The reasoning is as follows:

Any one of the many top traders working full time in their specific area of responsibility necessarily know a lot more about it than any manager possibly can.

In other words, any manager will have his hands full keeping up with what any one of the traders is up to, making it impossible, for all practical purposes, to keep up with all of them.

So shareholders should expect things to periodically malfunction from lack of sufficient oversight and supervision as a point of logic.

JPMorgan Sought Loophole on Risky Trading

By Edward Wyatt

May 1 (NYT) — Soon after lawmakers finished work on the nation’s new financial regulatory law, a team of JPMorgan Chase lobbyists descended on Washington. Their goal was to obtain special breaks that would allow banks to make big bets in their portfolios, including some of the types of trading that led to the $2 billion loss now rocking the bank.

Additionally, my guess is the whale has been liquidating a long oil position (and maybe paying on long bma ratios) for the last several weeks.

That is, this announcement probably came after their liquidations were pretty much over to minimize losses.

This means the market effects are probably behind us.

And its always been a public/private partnership with govt’s role that of the funding model, so I never saw govt funding as a ‘bailout’

The public purpose of FNMA is to get lower income earners in their own homes, which it has successfully done for maybe 50 years for millions of American owners and their families.

The ‘real’ cost of the program is the alternative use of the actual goods and services devoted to this mission.

(Just me, but seems like it’s been a net gain.)

Note that banking is a public private partnership as well, with govt providing the funding, directly or indirectly, and private capital pricing the risk. So for me, govt provided liquidity for banking isn’t a ‘bailout’ but a necessary and continuous condition, all presumably serving public purpose.

Fannie Mae Won’t Seek Aid After Reporting $2.7 Billion Profit

By Clea Benson

May 9 (Bloomberg) — Fannie Mae, the biggest backer of U.S. home loans, said it won’t seek Treasury Department aid after reporting net income of $2.7 billion for the first quarter.

The Washington-based company, which has operated under U.S. conservatorship since it was seized in September 2008, cited lower credit-related expenses, a decline in serious delinquency rates and a drop in its inventory of owned properties as contributors to the improvement, according to a statement released today. The company has drawn a total of $117.1 billion in aid while under government control.

The first-quarter profit reflected a “less significant decline in home prices,” the company said in a Securities and Exchange Commission filing.

Sheila Bair:

“For several years now, the Fed has been making money available to the financial sector at near-zero interest rates. Big banks and hedge funds, among others, have taken this cheap money and invested it in securities with high yields. This type of profit-making, called the “carry trade,” has been enormously profitable for them.”

President Obama’s ‘Fairness’ Vision Would Bankrupt Nation

April 11 (IBD) — Economy: In two recent high-profile policy speeches, President Obama has struggled to make a case for his big-government, high-tax vision for the economy. But his comments reveal just how bankrupt his vision is.

Last I read, he’s actually reduced govt head count for maybe the first time in history, and spending as a % of GDP is up only because of transfer payments due to the recession, with taxes as a % of GDP reaching extremely low levels as well.

It’s ironic that President Obama would make two speeches this week in Florida about “fairness,” sandwiched as they were between $10,000-a-plate fundraising dinners. But that’s the level of hypocrisy coming from the White House these days.

To be polite, most of the comments Obama makes these days about the economy, taxes and, especially, “fairness” stretch all credibility. Hearing the large number of outright falsehoods and partial truths he uses to support his argument, it’s impossible not to believe it’s simply a ploy to get votes from those who envy the rich and the successful.

A full unpacking of Obama’s whoppers would require a much larger space than we have here. Here are just a few examples:

“I believe the free market is the greatest force for economic progress in human history.”

If he believed that, he would not have signed the $787 billion stimulus bill.

That helped the private sector and ‘free markets’ even though I didn’t like the details.

He wouldn’t have imposed onerous new green regulations on businesses.

Without federal pollution regulation the states get into a race to the bottom where whoever allows the most pollution gets the most businesses.

He wouldn’t have taken over the auto and banking industries.

Banking with FDIC deposit insurance makes banking a 90/10 public private partnership. And he didn’t take over banking in any case.

