Ran across this article posted in Jumping In Pools. Not sure how credible it is, but allegedly Barack Obama will provide the blueprints for the B-2 stealth bomber to China in exchange for $50 billion in debt relief. According to author Richard Hogarty:
According to the Administration, this proposal will help the United States resolve its debt issues. They point out their belief that the B-2 bomber is "strategically obsolete", according to a source in the White House Press Office. In addition, the source claims that the Chinese would be unable to create their own functioning stealth bomber fleet for "at least eight years."
American allies Taiwan, Japan, and South Korea are very wary of the proposal. Koo Syi, a geopolitical analyst from South Korea, points out that this technology could be passed to China's allies. This was the case when Chinese nuclear technology was transferred to Pakistan and North Korea. According to Koo, Obama has rendered US allies' opinions as "irrelevant."
While this proposal is controversial, it is not being presented to Congress, where it could meet with stern opposition. Instead, the State Department has been informed to assisted the Defense Department with the transfer of materials.
A little skeptical here as frankly $50 billion is less than a drop in the bucket of Chinese Treasury holdings which are easily well over $1 trillion. The economic impact of this transaction would be negligible to zero. On the other hand, if this ends up being true, it is quite frightening, as it merely demonstrates, aside from all the scary geo-political considerations, just how bad of a dealmaker our President is.
In other China-related news, Reuters reporting that Tim Geithner's soothing words from his Beijing whirlwind tour that "Chinese assets are very safe," drew loud laughter from the audience.
"Chinese assets are very safe," Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.
His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.
Alas, laughter is more and more the traditional response when other economies consider the sustainability of the ongoing economic fiasco developing before our eyes (and this author's response to the continued market manipulation).
Sphere: Related Content
Judicial Watch, which lucked out majorly on a FOIA request to the Treasury, has received several hundred pages of stunning revelations, among which are that Hank Paulson essentially used the same tactics that he used on Ken Lewis on a group of nine bankers at the October 13 meeting which apportioned government investments to the various "critical" banking institutions. The major disclosure was captured in a memo called CEO Talking Points, which delineates the continuous use of strongarming tactics by not just Paulson, but by Tim Geithner, and Sheila Bair, who were also present at the meetings. According to one of the Talking Points:
“If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance. We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed.”
Among the banking CEOs who were forced into a pre-envisioned arrangement were:
Ken Lewis (BofA)
Vik Pandit (Citi)
Lloyd Blankfein (GS)
Jamie Dimon (JPM)
John Thain (ML)
Robert Kelley (BONY)
Ronald Logue (SS)
John Mack (MS)
Richard Kovacevich (WFC)
Among the key disclosures obtained by Judicial Watch are:
"CEO Talking Points" used by former Treasury Secretary Hank Paulson confirming that the nine bank CEOs present at the October 13 meeting had no choice but to accede to the government's demands for equity stakes and the resulting government control. The talking points emphasize that "if a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance." Suggested edits of the "talking points" by Tim Geithner, then-New York Fed President, were withheld by the Obama Treasury Department.
"Major Financial Institution Participation Commitments" signed by the nine bankers on October 13. The CEOs not only hand wrote their institution's names but also hand wrote multi-billion dollar amounts of "preferred shares" to be issued to the government.
Email documenting that, on the very day of the meeting, the Chief of Staff to the Treasury Secretary and other top Treasury staff did not know the names of any of the banks that would be in attendance.
Email showing Treasury officials wanted to use the Secret Service to help keep the press away from the CEOs arriving at the meeting.
Email showing that Paulson was able to brief Barack Obama about the bankers meeting almost immediately, but could not reach Senator John McCain.
If anyone had any doubts of how the financial elite of the United States conducts "negotiations" before now, this should put essentially all questions to rest. The real question is how long will the population continue to tolerate this kind of bully approach by the key powers that be, especially since these same individuals lied and said that nobody had been forced to accede to any demands. Maybe justice will finally prevail in the Lewis - Paulson - Geithner showdown, in which as everyone knows, at least one of the three hast to be lying.
