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April 21, 2009

Those 6 Month Extensions

There were a lot of six-month extensions sought last week. The extensions included those quarterly reports from those financial stocks last week. According to a few columns written by financial analysts, there were extensions in transparency, when it came to looking for detail in the bank earnings. Like the earnings statement of Goldman Sachs and its reported $1.8 billion quarterly profit. Like the earnings statement of Citibank that was said to be “a lot like a scavenger hunt.” Apparently Citibank failed to include a comment regarding why Citibank “is now consolidating over $80 billion in heretofore off-balance-sheet credit-card balances for regulatory purposes, but not generally accepted accounting principles’ purposes.”

Read Minyan Peter at

Read Fred Norris at the New York Times.

The horn blast on ABC Radio News was followed by reports of “record” earnings at Wells Fargo, without analysis that the refinancing wave was contributing to the profitability at Wells Fargo or other financial stocks which “is entirely reliant on the Federal Reserve’s ability to manage the 10-year Treasury yield through quantitative easing. There was no mention after the horn blast of ABC Radio News that since September 2008 Wells Fargo had acquired Wachovia, and the combined 2009 1st quarter earnings of Wachovia and Wells then were not a “record.”

In lieu of the change in the Mark to Market Accounting rules, Bank of America offered gains of $2.2 billion on certain Merrill Lynch structured notes as a result of credit spreads widening. This statement from Bank of America actually meant, per Minyan Peter, “Because the market is now more doubtful of our ability to meet our obligations on these structured notes than they were at the end of December, we can recognize a $2.2 billion gain this quarter.”

Per the columns and blog of Fred Norris at the New York Times, Goldman’s explanations about their recent earnings statement sometimes do not ring true. Like Goldman’s proclamation that it wants to pay the $10 billion under the TARP program back and get out from government control of things, like bonus payments. Goldman’s explanations did not mention the $28 billion borrowed with a guarantee from the FDIC. David Viniar CFO at Goldman told Norris he expected to borrow more, probably hitting the maximum $35 billion. Not mentioned in the text of the release and buried in the tables was the important fact that Goldman had lost a lot of money in December, losses which do not show up in any quarterly number that would have been part of the quarter had the firm not changed its fiscal year. That information was there in the tables on page 10 of a news release. Goldman won’t say if a December-to-February quarter would have been profitable.

Todd Harrison wrote at Marketwatch to close the quarter:
“January thought: The age of austerity officially has arrived and we’ll see a steady stream of social strife as the rejection of wealth increases in size and scope. While societal acrimony began to percolate last year, this dynamic will manifest through social unrest and geopolitical conflict as we edge ahead.”

Read the news from Europe. Read the comments of Chinese Premier Wen Jiabao over the weekend when he called for more surveillance of countries that issue major reserve currencies. Like the United States. This statement comes on the heels of discussion at the G20 meeting of a new world currency, what Todd Harrison calls the growing unease of foreign holders of dollar-denominated assets.
Todd Harrison cites a sense of the tip of iceberg in the news story in late March with acknowledgment by the former chief regulator for the $2.7 trillion municipal bond market that the governing board failed to save taxpayers upwards of $1 billion of losses due to opaque financial products.

The political consequence of all this can ever be seen, as pointed out by Todd Harrison, in the feelings of those left at work as they are asked to pick up the slack without additional compensation even as unemployment continues to rise.

A people forced to extend and soon to reinvent themselves. Everywhere. As finance ministers gather this weekend in Washington for meetings of the International Monetary Fund and the World Bank, focusing on the $4.1 trillion projected losses from the global economic crisis, and the $1.1 trillion to help fix the crisis.


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