Monday, July 16, 2012

Nothing Is, But What Is Not (Shakespeare/Macbeth)

If you’ve got a business -- you didn’t build that. Somebody else made that happen - Barack Obama, July 13, 2012
You know, I have maintained for a long time that Barack Obama is the poster child for affirmative action.  That quote from a speech by him on Friday serves to reinforce my view.  If ever there was an apologetic statement for big Government, welfare and wealth redistribution, that is it.  I fell off my chair when I read that quote.  I guess everyone on field day gets a ribbon and now that policy has become firmly entrenched in our Government.  Barack Obama has had his entire career handed to him by others so I guess no one should be surprised that he made that remark.  What's sadly ironic is that, if you go by the income distribution numbers in our country since Obama was elected, it would appear that he is nothing more than a dish rag for the wealthy entitled, as an even greater percentage of income has trickled up to the 1% than before Obama was elected.

I had to sneak in a tribute to Shakespeare since I'm going to see the Colorado Shakespeare Company perform Richard III on Thursday evening in Boulder.  I've always loved that particular quote from Macbeth because it succinctly and cleverly encapsulates the idea of truth vs. appearance.  In fact, Obama is emblematic of form vs. substance.  He's all form and zero substance.

In a similar fashion, the existence and being of JP Morgan as a capitalistic enterprise also is the perfection of fiction vs. reality.  I recall that about 9 years ago, a good friend and colleague of mine and I discussed the fact that JP Morgan was littered with bad derivatives positions and off-balance-sheet debt and would eventually implode.  But we also knew that JP Morgan was the Fed's primary tool for manipulating the markets and because of that fact the public would never see the extent of which JP Morgan would be bailed out behind the scenes.  The TARP/Fed bailout of JP Morgan (and the other too big to fail banks) was just a glimpse of the bigger behind-the-scenes bailouts that are coming.

JP Morgan reported 67 cents per share earnings on Friday.  Of that, 45 cents was fully disclosed fictitious accounting gains.  I'll explain without delving in too deep.  12 cents of JPM's net income came from a neat little trick known as Debt Valuation Adjustment.  Essentially what this means is that the bonds issued by JP Morgan to raise money declined in market value last quarter (went up in yield).  So JP Morgan pretends that it goes into the market and buys back all of its bonds at a price level less than par (100), and therefore reaps income because they could have saved money buying them back below par rather than waiting until maturity and having to pay par.  Get it?  "What is not" about this bullshit little accounting fiction is that JP Morgan never purchased any bonds during the quarter.  It's 100% fictitious income.

The bigger source of income was 33 cents attributed to "loan loss depletion."  What this means is that JP Morgan accumulated charges to income over the past few years in anticipation of some of its loans and trading bets going bad over time.  For some reason, they decided they over-reserved for loan losses and therefore reduced the amount of loan loss reserves, which then gets translated into accounting (GAAP) income.  The charges to income over time were originally non-cash and the reversal of these charges are non-cash.  However, you have to ask yourself if the use of this loan loss reversal to generate paper income makes sense.  All of the too big to fail banks are using this gimmick to generate a lot of "income" over the past few quarters.

But let's see if it makes rational sense for JPM to do this.  What we know is that JPM incurred a $4.4 billion loss on its London derivatives bet, despite telling us a few weeks ago that the loss was $2 billion.  For me this raises a red flag and I've demonstrated in past  posts how JPM's position marks are fraudulent.  So let's assume this loss is only $4.4 billion.  It's a lot bigger and everyone I know who has worked on a trading desk - including me - knows that it is.  But what about all of its other derivatives bets and loan assets?  Are we supposed to give them the benefit of doubt and trust that all the other assets on and off balance sheet are accurately marked?  I think one would have to be supremely stupid or appallingly naive to believe that JP Morgan and its drunken CEO Jamie Dimon will ever tell us the truth about anything.  The truth is that JP Morgan's assets are hopelessly marked too high in value and the bank will eventually have to recognize massive losses.  They should not have been allowed to reverse their loan loss reserve like this because the facts to not match the action taken by JPM.

My point here is that JPM's earnings reports are completely fictitious and fraudulent.  And if I know this, it means that the people at JPM who are in upper management know this, Jamie Dimon knows this,  many JPM board members likely know this, Bernanke knows this and people in the Treasury and SEC with some modicum of intelligence know this (Geithner and Mary Shapiro are too stupid).  This gets back to the discussions about JPM that I used to have back in 2002 and 2003.  We knew JPM was technically insolvent back then.  Nine years later that level of insolvency is significantly higher by many multiples, which means the smoke being blown to cover it is substantially thicker.  And worse, the tax payer and middle class wealth being confiscated to keep JP Morgan from collapsing is unimaginably large.  This is why JP Morgan is being allowed to steal customer assets that were being used as hypothecated collateral at places like Lehman, MF Global and PFGBest.  This will get worse - expect it.

18 comments:

  1. The community organizer who has sold the Ambassadorship to England to that Devil wears Prada She-Bitch Editor of Vogue Magazine in exchange for that pitiful campaign finance contest to win a dinner with the President,his oh-so-fashionable wife and that old lady with the big nose from Sex in The City, has got some nerve making a statement like that. He just spit in the face of anybody who has ever worked hard to make a living in this country.

    Sofa King says:

    I have not been successful because of others, I have been successful despite of others.

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  2. Something wicked this way comes....

    Seems the Boni have taken over, Dave you have my vote as Tribune of the plebs.