The key memos are summarized in the pdf presented below, and the full FOIA discovery can be accessed by these following three links:
Also, combing through the emails reveals this little gem of information. It is good to see that the Treasury's Chief Of Staff is mostly transfixed by just how the market reacts to any gust of the wind.
Also amusing is the commentary from Cam Fine of the Independent Community Bankers of America, whose lack of an invitation to the 3pm Oct. 13 festivities made him feel like a jilted ex-girlfriend. Don't worry Cam: not being one of the too big to fail means you will still have your job long after Lewis, Vik and Blankfein are dead and burried history. Nonetheless, ironically, Cam has done one of the best jobs of analyzing the impact on the FDIC if community banks continue to be seen as just ugly step children of the Wall Street Big 9. I specifically refer to the second paragraph in the e-mail below. Way to go Cam - you tell that Sheila Bair who is in charge.
As for just who Hank Paulson's Chief Of Staff is, that is clueless as to who the biggest banks in America are, and is more focused on the futures of the Dow than the S&P, I present the picture of Jim Wilkinson, UT Arlington alum, and former Phi Gamma Delta brother, below.
For people who are curious what the immediate response of Hank "Bald" Paulson was to the effective nationalization of the entire U.S. banking system, I present the e-mail below.
There is nothing quite like the acting Secretary of the Treasury promoting it on national TV. In his most recent Charlie Rose interview, TG openly tells the banks not to be concerned with things getting worse. Well, Mr. Geithner, if the banks by that definition always have the governmental backstop, then who are we kidding that the entire financial system has not be nationalized. Would it make you feel better if banks fired all their risk managers and everyone ended up with a Goldmanesque VaR over $250?
Moral of the story, and this goes to the theme earlier of reverse engineering Greenspan: every bank is now expected to take undue risk, compliments of the Tim Geithner, and not be at all concerned with the consequences.
In the interview above, please fast forward to 17:49 for this key exchange.
CR:You will set the standard as to how much capital they need and they will tell you how much capital, or you will help them define how much capital they have.
TG: Thats right.
CR: ...and therefore theres a shortfall, in some cases, in some cases there will be none.
TG: There will be a shortfall in some cases, but again, this is not a solvency thing. There's very significant cushions in these institutions, today, and all Americans should be confident that these institutions are going to be viable institutions going forward. This is designed to make sure that the economy will be able to benefit from larger lending capacity going forward, in the event we were to face greater uncertainty again about a deeper recession. So it's like insurance... against... precautionary insurance against the risk of a deeper recession. That'll help make recovery more likely, because then banks won't have to keep behaving against the possibility that they have to protect themselves against things getting worse. So that's the dynamic this'll help us with.
Equity Private (here and here) has put together some interesting points of when/why/how/under what conditions the banks may cross the TARP repayment finish line first, and as a result doom the stragglers to another price pop of at least 50% (shh, the market works in mysterious ways these days).
I would like to point out the following blurb from the original TARP term sheet, which I do not recall seeing having been amended, which makes it even more explicit just who can repay the TARP over the next three years. In essence only companies that raise new equity can pay down TARP, dollar for dollar, with new private capital raised. For all of Lewis' and Vikram's talk of paying back TARP, isn't it a little aggressive to believe that BofA and Citi can issue new equity right now? Of course, assuming the massive market squeeze on no vol continues, who knows: they just very well might.
Then again, what is a Term Sheet to the Treasury (and the US government for that matter) than just yet another one-ply piece of paper?
