The financial reform bill has a backdoor bailout clause that would have utilized $50 Billion of funds set aside to be used when another big bank needed a bailout or winding down. This backdoor bailout is a fact, even with some politicians, and the President, saying it was no such thing.

Well now it gets worse. Tonight senate leaders agreed to scrap the $50 Billion fund and instead use a system by which the FDIC would provide the necessary funding to handle the failed institution. The source of this new funding would be accomplished by setting up a new line of credit with the treasury department, and it would be backed by the failed company’s assets.

Ok, so let us walk through this one. The first idea in the bill was to set aside $50 Billion, which Geithner claimed would have been funded by the big institutions themselves. The reason it has been referred to as a backdoor taxpayer bailout is that the increased levies on the big banks would simply be passed along to the tax payer.

So then if in the future a Citigroup, or Bank of America for example needed another bailout or needed to be ring fenced if the firm goes into core meltdown then the funds would be drawn from the $50 Billion reserve.

Now, the newest idea is even worse than the first one. Under this agreement the $50 Billion is scrapped altogether. In its place will be a new credit line established between the treasury department taxpayer and the FDIC. So if a Citigroup for example goes into a meltdown then the firm would be wound down and costs to perform the bailout / wind down would be provided by the FDIC / Treasury credit line. And when the nuclear dust settles the assets of the firm will be sold to reimburse the Treasury.

[…] Aides to the committee chairman, Christopher J. Dodd, Democrat of Connecticut, and the panel’s senior Republican, Richard C. Shelby of Alabama, said the two senators had agreed to scuttle a $50 billion fund proposed by Democrats.

The fund, which was opposed by the Obama administration, drew criticism from Republicans who had warned that it would promote rather than prevent taxpayer bailouts of failed financial companies.

Under the deal, the Federal Deposit Insurance Corporation would finance the liquidation of failed financial companies, using a new credit line with the Treasury Department backed by the failed company’s assets. The money would be recouped later through the sale of assets, with shareholders and creditors forced to take losses.[…] emphasis added (NYT)

The problem with this ridiculous plan is that the taxpayers only get reimbursed if the assets of the failed firm are enough to cover the original outlay of funds that were needed to wind them down. It puts the taxpayers on the hook yet again for Wall Street screw ups. Only this time it is disguised even better with the FDIC being front and center, and behind the FDIC is the treasury and taxpayers.

I don’t see things as optimistically as the NYT does. Take for example the bank failures of the past 18 months. When the FDIC moves in a seizes the bank they establish an estimate of what the costs will be to the insurance fund. In later months, the FDIC issues additional reports on the failed bank, and in many instances the true cost ends up being much higher than first estimated when it is discovered that the assets the institution was holding was worth much less than what was being reported. We have mark to myth accounting rules to thank for that.

So if the treasury taxpayer is going to be reimbursed by the assets held from the failed institution then I say this is just one more shell game being played on the American people.

Financial Reform – Another Shell Game Leaves Tax Payers on the Hook is a post from: Rebel Traders - Stock Market and Economic Analysis

Just two weeks ago General Motors (GM) announced that they had reimbursed the government (taxpayers) by paying back the balance of the TARP $6.7 Billion loan. General Motors even went on the air with the following television commercial:

But is General Motors being completely honest? Not according to Senator Charles Grassley, Republican of Iowa and Neil Barofsky, inspector general for the TARP. Essentially all that General Motors did was to use ‘other’ taxpayer funds held by the Treasury to pay off its original loan. This makes the claims that General Motors has repaid their debt to the American tax payers a tricky shell game.

In a letter sent to Secretary Tim Geithner on April 22, 2010 Senator Grassley had this to say:

Dear Secretary Geithner:

General Motors (GM) yesterday announced that it repaid its TARP loans. I am
concerned, however, that this announcement is not what it seems. In fact, it appears to be nothing more than an elaborate TARP money shuffle.

On Tuesday of this week, Mr. Neil Barofsky, the Special Inspector General for
TARP, testified before the Senate Finance Committee. During his testimony Mr.
Barofsky addressed GM’s recent debt repayment activity, and stated that the funds GM is using to repay its TARP debt are not coming from GM earnings. Instead, GM seems to be using TARP funds from an escrow account at Treasury to make the debt repayments.

The most recent quarterly report from the Office of the Special Inspector General for TARP says “The source of funds for these quarterly [debt] payments will be other TARP funds currently held in an escrow account.” See, Office of the Special Inspector General for TARP, Quarterly Report to Congress dated April 20, 2010, page 115.