Nor would he seek massive new tax hikes on businesses, or use the frightening power of government — including thousands of new IRS agents to enforce ObamaCare — to pursue his utopian vision of “fairness.”

First, I’m against corporate taxes in general. But even so, he cut payroll taxes for business and the proposed increases were about closing loopholes. And Obamacare took 500 billion out of medicare to give to insurance companies- hardly pro govt/anti business.

If Obama truly believed in the free market,

And remember, there is no ‘free market’ as by definitions markets operate only within institutional structure including contract law and enforcement.

he’d eliminate Fannie Mae, Freddie Mac, the EPA, the Energy Department and many other federal departments and agencies that distort free markets.

All govt and all taxation necessarily distorts markets. All govt works on coercion. Nor are there competitive markets when there is limited competition and monopoly power, which means some form of govt regulation is required.

He would roll back thousands of costly, ineffective regulations that estimates say cost the U.S. $1.8 trillion a year.

I’d have to see the specifics, which the rest of this article makes me doubtful of.

“The gap between those at the very, very top and everybody else keeps growing wider and wider and wider and wider.”

In fact, the top 1% have a lower share of total household income than they did in 1920 — just after World War I.

So maybe 1920 was a particularly high year because of the war? Don’t know his point, except pointing to 1920 is a smokescreen to disguise the fact that the share of income has been rising dramatically for a long time.

Though the top 1% have recently boosted their share, that’s largely due to the tech boom of the 1980s, 1990s and 2000s, which made all Americans richer.

I thought it was the financial sector??? But even so, a tech boom doesn’t necessarily do that to income distribution. It doesn’t explain why the football coach earns $10 million while the professor who cured cancer gets $100,000. It’s all about institutional structure.

Even so, the so-called Gini Coefficient — the federal government’s own measure of income inequality — is today lower than it was during the Clinton era.

“At the beginning of the last decade, the wealthiest Americans got two huge tax cuts, in 2001 and 2003.”

The rich, with everyone else, did get their top tax rates cut. But the actual taxes they paid rose sharply.

Right, because their incomes rose that much more. This is out of context writing throughout, laced with lies of omission.

Don’t believe it? Just before those tax cuts were passed, the top 1% earned 18% of all adjusted gross income and paid 34% of all federal taxes.

Only because they conveniently don’t include FICA when they talk about taxes like this. But they do include it when it’s going up or down- tax cut or tax hike. And it’s something approaching half of all federal income taxes.

By 2009, the last full year for which there are data, the top 1% share of AGI had fallen to 17%, according to IRS data. But they paid 37% of all taxes.

Not including FICA

As for the bottom 50% of income earners: In 2009 they took home 13% of income but paid less than 3% of federal income taxes. And today, nearly half of all Americans don’t pay taxes at all.

Not including FICA which is 7.6% of income from dollar one, with a cap at something like $105,000. Including FICA it could be something like 30% paid by lower income earners.

In short, during the 2000s, top earners took home a smaller share of the income pie but paid a larger share of the taxes. Is that what Obama means by “fairness?”

Does leaving out FICA count as fairness?

As for the so-called Buffett Rule that Obama wants, it would impose a minimum tax of 30% on millionaires to make them pay their “fair share.” It’s premised on investor Warren Buffett’s assertion that he pays a lower tax rate than his secretary.

Nonsense. Those with incomes over $1 million pay about 30% in taxes on average, about twice the average for those with middle incomes, like Buffett’s assistant.

Not counting FICA.

Simply put, this is class warfare. The tax would only raise $47 billion over the next decade — a drop in the bucket compared to the $45 trillion in spending and $9.6 trillion in deficits under Obama’s budget.

And just under $1 trillion per year of FICA taxes

Unfortunately, by raising the capital gains tax from 15% to over 30%, it would kill millions of American jobs and send small business creation into a tailspin.

Any tax hike can reduce aggregate demand. And not having income taxes and cap gains at the same rate merely causes income to shift to the lowest taxed category, and provide massive fees for the accounting firms and financial sector as well.

Who would that help?

