont want to brag, but I was not using hindsight. At the time he dropped interest rates to a rediculously low level and then broadcast he was going to leave them that way, it was obvious he was a fool and a dangerous one. He also ignored good advice about problems in subprimes from his fellow Fed governors, one of whom, now deceased, was a beloved teacher of mine. Sorry about the diatribe, but I just hate the guy.

chunder, he caused the crazy bull market. the crazy "bubble" bull market.

evnyc, who knows the system better? how it actually works? why they think it might? kind of similar to a liars' poker scenario?

I concede points to all of you guys, and appreciate good commentary. I must admit, i was pretty young during the clinton house and had no real understanding of finance or interest rates or bubble etc etc etc.

aboutready, everytime i go over to that thread the amount of comments scares the shit out of me....So many comments so little time.

flatironj, I agree that even to this day he is still a "market will correct itself" kinda guy. I guess he still hasn't learned from his past mistakes. I guess the old adage is true; you can't teach old dogs new tricks.

As for the bubble market, you guys are right again.

I gotta admit, i went onto this site to see about apt prices and came out learing a ton about finance from interesting and intelligent people. Like I said, the I learn from people the more effective I can be at my own job. Oh, and school alpine on finance related subjects....:)

I meant the more I learn from people.....

"banks are now starting to dig deep into their pockets and lobby to fight that change!"

They found the optimal use of TARP money.