Furthermore, Exhibit 99.1 of the Form 8K filed by GM with the SEC on
November 16, 2009, seems to confirm that the source of funds for GM’s debt repayments was a multi-billion dollar escrow account at Treasury—not from earnings […]

[…] Therefore, it is unclear how GM and the Administration could have accurately announced yesterday that GM repaid its TARP loans in any meaningful way. In reality, it looks like GM merely used one source of TARP funds to repay another. The taxpayers are still on the hook, and whether TARP funds are ultimately recovered depends entirely on the government’s ability to sell GM stock in the future. Treasury has merely exchanged a legal right to repayment for an uncertain hope of sharing in the future growth of GM. A debt-for-equity swap is not a repayment.[…] (Senate documents)

Furthermore, the Congressional Budget Office maintains their estimates that the American taxpayers in the end will lose approximately $30 Billion of the total General Motors bailout funds.

So did General Motors pay back the taxpayers? No, they just moved funds from one account to another. General Motors, and the U.S. Treasury Department, have simply pulled a fast one on the American taxpayer with what appears to be nothing more than an old fashioned shell game.

General Motors Loan Repayment was a Shell Game is a post from: Rebel Traders - Stock Market and Economic Analysis

Editorial by RebelTraders:

The demise of Lehman Brothers (LEH), which filed for bankruptcy on September 15, 2008, was suicide. And that suicide was for all intents and purposes assisted by the government and the Federal Reserve Bank of New York, then headed by one Tim Geithner.

This week the examiner’s report on Lehman Brothers bankruptcy proceedings was released to the public and it reads like a murder mystery, not all that dissimilar to the board game ‘Clue’.

From my own interpretations of the report thus far, Lehman’s troubles began long before their collapse on September 15 2008. The troubles, heightened by the collapse of the mortgage market and then amplified by a never ending shell game at the hands of upper management, financial officers, and even the independent auditors. Many now claim they had no knowledge of the tricks being played with the books, but, it was their job to know where the money was, and why it was there or not.

Ernst & Young were the independent auditors for Lehman Brothers, they were supposed to be the final check and balance that everything on the books was honest and fairly represented. In that they signed off on the financial statements implicates them by default in my opinion. This reminds me of Arthur Anderson, then auditors for Enron all over again.

What Lehman was doing was hiding bad assets, what otherwise would have impacted their quarterly balance sheets in a negative way by moving them around in a complex shell game called “Repo 105” and Repo 108”. These were essentially conduits to move bad assets off the books, and in turn receive cash for those bad assets. This made the bad stuff disappear for a while so to speak, and the quarterly reports reflected the cash on hand and not the bad assets. Even worse is that Lehman never reported that these were repo operations, instead they recorded these transactions as sales. This alone is fraud, and it should have been known by upper management, including the independent auditors.

Now comes the assisted suicide part. Lehman Brothers was truly sick. As far back as March 2008 the Federal Reserve Bank New York (FRBNY), at the time when Tim Geithner was at the helm, began monitoring Lehman Brothers. The FRBNY devised stress tests for Lehman to gauge the health of the company under adverse conditions.

From page 1488 of the report:

After March 2008 when the SEC and FRBNY began onsite daily monitoring of Lehman, the SEC deferred to the FRBNY to devise more rigorous stress?testing scenarios to test Lehman’s ability to withstand a run or potential run on the bank.5753 The FRBNY developed two new stress scenarios: “Bear Stearns” and “Bear Stearns Light.”5754 Lehman failed both tests.5755 The FRBNY then developed a new set of assumptions for an additional round of stress tests, which Lehman also failed.5756 However, Lehman ran stress tests of its own, modeled on similar assumptions, and passed.5757 It does not appear that any agency required any action of Lehman in response to the results of the stress testing.

In other words, The Federal Reserve Bank of New York devised three separate stress tests and Lehman failed every one of them. Then, Lehman devised its own stress test and they passed. Lehman then submitted the findings of their own stress test to the FRBNY and the issue was put to rest. No one knew at the time that Lehman had failed the FRBNY stress tests except for Lehman and The Reserve bank of New York.

Is this another case where Tim Geithner will say that he had no direct knowledge of the stress testing being done, like he has claimed with certain AIG emails and transactions concerning material information be withheld from the Securities and Exchange Commission?

Why is it that the biggest decisions always happen to take place under the noses of those in charge. To me it seems to be selective memory.

It is my opinion that the problems at Lehman Brothers was known for many months and the FRBNY knew this but kept it secret. In my view the actions of the regulators, the SEC, and that of the New York Reserve Bank was a coordinated effort to hide the problems taking place from the public, this too is fraud. The act of keeping quiet and not disclosing what was known from the stress tests was, in my opinion, the same thing as the FRBNY acting as Dr. Kevorkian. However in this case the death was not painless and the pain was felt by individual investors.