“We tried (free market economics) for eight years before I took office. … We were told the same thing we’re being told now — this is going to lead to faster job growth, it’s going to lead to greater prosperity for everybody. Guess what? It didn’t.”

Obama has repeatedly suggested all the economy’s problems are due to President Bush.

But Bush, like Obama, entered office during a recession. Not only did he take over after the biggest stock market crash since the Depression, but the Fed had more than doubled interest rates, killing growth.

The Fed doubled rates from very low levels after the economy started growing from the combo Bush proactively expanding the deficit and from the up leg of the sub prime adventure. It ended with the shrinking of the deficit and the down leg of the sub prime adventure.

Worse, within eight months of entering office, the U.S. was hit with the 9/11 terrorist attacks — the first on the American homeland since World War II. Within the space of just 90 days, a million jobs were lost.

Jobs were lost because private sector credit expansion ended after being stretched past it’s limits during the late 90′s, with the govt budget surplus draining off hundreds of billions of dollars of net financial assets as well.

Obama’s right. President Bush did cut tax rates. What was the result? We had 52 straight months of job growth, with 8 million new jobs over six years.

Propelled by the larger deficit and the expansion phase of the sub prime adventure.

For Bush’s entire presidency, the unemployment rate averaged 5.3%. Under Obama, it’s not been below 8%.

Yes, because the deficit is too small, and both sides want to make it smaller. Good luck to us…

Real after-tax income per person rose more than 11% under Bush, while real GDP from 2000 to 2007 grew $2.1 trillion, or 17%. In 2007, the deficit fell to $162 billion — roughly 1% of GDP.

Yes, not large enough to support aggregate demand after support from the sub prime expansion phase ended.

Does Obama really want to compare himself to that? Since he’s entered office, we’ve lost 1.7 million jobs, and unemployment has averaged over 8%.

His deficits have averaged $1.4 trillion — about 8% of GDP, a record. On his watch, debt has soared from $10.7 trillion to $16 trillion. America now has more debt than the entire euro zone and Great Britain — combined.

And still not nearly enough to restore aggregate demand.

Under Obama spending has surged. The federal government now accounts for 25% of the economy, vs. the long-term average of 20%.

Due mainly to automatic counter cyclical transfer payments, not expanded regular spending.

Through his big-government policies, Obama took a bad recession and made sure our recovery would be the worst ever — and then blamed it on everyone but himself.

Meanwhile, get ready for “taxmageddon” — the $494 billion tax hike that hits in 2013 as the Bush tax cuts expire, something Obama is doing nothing about.

Wasn’t it the opposition trying to not allow the extension this year?

Our economy, in short, will never regain its old vitality until a new president is elected, and Obama’s top-down, government-centered policies are laid to rest.

I’ve been a harsh critic of Obama’s policies all along, but this is all a pile of intellectually dishonest propaganda.

Problem is they can only buy them to the extent their capital allows, and as raising more capital isn’t happening, it was probably a one time buying binge.

That’s why subsequent LTRO’s won’t do much for banks whose capital is already fully extended.

And losses serve to weaken their capital positions.

Spanish Banks Face Bond Losses in LTRO Aftermath: David Powell

By David Powell

April 11 (Bloomberg) — The European Central Bank may have pushed the Spanish banking system closer to collapse through its three-year longer-term refinancing operations.

Banks in Spain have been saddled with losses of about 1.6 billion euros as a result of the liquidity operation conducted in December, according to Bloomberg Brief estimates. Spanish lenders purchased 45.7 billion euros of government bonds during the months of December, January and February, according to monthly data from the ECB, and the average of the current prices of two-, six- and 10-year government bonds of Spain is 3.5 percent below the average of the average of those prices from Dec. 22 to March 1. [Note: The prices for six-year bonds are used instead of those for five-year bonds because the price history for the current five-year generic government bond of Italy starts only in January.]

International assistance will probably be needed to break the cycle. Spanish sovereign yields surged last year as investors worried about the solvency of the state given unrecognized losses in the banking system linked to the real estate bubble. Interest rates later declined after Spanish lenders purchased government debt during those three months, probably with the proceeds of the first three-year longer-term refinancing operation. Those purchases are now creating additional losses for the banking system.

