Links Good Friday


  1. fresno dan

    As there are many very astute and well informed commenters on this blog, I throw out a question:
    What make you of Wells Fargo 3 billion dollar profit? And why.

  2. Richard Kline

    Hobsbawm posits the questions we should all be asking, now. Not “How do we get back to where we were?” but “Where they Hell are we going anyway, and why?” I concur with all he says. I’ve always found reading Hobsbawm meaningful for thirty years because he not only takes his scholarship seriously and does it well but because he considers intentional living as something whose personal and political value exceeds the alternatives.

  3. ruetheday

    Frome the Reuters article on the Fed ordering banks to remain silent on stress test reults:

    “Banks should stay silent because a focus on the tests would be “a harmful distraction” from earnings”

    LOL. Who cares if the balance sheets are a wreck? Who cares if additional writedowns and losses loom in the future? Who cares about macro conditions? All that matters is this quarter’s EPS number. What passes for financial analysis these days is a complete joke.

  4. Anonymous

    What a headline:

    ” The US is exporting it’s recession ?”

    A fairly nasty way to introduce some of the best news (for us free market supporters) in 30 years.

    Hell even the retail sector is beginning to “see” the cost of the asset “lite”, platform corporation/mercantilist model. Duh, the serfs don’t have any money left! Someday, even the academics will understand the trade-off between the marginal cost of a reduction in standard of living and cheaper, imported consumer goods.

    IMO, the US (world) has reached the tipping point. They . The beatified (see Dean Baker)gave it their best shot, enticing Americans to spend their last, leveraged dollar trying to prove that gulag labor goods and foreign energy production really, really are good for you.

    I, personally, will not knowingly buy products made in Japan, Germany, or China, if given a choice for a domestically produced good. I may purchase goods from other basket case countries such as Great Britain, although I don’t like to see grown people curtsying or living the police sponsored, real life “Truman Show”.

  5. Walt Whitman

    Based on the rhetorical constructs, as well as other constructs, coming from Washington these days (aka B. S.), the appropriateness of this “antidote du jour” is beyond reproach.

  6. LeeAnne

    "Post Reporter Says It’s Not His Job to Check the Accuracy of People He’s Quoting Matthew Yglesias (hat tip Brad DeLong)"

    I like the 'baby goats' comment.

    We need to stay on this. This 'he-said, she-said' reporting is one of many tactics destroying journalism.

    When they print 'legacy,' use Prince for: 'legacy,' formerly know as toxic, as in toxic or troubled assets, as in the TARP, or $700,000,000,000 Billion Troubled Asset Relief Program, as in 'secret, non-recourse, hand-out to too-big-to-fail banks to use for acquisitions that made them bigger

    Please come up with a better idea.

    Although the seeds of its destruction were sown when the popularity of corporate TV met leveraged M&A deals to squeeze corporate news reporting budgets, the opportunity to control news content is its pernicious effect.

  7. dearieme

    It’s fascinating that someone would publish a paper on birthweights without bothering to establish the size of the babies’ parents or finding out anything about the mothers’ diets. “All medical research is rubbish” is a better approximation to the truth than almost all medical research.

  8. Mindrayge

    Fresno Dan …

    What is interesting about the Wells Fargo announcement is that in 4Q08 Wells and Wachovia combined had $6 billion in charge offs and for 1Q09 they are trying to claim they will only have $3.3 billion in charge offs.

    Their loan loss reserve of $4.6 billion is also significantly less than the combined Wells and Wachovia loan loss reserves from 4Q08.

    Something stinks and we are likely to see quite a bit of balance sheet shenanigans with items moved from held for sale to held to maturity and a rise in Level 3 assets. Further I expect that the OTTI (Other Than Temporarily Impaired) numbers go down. This will be the direct result of the FASB 157 changes recently made.

    None of this makes the Wells Fargo portfolio any better than it is. Wachovia has a significant pile of mortgages that are going to take losses – otherwise there would still be a Wachovia bank in existence happily receiving TARP money.

    Wells Fargo is also a big player in the servicing arena. In particular they are the Master Servicer in many mortgage backed security trusts and not just their own portfolios but for Citibank and JP Morgan and for many private label MBS trusts. The Master Servicer is on the hook to buy back defaulted mortgages from the mortgage pools in those trusts if the sub-servicers can’t or won’t. In the private label world a good number of the non-bank sub-servicers are in trouble or gone leaving Wells with that exposure.

    In general, I would consider any 10Q (or other filing) going forward from any of the banks to be totally unreliable as to the condition of the bank. It was already bad enough in trying to figure out the condition of the bank. Now it will be worse.

  9. Stephen

    Re the rally from Wells. I guess any port in a storm.