Lehman, under the daily supervision of the FRBNY, played with the books by constantly moving the bad money out of view, falsely creating a better picture of the liquidity situation within the company. It is my opinion that all of this was conducted in a way to protect the knowledge of how Wall Street operates. The 2,200 page report reads like a murder victims coroner report. In it, is enough information that should have upper management at other large firms scurrying like cockroaches in the night when the lights are turned on. The games that were being played at Lehman were, and are, probably being played at other firms to this day in varying degrees, this I have no doubt.

The collapse of Enron was supposed to serve as a wake up call, and actions taken then were to prevent this kind of stuff from ever happening again. But with any regulation comes new ways to hide things.

What is even worse, what is so scary, and what should have everyone unable to sleep comfortably is that the current financial reform bill being proposed by the Senate has absolutely nothing in it of any substance that will change the normal way of Wall Street business. The tax payers will always be on the hook in the event of another big failure or bailout. The financial reform being proposed is nothing more than an illusion that the Government is on top of things and will prevent it from happening again.

In reality, the government is simply coddling Wall Street as they always have, this time under the illusion that the Government is interested in ‘our’ best interests by presenting a financial reform bill that has no teeth, but sounds good on the surface because it uses the publicly identifiable buzz words like “too big to fail”. Really it is nothing but worthless paper in this authors view.

As usual Dylan Ratigan always has a way of explaning things.

Visit msnbc.com for breaking news, world news, and news about the economy

Lehman’s Demise Was Assisted Suicide is a post from: Rebel Traders - Stock Market and Economic Analysis

Marc Faber has blunt words for Tim Geithner and the United States. If the nation was a corporation, the credit rating would be junk.

Marc Faber – The United States is Junk is a post from: Rebel Traders - Stock Market and Economic Analysis

The weekend wrap up video is now available for viewing on the ‘market update videos’ page.

Monday Schedule:

08:30 Dec Personal Income (last 0.4%), Dec Personal Spending (last 0.5%), Dec PCE Deflator y/y (last 1.5%), Dec PCE Core (last m/m 0.0%, y/y 1.4%)

10:00 Dec ISM Manufacturing (last 55.9), Dec ISM Prices Paid (last 61.5), Dec Construction Spending m/m (last -0.6%)

10:00 Treasury Sec Geithner to testify before Senate Finance Committee

15:00 Treasury quarterly funding estimates

Earnings

Before the Open: AMG, ACV, CRNT, CYOU, DEP, EPD, XOM, GCI, HAE, HEW, HUM, MDU, MOG/A, NI, ONB, SOHU, SYY

After the Close: ADVS, APC, CCK, DST, EXTR, HOLX, ICUI, LOCM, MNKD, NOA, OCLR, PMT, PCL, RGA, RCII, RTEC, SIMO, TUP, UNCA

Stock Market – Weekend Wrap for January 31 2010 is a post from: Rebel Traders - Stock Market and Economic Analysis

Ahead of tomorrows big show on the Hill, Tim Geithner’s written testimony has been leaked. I do not know if this was intentionally leaked or not. Nor do I know how it came to be on the net ahead of the embargo period, but it is swilling around the net now.

Tim Geithner Written Testimony

Tim Geithner – Written Testimony For AIG Hearing Is Released is a post from: Rebel Traders - Stock Market and Economic Analysis

Glad to see Dylan Ratigan is still speaking up on what needs to be said.

Visit msnbc.com for breaking news, world news, and news about the economy

Tim Geithner & Dylan Ratigan is a post from: Rebel Traders - Stock Market and Economic Analysis

Information revealed today regarding Tim Geithner’s activity while at the New York Fed is nothing short of outright fraud and a violation of securities and exchange law.

In late 2008, while AIG was being rescued by the American tax payer the Federal Reserve Bank of New York, then led by Tim Geithner, instructed AIG to withhold material information from regulatory filings. The information that the New York Fed  instructed AIG to withhold was related to the credit default swap payments that ended up being paid at par, even though they were worth significantly less.

At the time, AIG was attempting to follow the law and disclose the details as they were ‘materially important’ as defined by exchange laws.  But the Fed, in email communications released today, show the Fed specifically instructed AIG to withhold material information form the Securities and Exchange Commission and investors.

If the Tresuary Secretary of the United States, while serving at the New York Fed has this little regard for securities law, then how are we as American’s to beleive anything that he currently does or say ?

The evidence revealed today should be enough for an indictment of securities fraud. Tim Geithner’s actions while at the Fed is an aberrant and egregious violation of disclosure laws under the exchange act section 14 (a) and of the Securities and Exchange rule 14(a)-9(a).

The violation of the various disclosure laws is bad enough, but what may be even worse is the violation of the trust to the American people he now serves as the person in charge of the people’s money.

Tim Geithner Committed Securities Fraud is a post from: Rebel Traders - Stock Market and Economic Analysis

Breaking -

What is the best way to announce news that people may not be too thrilled with? You do it on Christmas Eve, when Wall Street is entering ‘sleep mode’ for the Christmas break, and when it is also a time when many Americans are too busy with holiday preparations to be watching the financial press.

