Thain’s Spending Spree

In case anyone wants to get an idea as to where all their TARP money is going:

According to documents reviewed by The Daily Beast, Thain spent $1.22 million of company money to refurbish his office at Merrill Lynch headquarters in lower Manhattan. The biggest piece of the spending spree: $800,000 to hire famed celebrity designer Michael Smith, who is currently redesigning the White House for the Obama family for just $100,000.

The other big ticket items Thain purchased include: $87,000 for an area rug in Thain’s conference room and another area rug for $44,000; a “mahogany pedestal table” for $25,000; a “19th Century Credenza” in Thain’s office for $68,000; a sofa for $15,000; four pairs curtains for $28,000; a pair of guest chairs for $87,000; a “George IV Desk” for $18,000; 6 wall sconces for $2,700; six chairs in his private dining room for $37,000; a mirror in his private dining room for $5,000; a chandelier in the private dining room for $13,000; fabric for a “Roman Shade” for $11,000; a “custom coffee table” for $16,000; something called a “commode on legs” for $35,000; a “Regency Chairs” for $24,000; “40 yards of farbric for wall panels,” for $5,000 and a “parchment waste can” for $1,400.

Hopefully people won’t act surprised about this inevitable outgrowth of bureaucratic interventionism. When you subsidize mismanagement and corruption, you’ll get more of it. So long as we keep throwing good money after bad, we will hear of more stories like this. Had the Enron debacle happened during this time, Kenneth Ley and his cronies would have been bailed out along with the rest of the pack and their failure, too, would have been imputed upon the mystical financial crisis.

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The Bad Bank – The Madness Continues

Government advisors, unimpressed with the recent failures of TARP and all accompanying bailouts and guarantees, blithely continue the nonsense. Bloomberg writes:

Renewed questions about U.S. banks’ viability are pushing regulators toward a new plan that would remove toxic assets from bank balance sheets, in what may become the biggest effort yet to unfreeze lending.

President-elect Barack Obama‘s advisers see an increasingly grave banking crisis and are considering proposals far more sweeping than any steps that have been taken so far, according to people who’ve discussed the outlook with them.

“They need to do something dramatic,” said Harvard University Professor Kenneth Rogoff, a former chief economist at the International Monetary Fund, and member of the Group of Thirty counselors on financial matters, a panel that includes Treasury Secretary-designate Timothy Geithner and Lawrence Summers, incoming director of the National Economic Council.

Federal Reserve officials are focusing on the option of setting up a so-called bad bank that would acquire hundreds of billions of dollars of troubled securities now held by lenders. That may allow banks to reduce write-offs, free up capital and begin to increase lending. Paul Miller, a bank analyst at Friedman Billings Ramsey & Co. in Arlington, Virginia, estimates that financial institutions need as much as $1.2 trillion in new aid.

Oh boy. Here we go again. Get prepared for the next toxic asset bill. Looks like this time the trillion mark will be cracked. The fact that TARP, as expected, is a complete failure, doesn’t seem to concern these gentlemen. And just in case anyone cares: Whatever they try next to meddle with the current correction will be an even larger failure.

Fed Chairman Ben S. Bernanke called for “a comprehensive plan to stabilize the financial system and restore normal flows of credit,” in a Jan. 13 speech in London. He outlined options including a bad bank, “which would purchase assets from financial institutions in exchange for cash and equity.”

He need not look any further. The bad bank is the bank that he heads. It is called the Federal Reserve Bank.

“Buying toxic assets from banks is a good thing because I think confidence comes back into the banking system when you are certain — or more certain — that you have no time bombs ticking,” said Josef Ackermann, chairman of the Institute of International Finance, the Washington-based group that includes most of the world’s large banks.

Ackermann, who is also head of Deutsche Bank AG, Germany’s biggest bank, said “the real challenge here” is determining the price at which to remove the assets. He added, in a conference call with reporters Jan. 14, that Deutsche Bank doesn’t need to unload illiquid assets into such a bad bank.

What is Mr. Ackerman talking about? He knows damn well that the assets he is referring to are worth nothing. The price for something that is worth nothing is $0.00. Plain and simple. The banks should write down these assets accordingly and live with it. What good is it to establish a taxpayer funded bank that in the end will have to do the same in case it buys the asset at current cook value? Ah right, it secures for our high and mighty bank executives a few more millions that the hapless taxpayer should not be so sqeamish about.

“How do you use this next round of money in the most efficient and effective way? This is a Rubik’s Cube of a problem where there is no easy solution,” said John Douglas, a former FDIC general counsel who is now a partner at the Paul, Hastings, Janofsky & Walker law firm in Washington. “Doing something sooner rather than later to instill confidence is important.”

