KPIG Radio March 30

Stocks enter the final hour about even. The January Case Schiller Home Price Index gained .3% using the 20 City Index seasonally adjusted. An eighth consecutive monthly increase for the index, like that for unemployment, shows stabilization, not really an actual increase. Further Uncle Sam has pulled out all the stops in an attempt rejuvenate real estate and in the process prevent true price discovery. I’ll have a lot more on that tomorrow.

There is a very interesting piece in the Times online about the Irish being forced to nationalize their banks and about how humiliating this is. The actual quote from the article is; “Ireland is the first significant Western country to be faced with the humiliation of wholesale bank nationalization in this crisis, although the Republic took its three main banks into state ownership 18 months ago.”

As with many things it is a matter of perception and it seems to me that what’s really humiliating is giving the banks over a trillion Dollars in public assistance after they drive themselves, the national and international economies into the ground. Precipitating untold foreclosures, bankruptcies, business failures and general ruin on the citizenry, state and municipal government, is anybody or anything unscathed at this point. That, as bad as it is, is nothing compared to the humiliation that is the banks use of some of the taxpayer largesse to reward executive incompetence and in many cases criminal behavior with obscene bonuses. But the ultimate humiliation is the banks and their lobbyists use of taxpayer funds to persuade our elected representatives not to regulate, censure or punish them for their greed and reckless behavior that we all suffer from as a result. As each successive revision to the financial reform bill makes it ever more toothless and pathetic.

Real reform would include preventing the credit ratings agencies form rating junk as AAA for a small fee instead of its actual merits. As this was the heart of the Wall Street Money machine and the vehicle that allowed financial ruin to be spread far and wide. Regulation of derivatives, Warren Buffet called these financial weapons of mass destruction, can you say 85 billion for AIG and before that the LTCM Crises of 1998. Excessive leverage, it used to be banks were limited to about 12-1, not the 40-1 common during the crises and that was instrumental in the banks failure and the need for the various bailouts. Incidentally leverage is still very high, though off its peak. The return of Glass Steagall as the separation of banks, insurance companies and investment banks is a must. Compensation reform that forces the executives to lengthen their time horizon considerably and holds them accountable for their decisions, or lack there of, requiring that their assets be on the line. Enforcement, much of the current crises could have been prevented or minimized had existing rules actually been enforced.

Perhaps humiliating isn’t the right word as the scope of this crisis is outrageous. Not only does it subvert Adam Smiths capitalist principles, principles that this country was founded on. Through the transfer of finance sector losses to the public whilst profits remain private, worse the deficits precipitated by this mess have an extremely high probability of finishing off Social Security and Medicare, programs that are already effectively insolvent, with the Social Security Trust funds having been looted and replaced by IOU’s.

With the blessing of the credit ratings agencies the asset backed toxic waste that was a by product of this crises found its way into many a pension plan compliments of its AAA or investment grade rating when in fact it was and is junk, a detail that is all but certain to be found out the hard way. Christopher Dodd has the audacity to say we won’t punish the banks when discussing financial reform. I guess the plan is to punish our kids instead as they are the ones who will pay for this crises and future crises, unless we stand up and demand accountability from our elected representatives whom are paid handsomely to represent their constituents yet consistently fail to do so.