Redemption:
Senior Preferred may not be redeemed for a period of three years from the date of this investment, except with the proceeds from a Qualified Equity Offering (as defined below) which results in aggregate gross proceeds to the QFI of not less than 25% of the issue price of the Senior Preferred. After the third anniversary of the date of this investment, the Senior Preferred may be redeemed, in whole or in part, at any time and from time to time, at the option of the QFI. All redemptions of the Senior Preferred shall be at 100% of its issue price, plus (i) in the case of cumulative Senior Preferred, any accrued and unpaid dividends and (ii) in the case of noncumulative Senior Preferred, accrued and unpaid dividends for the then current dividend period (regardless of whether any dividends are actually declared for such dividend period), and shall be subject to the approval of the QFI’s primary federal bank regulator. “Qualified Equity Offering” shall mean the sale by the QFI after the date of this investment of Tier 1 qualifying perpetual preferred stock or common stock for cash. Following the redemption in whole of the Senior Preferred held by the UST, the QFI shall have the right to repurchase any other equity security of the QFI held by the UST at fair market value.
As we have noted before, we are big fans of the the clearinghouse idea for derivatives - particularly CDSs. Overall, Geithner's plan is going to have a tremendous influence on the financial markets going forward and Zero Hedge is closely following any details that emerge. On the clearinghouse front , a first step was made today - the Fed demanded further details and got a behind the scenes look into the current clean up of derivatives.
An interesting detail came out, that 9 banks are now currently using ICE and have executed $50BB in CDS trades since March 13. This is a great first step to getting widespread usage of this exchange up and running after attempts by CME and NYSE failed. A lot of pain could have been potentially avoided if the direct counterparty risk of OTCs was negated and more detailed information of derivatives was available through the exchange. We'll keep you posted as more details emerge.
In a letter released by Barney Frank, the Chairman of the Committee of House Financial Services is requesting information from Geithner and Bernanke as to how AIG may have treated its U.S. bank counterparties differently from foreign banks.
Frank is referencing a letter by Spencer Bachus in which the latter raises yet another aspect of the AIG debacle, namely that disproportionate treatment by AIG may have benefited foreign banks by up to 70%.
Bachus claims that "in contrast with [AIG's] treatment of foreign banks [which were not asked to reduce the sum they received from AIG by any amount whatsoever], AIG is now attempting to force many of its creditors that are U.S. banks to accept severe reductions in the debt owed to them. I am told in some cases that these U.S. banks are being asked to accept reductions of over 70% of the total debt owed to them. The disparity in treatment between foreign banks and U.S. banks is troubling, particularly since the U.S. banks now being asked to take such reductions are some of the very taxpayers that have been funding AIG. In addition to the clear inequity involved, this conduct obviously runs counter to our efforts to stimulate credit in the U.S. economy through bank lending."
While not at the core of the problem Zero Hedge discussed previously about improper liquidations from a "stable company" generating abnormal profits at banks, any discovery in this inquiry could potentially raise yet another significant problem, namely how the U.S. is willing to bend over backwards to not displease foreign entities (and potentially purchasers of U.S. treasuries) at the expense of domestic banks. Then again, if ZH is correct in its prior claims, AIG made sure that even its U.S. counterparties would be more than compensated for any losses they may have had to taken on the abovementioned obligation discounts. And all of this would occur, of course, with U.S. taxpayers footing the bill as is standard these days.
Reader Lookout has done a great job of not only editorializing Geithner's earlier WSJ opinion piece for junior high school English grammar but also explaining in simple English the message that Geithner is trying to convey between the lines. For anybody still confused of what all the hoopla is about this is a must read.
As an aside, Zero Hedge is very interested, as we are sure many of our readers are, just who are the private equity and hedge funds that Geithner consulted with as he was coming up on the fly with this most recent modification in the bail out plan. Something tells us those who will benefit the most were likely the most vocal in providing their 2 leveraged cents (this could provide an early clue). After all funds such as PIMCO, Blackrock et al are getting 12x purchasing power for free, happy to overpay for some bad assets off the banks' books, while the rising tide bails out all of their existing underwater investment. One would have once hoped the government would check for conflicts of interest but now it doesn't matter anymore. Every TALF investor is protecting much more than is putting at risk... everyone knows who will foot the ultimate bill if and when this house of cards crashes yet again.
