Calm Before the Storm

by Larry Levin

Today was a real snoozer - the total range was just 13.80. Investors settled in for the day near Friday’s high, not wanting to drive stocks higher or lower, as they all wait on news from the Treasury as how it plans on wasting trillions more tax dollars on bank bailouts. When the details are released, we will not see this balancing action.

The following is a recent article from Bloomberg online which goes over not only the dollar amounts wasted by the government, but the deafening silence as to whom has actually received your money. You would like to know who is receiving this money, wouldn’t you? Well sir, the Fed & Treasury simply don’t give a damn. Even though the number is almost DOUBLE DIGITS of trillions of dollars - they’re telling you and your Congressman to go pound sand. In fact, after Geithner is through passing out bailouts and loan guarantees, the amount could surpass $15 TRILLION.

If this doesn’t sit right with you, I have a suggestion: call your Senators and demand them to threaten Bernanke with being dismissed/fired if he doesn’t release the information post haste.

U.S. Taxpayers Risk $9.7 Trillion on Bailout Programs

The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.

The Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation have lent or spent almost $3 trillion over the past two years and pledged up to $5.7 trillion more. The Senate is to vote this week on an economic-stimulus measure of at least $780 billion. It would need to be reconciled with an $819 billion plan the House approved last month.

Only the stimulus bill to be approved this week, the $700 billion Troubled Asset Relief Program passed four months ago and $168 billion in tax cuts and rebates enacted in 2008 have been voted on by lawmakers. The remaining $8 trillion is in lending programs and guarantees, almost all under the Fed and FDIC. Recipients’ names have not been disclosed.

“We’ve seen money go out the back door of this government unlike any time in the history of our country,” Senator Byron Dorgan, a North Dakota Democrat, said on the Senate floor Feb. 3. “Nobody knows what went out of the Federal Reserve Board, to whom and for what purpose. How much from the FDIC? How much from TARP? When? Why?”

Financial Rescue

The pledges, amounting to almost two-thirds of the value of everything produced in the U.S. last year, are intended to rescue the financial system after the credit markets seized up about 18 months ago. The promises are composed of about $1 trillion in stimulus packages, around $3 trillion in lending and spending and $5.7 trillion in agreements to provide aid. The total already tapped has decreased about 1 percent since November, mostly because foreign central banks are using fewer dollars in currency-exchange agreements called swaps.

Federal Reserve lending to banks peaked at a record $2.3 trillion in December, dropping to $1.83 trillion by last week. The Fed balance sheet is still more than double the $880 billion it was in the week before Sept. 17 when it agreed to accept lower-quality collateral.

The worst financial crisis in two generations has erased $14.5 trillion, or 33 percent, of the value of the world’s companies since Sept. 15; brought down Bear Stearns Cos. and Lehman Brothers Holdings Inc.; and led to the takeover of Merrill Lynch & Co. by Bank of America Corp.

The $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive in the world. It’s 13 times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office data, and is almost enough to pay off every home mortgage loan in the U.S., calculated at $10.5 trillion by the Federal Reserve.

(Question: If bad mortgages are the main problem, wouldn’t ZERO mortgage debt solve the crisis? Wouldn’t all of the toxic securities become sterile at that point? If so, why is the government going through all of these hoops? Of course, pledges and real dollars spent are miles apart, but those questions will be asked if the loan pledges are drawn on - then default.)

Commitments may expand again soon. Treasury Secretary Timothy Geithner postponed until tomorrow an announcement that may invite private investment as a way to clear toxic debt from bank balance sheets. Measures that have been settled include a new round of injections of taxpayer funds into banks, targeted at those identified by regulators as most in need of additional capital, people briefed on the matter said.

Fed Sued

When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and then Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. The Federal Reserve so far is refusing to disclose loan recipients or reveal the collateral they are taking in return. Collateral is an asset pledged by a borrower in the event a loan payment isn’t made.

Bloomberg requested details of Fed lending under the Freedom of Information Act and filed a federal lawsuit against the central bank Nov. 7 seeking to force disclosure of borrower banks and their collateral. Arguments in the suit may be heard as soon as this month, according to the court docket. Bloomberg asked the Treasury in an FOIA request Jan. 28 for a detailed list of the securities it planned to guarantee for Citigroup and Bank of America. Bloomberg hasn’t received a response to the request.

The Bloomberg lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).

GO GET ‘EM BOYS!


Previous Day's Trading Room Results:

Trade Date: 2/9/09

E-Mini S&P Trades*
(before fees and commissions):


1) FT sell @ 9:10am at 861.50 = -.50 (1 lot)

2) OTF sell @ 10:30am at 868.00 = -2.00 (1 lot)

3) Algorithm positions (1)…combined SofT and Algo total…-1.00


Electronic (YM) Mini-Dow:


1) No trades today



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