This afternoon, Treasury Secretary Tim Geithner (TurboTax Timmy) announced that the Government (tax payers) will essentially backstop any and all losses above the already pledged funds that Fannie Mae and Freddie Mac incur out to December 31, 2012.

SECOND AMENDMENT dated as of December 24,2009, to the AMENDED AND
RESTATED SENIOR PREFERRED STOCK PURCHASE AGREEMENT dated as of
September 26,2008, between the UNITED STATES DEPARTMENT OF THE TREASURY
(“Purchaser”), and FEDERAL HOME LOAN MORTGAGE CORPORATION (“Seller”), acting
through the Federal Housing Finance Agency (the “Agency”) as its duly appointed conservator
(the Agency in such capacity, “Conservator”). [...]

Amendment to Section 1 (Relating to Definition of “Maximum Amount”).

The definition of “Maximum Amount” in Section 1 of the Existing Agreement is hereby
amended to read as follows:

“Maximum Amount” means, as of any date of determination, the greater of
(a) $200,000,000,000 (two hundred billion dollars), or (b) $200,000,000,000 plus
the cumulative total of Deficiency Amounts determined for calendar quarters in
calendar years 2010,2011, and 2012, less any Surplus Amount determined as of
December 31,2012, and in the case of either (a) or (b), less the aggregate amount
of funding under the Commitment prior to such date. [...]

That’s right, a blank check has now been handed to Freddie and Fannie, and the routing number on the bottom of the check reads  :TAX PAYER:

Perhaps this decision was necessary due to the still rising delinquencies that I reported on earlier today. Delinquencies across all income classes are still rising, and this trend is expected to continue. So as more and more homes are foreclosed and banks must then acknowledge the actual value (mark to market) which will result in significant losses from the make believe value they currently sit at on the books (thanks to mark to make believe accounting rule changes last year).

It could also be that the housing market has not yet reached bottom. A scenario that I still see as very real. Some have said the worst has passed with regards to the housing market, I say there is still more pain ahead for this sector, much more.

Everyone should feel like Santa Clause on this Christmas Eve because we just gave Fannie and Freddie a free ride, and we will pay for it all.

Geithner Pulls a Fast One On Christmas Eve – Tells Fannie & Freddie That Government Will Backstop ALL Losses is a post from: Rebel Traders - Stock Market and Economic Analysis

Treasury Secretary Tim (Turbo Tax) Geithner has come under a lot of fire in recent months, and with just cause I might add.

Today Tim Geithner came under heavy fire on Capital Hill for his failed policies, bailouts, and the growing deficit. The pivotal moment for me was when Tim Geithner said the following:

{I do not believe that the removal of Glass-Steagall had any impact on the current crisis}

That my friends is an outright admission that he does not work for the good of America or its citizens, but instead works for the good of Wall Street, even if it means placing the taxpayers at great risk.

It was the elimination of Glass-Steagall in 1999 that allowed banks to cross the line into non banking endeavors such as mortgage backed securities. The Glass-Steagall Act was originally enacted following the Great Depression to prevent banks from putting the financial system at risk. How Mr. Geithner thinks that this had nothing to do with the current financial disaster is simply beyond words.

Recall that before becoming Treasury Secretary he was the President of the Federal Reserve Bank of New York. The very Federal Reserve bank that was instrumental in aiding and abetting the bailouts of the insolvent banks, participated in the meetings and doings of the Bear Stearns collapse, Merrill Lynch, Lehman, and many other “investments” that we as taxpayers were forced to pay. He also allowed non-banks to acquire bank holding company status so they may be able to draw upon the Fed’s (tax payer) funds via the discount window. Something that was until this crisis only available to ‘real’ banks.

Recall that earlier this year Tim Geithner was speaking to a group of university students in China and stated that China’s investments in the United States were safe. This was followed by an outburst of laughter from the audience (some people don’t fall for lies).

Recall that Tim Geithner was instrumental in the behind the scenes arrangement that allowed Goldman Sachs to receive full payment for credit default swaps  that were tied to AIG. Those credit default swaps would normally have paid between 25 and 55 cents on the dollar in this situation. Instead Tim Geithner allowed Goldman Sachs and even some foreign banks to receive par on the default swaps and worst of all it was essentially laundered money. The money went from the tax payer to AIG, from AIG it went directly to Goldman Sachs. Everybody has to save Goldman Sachs… right? This all took place when Geithner was running the show at the New York Federal Reserve and former Goldman Sachs chairman Steve Friedman was on the board of directors of the New York fed when the money laundering operation was devised.

Mr. Tim Geithner – RESIGN NOW

Tim Geithner – He Should Resign is a post from: Rebel Traders - Stock Market and Economic Analysis