Douglas A. McIntyre wrote the following about the bank crisis. He's pretty much wrong about everything he wrote for Time Magazine, but it is nice to see positive news come out of the media lately, even if it is horseshit.
His words are in bold. Mine are totally confused.
More Quickly Than It Began, The Banking Crisis Is Over
Investors find it disconcerting to see the stocks in the huge financial institutions that are at the foundation of the global capital system trading up and down 25% a day, and, in some cases trading in the pennies. Banks became the visible and ugly wound that reminded Wall St. each day what it had torn down what it spent decades building, which was a money-making machine driven by leverage and the cleverest synthetic financial instruments the world has ever seen.
Yes, investors often find it disconcerting when garage sale rallies occur. They find it disconcerting because near-bankrupt companies and corrupt institutions should never be market leaders. When near-bankrupt companies owned in part by a federal government lead rallies, this sends a message to the market. And that message is: GET READY FOR SOME SERIOUS INFLATION AND LOSS OF PURCHASING POWER, YOU DUMB MONEY PRINTING FUCKS!
But, the great banking crisis of 2008 is over. It began last September 15 when Lehman Brothers filed for bankruptcy and bottomed when Citigroup (C) traded below $1 last month. Most analysts believe that mortgage-backed securities which included packages of subprime home loans failed when mortgage default rates went up and housing prices raced down. That is only partially true. Banks made a tremendous series of ill-advised loans to private equity firms, hedge funds, commercial real estate holders, and the average man with a credit card balance which he cannot pay. (See pictures of the top 10 scared traders.)
The great banking crisis of 2008 is over. Which means we can happily and readily move into the great inflationary crisis of 2010. (2009 is basically a transitional year as the markets prepare to trade a housing bubble for a commodities boom.)
When people look back on the near-collapse of the banking system they may say that the Congress and Henry Paulson threw enough money into the path of the oncoming failure of the credit system to slow it down so that the government could properly go through the process of guaranteeing parts of the balance sheets of firms including Citigroup (C) and Bank of America (BAC). The initial TARP may also have provided time for the new Administration to put together its widely hailed bank "stress test" program meant to determine which of the big financial institutions have dysentery and which do not. Finally, the hundreds of billions of dollars that went into the largest banks late last year allowed Secretary Geithner to produce his public/private partnership to buy toxic assets off of bank balance sheets.
Wow. So. Much. Ignorance. Let's work backwards shall we? The public/private partnership will not work because it is just a slick means to pass the cost of these toxic assets onto the taxpayer (I'll go into detail at a later date); the "stress test" is simply government attempt to monitor its favorite system for stealing purchase power from its people; and Paulson's plan to throw money at the banks so we could adequately gauge credit risk was akin to giving a suspected murderer a few more weapons while we figure out what to charge him with. Basically, that last paragraph could not be more wrong if it was written with the blood of an infant girl.
All of those plans, no matter how well-intentioned they may seem, are unnecessary now. Wells Fargo (WFC) indicated that it made about $3 billion in the first quarter of the year and declared its buyout of the deeply troubled Wachovia to be a success. Wells Fargo (WFC) said that the low cost of money from the government combined with a surging demand for mortgages was all the medicine that it required.
Oh really? All Wells Fargo needed was a change in banking laws, money and more business? How. Fucking. Unique.
Banks stocks reacted to the news, which took the markets completely by surprise, by driving up Wells Fargo‘s stock by 32%. Bank of America (BAC) shares jumped 35%.
Wow, the industry responsible for making sure that money flows from business to business is so volatile and shitty that it bounces thirty percent in one day based on one earnings report? Let's fucking celebrate good times. The recession is over. Smithers, bring out my ivory backscratcher!
Oddly absent from the discussion of how well Wells Fargo did is why the government was in the midst of testing bank balance sheets at all. The experts at the Treasury had been thrown off the scent and consequently had missed the fact that there was not need to test what is already working well. The same holds true for the Geithner plan to take toxic assets off bank balance sheets. It is academic now. What banks are earning from the difference between the cost of capital and the income from lending is now great enough for the banking system to be self-sustaining again.
If that is true (and I know that it's not), then what happens to all that money we printed for the banks?
What will happen at this point is that bank stocks will not go up much more, but they will not dive sharply down either. There is enough evidence in comments from the CEOs of Citi and B of A and in the Wells Fargo earnings to show that the idea that banks are insolvent and probably in need of nationalization is no longer part of the consideration of how the problems with the system will be settled.
Here is what will happen: the bank stocks will continue to remain extremely volatile over the course of the next few years. Banks will do their best to avoid government funds because of the strict stipulations on use of that money and payment of executives which come with taking on such funds. This will help bank stocks, bankers and bank customers but not for long. Because the government has delineated purchasing power by more than tripling the money supply in a few months, we are due for an inflation in the cost of commodities such as foodstuffs and metals, thus banks will realize that their only hope for making money off of long term loans will be an increase in their leverage rate (which they will get because banks rule the world) because without receiving ten bucks for every one they loan out, there is no reason to loan a good chunk of money at five percent a year over thirty years while inflation approaches that same amount. Thus, our money will continue to be more and more worthless and our recession more and more depressing.
It is equally safe to say that the large American banks are works in progress which are, in most ways, still dilapidated. Treasury Department analysts may not have the IQs of the PhDs who created mortgage-backed securities, but they did not do their detective work blindly when they insisted that bank balance sheets and loan portfolios needed close examination. It is also true that the private capital firms which plan to buy toxic assets using taxpayer money were not enticed into the new program based on an illusion. The banking system is still terribly weak and there is almost no one with an in-depth knowledge of the credit market tapestry who does not believe that there are hundreds of billions of Confederate dollars being held in the vaults of the major banks.
It is equally safe to say… that the entire premise for my article is totally wrong. Seriously, dude? What a fucking waste of time.
The banking crisis may be over, but what is left is a reclamation job that will probably take years to complete, will still have a taxpayer price tag of over $1 trillion, and will leave America's largest financial firms as institutions of modest power and a regulated scope which will prevent them from looking anything like what they did two years ago.
The crisis may be over for the banks but for those who bank, the banking crisis is pretty far from fucking over. America's largest financial firm is the Federal Reserve, which has only increased its power over government and industry. This bailout plan is nothing more than a power grab: plain and simple. Those in the financial industry know that due to law changes in 2010, there will be about fifty new financial products on the market next year, which is to say that we will all soon have new tricks but none of us have the treats anymore.
We gave them all to the banks so we could help them with their crisis, which is now over.
Our crisis, however, is pretty much just starting.