The solution is to put and end to this madness, let the market work, let the correction occur as quickly as possible, let the responsible banks stay in business, the reckless ones go out of business, let capable investors take parts of them over where possible, and let Americans save more and consume less, so we have genuine savings available again that can serve as a lending base. Before this happens, nothing will improve, nobody will lend, no one will borrow and we will have a lost decade. There is no way around the business cycle that this government has created. The only solution is for it to finally get out of the way.

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Where Has all the Money Gone?

As I write these lines CNN runs reports on how most of the money from the TARP bill disappeared in the bank’s vaults and banks won’t report on what happened to it. It is obviously clear what happened to it: Genius Ben Bernanke announced in October that the Federal Reserve would pay interest on reserves and excess reserves. Why should a bank lend out money to an overleveraged and overstretched public which already forecloses on one loan after another? Why, especially, should it loan out one dime if it can keep it at the Fed and earn interest income at no risk whatsoever? If anyone of these deplorable fools understood the basic workings of the business cycle, in particular phase 8, they would understand that there is simply no demand for any more credit on the part of the people. Why should there be? People are sick and tired of debt. The nation is broke. People realize that they need to cut back on their consumption and begin saving and producing more.

It shall be duly noted that CNN was the #1 network beating the drums in favor of the bailout scam, asking Congress to do what is “in the nation’s interest”.

Congress and the media are acting surprised about the fact that banks won’t report what happened to the TARP bailout money. They are either fooling the public or have the intellect of a donkey. What do they expect? That within a few days you pass a 450 page bill that provides for a $700 billion bonanza to the most disastrously and unethically managed businesses in decades and everything will run through smoothly and will be accounted for?

Of course Congress will approve the second part of the TARP bailout. They will announce that this time they will do it right and oversee and regulate everything much better than they did with the first half. This bill is a complete disaster but Congress will obviously not admit it. They think that by enhancing oversight and regulation for the second check they will save the bill and make it a successful one in the eyes of the public.

The same problems will arise in a few months and Congress will once again act outraged. After all is said and done and more money is squandered on bonuses to incompetent bankers, we will all look back at a complete utter failure and ask ourselves “How could they approve that?

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Paulson Asks for Another Fix

Treasury Secretary Paulson asks for the remaining $350 billion:

Treasury Secretary Henry Paulson urged Congress to release the second half of the $700 billion financial rescue fund after the government exhausted the first $350 billion in less than three months.

Congress, which passed the Troubled Asset Relief Program on Oct. 3, “will need to release the remainder of the TARP to support financial market stability,” Paulson said today in a statement released in Washington.

The Treasury today agreed to lend $13.4 billion to General Motors Corp. and Chrysler LLC, after spending $335 billion mostly to increase bank capital. Lawmakers, who can vote against giving Paulson the remaining funds, have criticized the Bush administration for not using the rescue package to help stem foreclosures.

Paulson’s call for the other $350 billion may set off a debate in Congress, where some members have demanded more help for struggling homeowners. House Financial Services Committee Chairman Barney Frank said today he’s crafting legislation to unlock the unallocated money.

Today’s statement from Paulson wasn’t a formal request for the funds, a move President George W. Bush or his successor would have to make. Paulson intends to consult with Congress and President-elect Barack Obama’s staff on the strategy for officially requesting the next $350 billion, a Treasury official told reporters on a conference call. The official, who spoke on condition of anonymity, said he expected talks to begin soon.

Hopefully lawmakers will look back and ponder whether or not this whole program has been working, or if it hasn’t rather been a complete utter failure. As noted before, the program won’t work, it will make things worse. No matter what Paulson claims to use it for, it will be squandered, executives will take out as much as they can, and everyone is going to act surprised when they find out.

Unfortunately, lawmakers are braindead at this point.

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Xmas gifts for Wachovia execs

As the Chronicle’s James Temple reported earlier this month, it’s sayonara for most of Wachovia’s top executives when Wells Fargo’s takeover is complete, around Christmas time. He also noted that golden parachutes will be billowing all over Charlotte, N.C., where Wachovia is based.

Now we have hard numbers. According to an SEC filing, the failing bank’s top 10 executives will be eligible for a total of $98.1 million in severance pay. At last report, two of those executives are moving over to Wells, so the actual tab will be a little smaller. CEO Bob Steel and chairman Lanty Smith aren’t eligible for severance, but not to worry. They get to reap $2.5 million in stock based rewards as a going away present…

Wells Fargo already received $25 billion from the taxpayers under the Federal Reserve’s TARP program, part of the $700 billion bailout, approved by our heroic representatives in Congress. They, along with other banks, will have enough money available for many more of these games.

In fact, since they are “too big to fail”, they will most likely receive much more. And rightfully so. Now is really the time for the tax paying workers in this country to cut back and give those ailing executives a well deserved break for a job well done…

…Wachovia lost $33 billion in the last two quarters.

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