    Good article pointing out the previous writedowns. That was context setting piece for me. I guess my question is why wouldnt banks not be writing down as much as they can as fast as they can. I remember in past recessions these were actually seen as positive signs, big writedowns, because they were deemed to be the housecleaning for a cleaner and faster increase in accounting earnings.

    You also would have thught that the braintrust at WF would have taken the chance to write down an additional 3 billion (the profit) just to be prudent and safe and signal it with a statement saying this is a cushion but things are better than we expected, assuming they are.

    If they are cutting the writedown provisions so that they can make bonus targets, or stretch targets, then nothing will have changed and we are in for a really nasty fall.

    I hope I am wrong.

  10. Neal

    First of all, Wells Fargo is in better shape than the other big financials. The December ’08 federal filing showed that they were only slightly bankrupt.

    But generally expect all of the bankrupt financials to show “operating” profits. It’s just the undisclosed losses on the securities that they hold thst make them bankrupt. They can make money on standard banking operations, just not as much as they want–hence the “toxic” assets.

    Disclosing the losses will be the end of the game of “pretend” that has been played over the last 1-1/2 years.

    So will we actually see the stress test results in a usable form to triage the dead, or dying or repairables?

    Or will they be used as another opaque blanket justification for the idea of more bailout for all at any cost?

  11. Keenan

    Today’s antidote:

    It’s a CEO of a bank which passed the stress test and who is now announcing quarterly profits. You can almost hear him say: “The future’s so bright I gotta wear sunglasses!”

    Happy Easter Yves and all at NC

  12. Anon1

    Has socialism really failed? Or is it merely the weird confabulations of the former Soviets and the Chinese that has failed? It appears the “socialism” of the European variety is actually doing quite well. Certainly well enough that the people’s there have no intention of giving it up. They LIKE worker protections, safety nets, universal medical care. Where is the failure?

  13. Anon1

    fresno dan: It should be obvious where the so-called Wells Fargo “profit” came from. It came from AIG, which means it came from you and me in the form of our billions in tax dollars being secretly, and with NO strings attached, funneled into their coffers.

    I’d ask them to re-analyze their profit data AFTER they subtract the money they acquired from AIG.

  14. Anon1

    Oh, forgot something fresno dan: you can also factor into Wells Fargo’s “profits” the trickery associated with changing Mark to Market into “Mark to Fantasy”. They fudged their “assets” under the new rules so as to make themselves a tidy profit (but only in their minds).

  15. Anonymous

    Any long term equilibrium coming out of the current crisis needs to have the US producing the same while consuming less with the rest of the world doing the opposite.

    This can be described as “The US is exporting its recession”. However, doing anything else will be unsustainable and therefore undesirable.

  16. Anonymous

    Some lengthy Easter musings on the banks, U.S. policy, the global crisis and all that

    As many analysts have pointed out, the (official) announcements coming from the banks and (unofficial) leaks the from Treasury raise as many questions as they answer. Have the stress tests taken into account the likely return of deeply problematic assets from their off-the-balance sheet vehicles? What role does balance sheet manipulation play in all this? The questions are pertinent as balance sheet manipulation permitting ever greater leveraging by banks was indisputably one of the main causes for the whole disaster; it would be foolish to think that banks somehow entirely reformed themselves and gave up their old ways. Not least because the Feds/Treasury are not exactly adamant on reform: Geithner-Summers Plan is as opaque and obscure as it can. possibly be.

    But I want to raise here another question. The Feds have played an enormous role in easing the mortgage rates. In November, Bernanke promised 500 Billion for buying up home-loan securities, and now the sum has been increased to a whopping 1,25 Trillion for this year. This has arguably been the greatest success of the Fed/Treasury policy so far. The lower mortgage rates have led to a veritable refinancing boom that benefits both the “creditworthy” customers as the banks. The “creditworthy” customers are happy to pay the external fees for the banks that now can borrow on very non-demanding terms and enjoy a hefty margin when lending this money to customers.

    In fact, this is a sort of “triage”: Fed/Treasury are not trying to tackle head-on the problems of toxic assets and the plight of people whose mortgages are already under water. Instead, their policy can be seen as “concentrating on subsidizing the solvent.” So, the idea is to sustain the creditworthiness of the “creditworthy” customers and the solvency of “solvent” (or “insolvent” as the case may be) banks. There is no doubt in my mind that this policy has been a major factor that explains the impression of greater stability, both in the financial markets and in the wider economy. It seems to me that this success explains why Bernanke says that the Fed has a low inflation target; evidently he believes that some sort of recovery to “normal” conditions can be achieved sooner than later and that under these conditions, orthodox monetary policy will again some traction.