The losses stemming from those bonds were essentially transferred to the domestic banking system from private bondholders with the assistance of the central bank.

The damage may be mitigated by low levels of margin calls from the ECB. Deposits related to margin calls at the central bank totaled only 0.3 billion in the week ended April 4, according to the Eurosystem’s weekly financial statement.

That suggests commercial lenders posted assets as collateral that have maintained their values. Those probably consisted primarily of the “residential mortgages and loans to small and medium-sized enterprises (SMEs)”, which the central bank said were eligible for use in its Dec. 8 statement. Those illiquid assets may be unaffected by the mark-to-market process because there are no developed markets for them. The deposits related to margin calls probably would have risen if banks had posted government bonds as collateral.

The situation for financial institutions in Italy is less dire than for those in Spain. Italian government bond prices on average are 2.1 percent above the distressed levels at which they traded from Dec. 22 to March 1. That suggests Italian banks may be sitting on profits of about 425 million euros after they purchased 20.3 billion euros of government bonds during that period.

Losses for both banking systems would probably have been created if they purchased government bonds with the proceeds of the second three-year longerterm refinancing operation. The funds from the second auction are excluded from this analysis because it settled on March 1 and the latest data from the ECB on government bond purchases of euro-area banks runs through the end of February. The data for March will be released on April 30.

As Ronald Reagan quipped, “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help.’”

Japan Must Overhaul Taxes to Avoid Bond Rout, Bank Lobby Says

By Shigeru Sato and Takako Taniguchi

April 1 (Bloomberg) — Japan must avoid delaying an overhaul of the tax system to prevent government borrowing costs from spiraling in the next decade, the new chief of the country’s banking lobby said.

“The risk of a tumble in government bond prices would increase if taxation and social security reform are left unsolved for years,” said Yasuhiro Sato, president of Mizuho Financial Group Inc. (8411), whose tenure as chairman of the Japanese Bankers Association began today. “The country’s financial assets are dwindling with the aging population dipping into savings.”

Japanese banks hold a record amount of the nation’s bonds, prompting central bank Governor Masaaki Shirakawa to warn in February that lenders risk incurring trillions of yen in losses if yields rise. Prime Minister Yoshihiko Noda faces opposition to his plan to double the sales tax by 2015 to pay for swelling welfare costs and contain the world’s biggest public debt.

“Any delays to the reform that’s being debated may raise concern that bonds may be unable to be absorbed domestically in the long run, say, in 2022,” Sato said in an interview last month. “But there are no signs of a JGB price plunge in the near term.”

Japan’s 10-year bonds yielded 0.985 percent late on March 30. The cost to insure Japan’s debt against nonpayment has been falling, with CMA data showing five-year credit default swaps declined to 98.6 basis points on March 29 from a record 154.8 on Oct. 4, indicating perceptions of creditworthiness are improving.

Hoarding Cash

Shirakawa said in February that a 1 percentage-point increase in benchmark yields would cause losses of about 3.5 trillion yen ($43 billion) on notes held by major banks. With households and companies hoarding cash rather than borrowing, lenders have been buying bonds, holding a record 167.8 trillion of sovereign debt in February, according to central bank data.

The International Monetary Fund dispatched a mission to Tokyo last month as part of a regular review it’s conducting this year into the stability of Japan’s financial sector. While the IMF’s Financial Sector Assessment Program contains a stress test for banks, brokerages and insurers, it’s unclear whether it will examine risks from their government bond holdings.

“Japan’s financial system is strong and stable,” Sato said. “It’s hard to imagine that the IMF would make any kinds of requirements for Japan” based on any examination of bonds held by financial institutions, he said.

Bond Profits

The nation’s three biggest lenders — Mitsubishi UFJ Financial Group Inc. (8306), Sumitomo Mitsui Financial Group Inc. (8316) and Sato’s Mizuho — earned a combined 231 billion yen from trading bonds and other securities in the quarter ended December, almost double from a year earlier, according to Bloomberg calculations based on their latest earnings figures.