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  3. porkydawky? Geezus where do you peeps get shit like that? And that comment... I got a brain annualism.
    This is what I'm gonna say about JPM. They suck shit out of a dead dog's ass. There. How's that papa doc?

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  4. More and more of the wider populace are waking up to the fact that the corporates are playing consumers on a grand scale. The article in the Telegraph today about widening the focus on the Libor scandal onto the rigging going on petrol (gas) prices will have a huge ripple down effect. All this combined with the fact that the UK has had its largest increase in population over a 10 year period which is starting to hit home to more and more of the generally stoic public. After the Olympics and the disapperance of the feel good factor watch for proper unrest to return into the UK.

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    1. LOL "proper." I wish this country would engage in any unrest.

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  5. Red Alert

    http://www.milanofinanza.it/news/dettaglio_news.asp?id=201207161250055623&chkAgenzie=TMFI&sez=news&testo=&titolo=Directa:%20ufficializzato%20l%E2%80%99accordo%20per%20negoziare%20oro%20fisico

    Il Folletto

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    1. Fantastico. Grazie, Il Folletto.

      For everyone else reading these comments, that is an article announcing that Italy's largest precious metals and refining company has teamed up with an online trading company, Directa Sim, to provide online trading of physical gold, which can be delivered to the individual investor via bank and credit union counters. This service will meet the growing demand for investing in physical gold by individuals in Italy.

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  6. This service will grow the possibility of governement to seize the gold through document....

    Il Folletto

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  7. If you’ve got a business -- you didn’t build that. Somebody else made that happen - Barack Obama, July 13, 2012

    Me: Good, "somebody else" can pay the bloody taxes.

    Of course, what Obama was really saying was this: If Barack has a career at all -- he didn't earn that. Somebody else made that happen - because he knows, deep down, that he's just another welfare queen, which probably explains his affinity for the likes of Dimon and the TBTF banks.

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  8. To quote Jim Willie:

    The obscenity continues with a charade of Credit Value Adjustments and raids to Loan Loss Reserves every quarter earnings report. Without such malfeasance to accounting, the big US banks would regularly show deep quarterly losses. Even the financial press objects, calling the earnings tainted. If ordinary corporations were to engage in such accounting fraud, they would be prosecuted and their executives tossed in prison. The criminality is vast. The true protection from fraudulent accounting and vast fiduciary violations is obtained and secured by owning precious metals, best in bullion bars and coins.
    The rest of the article can be found here
    http://news.goldseek.com/GoldenJackass/1341518400.php

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  9. What a twosome. Obama wants to tax every last penny. Romney wants to avoid paying even one penny.
    Maybe the firestorm over Mitts offshore tax gaff will disqualify him and the pachyderms will turn to Ron Paul.

    At least we can dream...

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  10. Maybe one day people will wake up - including Jim Sinclair - that QE is by now irrelevant to the ultimate outcome. Yes Bernanke want's to and threatens to do it but he will be stopped by others very soon.

    It is now more beneficial to highlight what the consequences are in a debt saturated world if there is no printing and why. It would seem that yesterdays and today's committee meeting the people doing the questioning have no idea. And must add in the D. Trump seems to not either. Wondering how he is protecting his "wealth".

    Paul Craig Roberts understands the issue better than most and communicates them better too. http://sgtreport.com/2012/07/one-on-one-with-paul-craig-roberts-2/

    Instead of interest rates you could substituted Gold.

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  11. One-on-One with Paul Craig Roberts

    Former Assistant Treasury Secretary Paul Craig Roberts says, “The last thing the banks want is a rise in interest rates that would drive down the values of their holdings and reveal large losses masked by rigged interest rates.” The Libor rate rigging scandal was all about keeping the financial system and the big banks from failing. Forget prosecuting the perpetrators because Roberts says, “The minute those interest rates go up, the loss to people will just dwarf the interest rate loss.” Fraud is now part of the system that keeps it from crashing. Roberts has a PhD and was responsible for economic policy at the Treasury. He says, “We are probably headed for a crash anyway because I don’t think they can maintain this forever.”

    http://usawatchdog.com/one-on-one-with-paul-craig-roberts-2/

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  12. Spitzer takes on Bartiromo in Japanese Monster-Movie Epic


    The confrontation between the two of them on air is epic. In it, Bartiromo blasts Spitzer for going after Greenberg and accuses him of only targeting Greenberg for personal reasons. Spitzer counters by asking her if she's read a judge's opinion ruling that Greenberg had participated in a conspiracy to defraud. "Have you read this opinion?" he asks.

    She hedges, pauses, and here's the funny part: Clearly she hasn't read it.

    Spitzer asks her again, have you read the opinion? This time she decides to go all in, and immediately says she has read it. "I've read much more than I want to read on this case!" she shouts.

    Spitzer then gets so hot that he appears to have a prosecutorial flashback on live TV, saying: "You are under oath right now. I'm going to be very serious with you!" He again demands that she answer the question: Was it not true that a judge ruled that Greenberg had committed fraud?

    Humorously, Bartiromo explodes here and then retreats into the unfamiliar/uncomfortable territory of the truth: "I'm not under oath and I am not in your courtroom! You are on my television show!"

    Read more: http://www.rollingstone.com/politics/blogs/taibblog/more-on-libor-plus-spitzer-takes-on-bartiromo-in-japanese-monster-movie-epic-20120717#ixzz20zbKYtCq

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  13. JP is the arm of the federal reserve......

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  14. JPMorgan is just a tool of the Federal Reserve

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  15. The federal reserve is a tool of JP Morgan.

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  16. They both are tools and need to be ended

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