    Whatever, we must ask: is it a “win-win” scenario? Does the Bernanke-Geithner-Summers policy provide a realistic plateau upon which to build further action and more permanent solutions? Of course, at least in short term, this policy redistributes wealth in favor of those who benefit from it. Hence it can be criticized from the point of fairness and distributional justice. But even these questions can be discussed more fruitfully when we consider the long term effects. On longer term, the effects depend clearly on whether the policy plateau can be established in the first place.

    We do not know just how solvent or insolvent the banks really are. If they are much more insolvent than what the banks are claiming (and Treasury hinting) now, there is no doubt that the bad macroeconomic data that will follow – inevitably, given the nature of the crisis – will destroy the hopes of the BGS approach. In that case, there will be no alternative to nationalization of the major financial institutions and doing triage directly, by separating the still solvent from the insolvent and creating some sort of good bank/bad bank system. Similarly, bad macroeconomic data (falling house prices, rapidly worsening real estate prices, rising credit defaults, bankruptcies, rising unemployment etc.) will turn new classes of mortgage loans and assets based on them deeply problematic and toxic.

    If the BGS bet turns out unrealistically optimistic, the desired policy plateau will turn out to be a mirage and the gentlemen will tender their resignations. Why? Well, if the economy keeps contracting, the very idea of saving the “non-creditworthy” by saving first the wealth and prosperity of the “creditworthy” becomes absurd: instead of supporting the poor and the distressed, the extra stability created for the “creditworthy” will simply be a leveraging of their position at the expense of the “non-creditworthy”. And there can be no talk about targeting small inflation then either; that will be completely irrelevant for policy making. Under these circumstances BGS subsidies to the still “creditworthy” and dreams of “returning to normal” will be an outrage that will lead to pitchforks and all that.

    So, do they have a chance? It seems to me that the global macroeconomic fundamentals are against the BGS policy: as a global financial crisis, it is going to be a nasty and painful and it will take many years to get it under control. Without a massive and coordinated global stimulus (and investment in sustaining world trade) it is well-nigh impossible to get it under control.

    But in the short term the U.S. has had, paradoxically, an important asset: it is a current account deficit country . As a current deficit country, the U.S. has not suffered from the collapse of the global trade in the way the excess countries (Japan, China, Germany etc.) have. Instead, its current account deficit is narrowing. This is evidently one of the elements of the BGS policy plateau, a short-term stabilizer. But what will happen in the longer term, if we assume that the BGS policy seems to working in the short term? Unfortunately, without any major structural changes in the U.S. economy, this deficit will automatically start growing, if the U.S. demand revives to any significant extent. And when public deficits are exploding, that is clearly unsustainable.

    So, is there a way for the U.S. to export itself out of this dilemma, without destroying the dollar? Without a change in the global economic framework that is not going to be easy, to put it mildly. And yet the U.S. must find resources to tackle eventually the problems of the “non-creditworthy” and the associated toxic assets and bad loans.
    As I have said, it seems to me that the BGS approach aims first to create the policy plateau (creating a floor of support for the “creditworthy”, relative return to “normal” etc.), and then hopes that these most difficult problems can be tamed by a “tidal water that lifts all boats” and only in the last recourse by a limited bailout. We´ll see later whether this is really their approach or not.

    But the implicit assumption in all this seems to be that the creditor (and to significant extent also the investor interests) must be protected as much as possible. For them, all ideas of major haircuts on creditor (and even investor) interests are possible only if these interests are ready for such actions – such is the power and influence of the financial oligarchy. However, if Bernanke, Geithner and Summers have got this right and their approach succeeds tolerably, they will be praised within the U.S. elite as the saviors of the “American Way of Life.” If not, then Obama must sack them and make the fateful decision on whether he will try to continue BGS approach by other means and risk becoming a zombie president watching helplessly the ensuing chaos, or whether he will take a different but equally momentous risk of having his own Gettysburg moment.


  17. MyLessThanPrimeBeef

    I love that picture.

    I love it because that face is very familiar. I think I had seen it somewhere on TV (from the days before I quit watching TV to join the ‘TV-Free Planet’ Movement.’)

  18. Anonymous

    Another line of work that needs to become boring again is accounting. Too many Artistes in that profession.

  19. brushes9

    Would you have time to appear as a guest on C-SPAN’s, “Washington Journal, Yves?

    I just emailed the producers at:

    with the following email.

    Subject: Pls. Invite Yves Smith ( to WJ!

    Dear Producers of WJ,

    Please invite Yves Smith as a guest for WJ. She operates and consistently provides focused incite into our economic crisis.

    She is a quant-like Dean Baker, (who often appears on your show) and on his level.

    Thank you!


