Monday, March 30, 2009

Market update...

Most outlets seem to be focused on the GM news as the driver of the markets today. I don't think that is the case. Rather I think people are finally coming to realize that the troubles with the banks continues and the news flow in the financial industry has turned negative. Consider the recent news items in the last 48 hours......

1) Geithner says some banks need "large amounts" of additional assistance.
2) Talk that UBS might cut 8,000 more jobs and writedown billions.
3) Talk that much of the bank profitability in Jan/Feb was due to AIG unwinding trades. These unwinds may have been extremely profitable to the banks at your (the taxpayer) expense.

This blog has a fairly detailed account of the allegations of AIG passing profits through to Goldman, Citi, etc. If any of this is true, Sec. Geithner is toast.

Here is the money quote: "AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG.

What this all means is that the statements by major banks, i.e. JPM, Citi, and BofA, regarding abnormal profitability in January and February were true, however these profits were a) one-time in nature due to wholesale unwinds of AIG portfolios, b) entirely at the expense of AIG, and thus taxpayers, c) executed with Tim Geithner's (and thus the administration's) full knowledge and intent, d) were basically a transfer of money from taxpayers to banks (in yet another form) using AIG as an intermediary."

I keep hoping the banks and financial firms will get their act together, but it seems like more of the same from Wall Street.


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