Japan’s government bond sales have largely been absorbed by the domestic market, with about 92 percent of the debt owned by investors at home, central bank data show. The capacity of households to fund public spending may decline in coming years as the growing ranks of pensioners withdraw assets.

Households had 1,483 trillion yen of financial assets at the end of December, down 0.3 percent from a year earlier, according to the Bank of Japan. Government borrowings will climb to 1,086 trillion yen in the year ending March 2013, the Finance Ministry forecast in January.

Prime Minister Noda is seeking parliament’s approval of his tax bill in the current Diet session, while opposition Liberal Democratic Party leader Sadakazu Tanigaki has suggested elections should be called first. Noda’s Cabinet on March 30 approved the proposal to raise the sales levy to 8 percent in April 2014 and 10 percent in October 2015.

“Japanese banks conduct their own simulations and assessments of various risks such as those arising from bonds and stocks,” Sato said. “We are now far from the situation where a bomb may explode in the near future.”

ECB figures published on Monday showed that Spanish banks increased their government debt holdings by more than €23bn in January while Italian banks bought nearly €21bn – both record monthly increases. Over December and January, Italian and Spanish banks increased their holdings by 13 and 29 per cent to €280bn and €230bn respectively.

So it seemed to me that also coincident to the LTRO was some entity giving the nod to its banks to buy those bonds, or some reason sellers of those bonds backed off.

I’m now thinking it may have been the BOJ giving the nod to its member banks to buy euro member debt denominated in euro and keep the fx risk on their books, with the assurance govt policy would keep the yen weak and guarantee the banks an fx profit.

We learned after the fact that Japan had been selling yen well before they announced their new weak yen stance. And having their banks buy euro member euro denominated debt directly weakens the yen vs the euro.

The timing of the events- the LTRO/yen sell off/yen policy change- is close enough to get my attention.

So Japan managed to weaken the yen and firm euro member debt prices all under the cover of the ECB LTRO operation which they gladly allowed to take the credit.

In any case, I don’t expect any more from this next LTRO than I expected from the last, but I am keeping a close eye on the yen.

As previously discussed, while China may successfully engineer a soft landing in their fight against inflation, I’ve never seen anything but hard landings elsewhere when fighting inflation. And with China a ‘first half/second half’ story, a weak first half generally means an even weaker second half.

China says January lending down 28% from year ago

February 12 (AFP) — Chinese bank lending fell 28 percent in January from a year earlier, official data showed, suggesting Beijing is reluctant to open the credit valves too quickly for fear of reigniting inflation.

State-owned lenders issued 738.1 billion yuan ($117.26 billion) in new loans in January, down 288.2 billion yuan from the same month last year and well short of analyst forecasts for one trillion yuan, the central bank said Friday.

Banks handed out 640.5 billion yuan in loans in December.

Chinese banks typically ramp up lending at the beginning of the year to avoid losing quotas issued by regulators and the effects of changes in monetary policy. Analysts said the weaker-than-expected data partly reflected the earlier than usual Chinese Lunar New Year holiday, which fell in January, and the government’s still tight restrictions on credit.

Mark Williams, an economist at Capital Economics in London, said it was the lowest December to January increase since 2007.

“It is hard to escape the feeling that the weakness of lending was at least partly a reflection of the slow pace at which policy is being eased,” he said.

Late last year the central bank eased lending restrictions on banks and analysts expect similar moves this year as authorities try to spur economic activity and prevent a collapse in the property market.

But most experts had forecast another easing of bank reserve requirements before the week-long Lunar New Holiday and the government’s failure to act suggests it does not expect a sharp slowdown in economic growth.

There is growing evidence that the world’s second largest economy is slowing as turmoil in eurozone countries and weakness in the United States hurts demand for Chinese exports, a key driver of the Asian giant.

The International Monetary Fund this week warned that an escalation of Europe’s fiscal woes could slash China’s economic growth by half this year, and it urged Beijing to prepare stimulus measures in response.

But Chinese leaders, worried about reigniting politically sensitive inflation, have signalled their intention to move cautiously and fine-tune policy as needed.