  20. MyLessThanPrimeBeef

    Fresno Dan, my ego would like to think that their profit came from paying me 0.05% on my CDs with them.

    And as the only member (so far) of the American Responsible Savers Society (ARSS), we are not happy at all.

  21. Stephen

    If we hear the words “baseline” then we know the game is still nationalization.

    As in now we have a baseline where we know things will get better, if they dont get worse (politics 101)

    But if this was supposed to be a full and complete measure to say that all are worth saving then the game is different. The assets need to be written off, the losses taken by someone, somewhere (in summertime, apologies to Simple Minds) The fact that WF chose to show profit as opposed to taking real writedowns OR stuffig the cash in a contingent loss reserve fund indicates another game.

    Anon is correct some of the profit came from the USG provided funds so that AIG could make good on its contracts. Until there is a policy decision made that the contracts made by AIG will not be paid at 100% then this was reasonable. That policy discussion needs to be had though, since it hasnt been discussed publicly or explicitly.

    WF cannot control whether the USG backs AIG…but it definitely could ave chosen to be more conservative and not shown profit and stuffed the money in reserve accounts, you know the way bankers used to do it.

    This is a case where questioning bonuses is fair game and the board should be doing that as should the shareholders.

  22. Moopheus

    “The technocratic options are simple, (1) assume a better regulator, of a kind that has never existed on this face of this earth, (2) make banks smaller, less powerful, and much more boring.”

    Speaking as one of the pitchfork-wielding mob, I agree that the big banks should be made smaller and less powerful, but I don’t trust government to do the job. Treasury and the other regulatory agencies, and Congress, have shown little willingness to make any moves in that direction, despite some mouth-noises to that effect. So what are our real options? The banks won’t break themselves up, and the folks with the authority to do it won’t act. As far as I can see, that only leaves the folks with the pitchforks.

  23. Anonymous

    I’m impressed. A lot of my own musings have been articulately stated here, not that it’s a surprise.

    So if we’re on the same page, what chance do you give this crisis of turning out “survivable” for lack of a better word?

    I give it a 75% chance that we’re headed for the ***ter: both near and long term.

  24. Anonymous

    Thank you. Thank you. Thank you for the link to the rationality versus intelligence article. It’s great to hear that someone is providing good evidence for some of my anecdotal beliefs. It’s a great start into determining why, for instance, two exceptionally intelligent individuals can have strongly held, diametrically opposed, beliefs.

    Also, it’s a great retort to those who claim just because there is a disagreement that the other person is “stupid.” It’s not always stupidity. It’s often irrationality.

  25. fresno dan

    Thanks to all the posters for all the insights about Wells Fargo. I was surprized at how few blogs addressed it this moring in the econoblogoshere. Of course, it is just more shennanigans, and do the details matter? There are infinite lies.

  26. Anonymous

    Take a look at the Michigan and Ohio delegations to Congress. Their all republicans. Screw them.

  27. Anonymous

    Of course, it is just more shennanigans, and do the details matter? There are infinite lies.

    It’s been an all-out effort recently to create the impression of a recovery. I think this PR effort will fail when the unemployment numbers continue to rack up and production continues to slide. The exponential interest function means we pay exponentially more in the short term to buy ever shorter respites for the inevitable clusterfuck.

    The real question is, when does Jane Sixpack wake up? I’ll be at the rally tomorrow – It’ll give me something to be sanctimonious about in 18 months when we have France-level general strikes (“Where were you in April 09?”).

  28. Anonymous

    The following is the text that I have printed 5-to-a-page and will be cutting up to hand out at the rally against the banks to folks that don’t think that there is a problem:

    “Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96 per cent of all US bank derivatives positions in terms of nominal values, and an eye-popping 81 per cent of the total net credit risk exposure in event of default.
    The five are, in declining order of importance: JPMorgan Chase which holds a staggering $88 trillion in derivatives (€66 trillion!). Morgan Chase is followed by Bank of America with $38 trillion in derivatives, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs with a ‘mere’ $30 trillion in derivatives. Number five, the merged Wells Fargo-Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7 trillion. (“Geithner’s ‘Dirty Little Secret’: The Entire Global Financial System is at Risk”, F. William Engdahl, Global Research)

    What I plan to write on the back of the slips of paper is the total for the six banks listed which is 196.7 trillion dollars.

    That’s a lot of samoleans as they say. And we know nothing about the paper that backs these claims up. But it is all legal Obama says. I call BS.

    If you are in Portlan, OR, I am the guy with the NO BAILOUT sign.


  29. Realist Theorist

    Re: The dog photo…

    That’s why every few days, my 10 year old asks: “Hey! can we check out that Naked-Capitalism site!”

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