Hank and Ben Went Up The Hill (part 2)

We pick up the narrative on Monday, March 10, 2008, click here for earlier post.

On Friday prior, JPM Chase came to an agreement on a 28-day loan for Bear Stearns and you will see in the prior post how involved Treasury Secretary Henry Paulson was in the deal.

So back to Monday the 10th, Paulson spends most of the morning on the phone with Keith Hennessey who was Assistant to the President for Economic Policy and Director of the U.S. National Economic Council.

Later that morning the phone log shows four calls to Jerry Corrigan, former President of the NY Fed, but at this time was Managing Director in the office of the Chairman for Goldman Sachs and later in 2008 became chairman of Goldman Sachs holding company GS Bank.

He then has lunch at the White House with presidential staff members.

At 5pm Paulson convenes the first meeting of the Presidents Working Group on Financial Markets, AKA Plunge Protection Team.

On Tuesday the 11th Paulson redacted the first two hours of his day, which were out of the office. He then spoke with Fed chief Ben Bernanke and White House’s Hennessey and SEC chief Chris Cox.

After the call to Cox, Paulson conducts a typical schedule, but is in constant contact with Tim Geithner and White House aides. At the end of the day he meets with an assistant Chinese finance minister.

On March 12^th, which is the alleged date of the closed session of the House. This act was a rarity for the people’s house. According to the House of Representatives’ own historic record this was only the fourth time since 1830 that the House closed the floor allowing only its members and select aides to hear the debate.

The secretive discussion was said to be focused on clandestine monitoring efforts to combat terrorism. There’s other chatter that the debate was centered on a financial destruction based on the fall of Bear Stearns, which I believe was considered a fait accompli by Paulson already.

Before the markets opened on the 12^th the Plunge Protection Team had already met for 45 minutes. Paulson alerts the White House through Hennessey, who is the equivalent to Larry Summers in the Obama administration, and Joel Kaplan, Deputy Chief of Staff and Josh Bolton his boss.

He then has a White House Lunch with what’s described as attended by  “Economic Principals.” Paulson then has a call into Geithner, who could be the conduit to Wall Street on the anticipated House session.

Paulson is the in the Oval Office with the President for an hour, which is an extraordinary amount of time with the President judging from all the other meetings the Treasury Secretary’s schedule has listed as POTUS meetings.

Paulson ends his day with a call to White House Deputy press officer Tony Fratto and calls Sen. Harry Reid from his home.

Thursday, March 13 Paulson starts his day with a 6am call to the EU’s Trichet, which again is odd from the standpoint that Trichet is Bernanke’s peer not Paulson.

The next two hours are redacted so it’s difficult to decipher his moves. After his blackout Paulson continues his dialog with the White House through Kaplan, Bolton.

Paulson then has a 30-minute call with the President.

During the day Paulson had press interviews with CNBC, Washington Post and New York Times. None of these interviews uncovered any of the information cited here. However there is a call late in the day to Bill Keller, editor of the Times. Not sure if this was Paulson doing damage control to squelch any leaks.

Friday, March 14^th was the fateful day for Bear Stearns. Paulson begins the day with a 5:30am conference call with Geithner from his home. Although it is labeled as a conference call no other participants are listed.

Paulson then takes a call from the President at his home at 6:30am. Between this call and the market open Paulson speaks with White House aides three times, Geithner four times including a second conference call of the morning with no other participants listed again and SEC chief Cox.

Once the market opens Paulson raises the curtain on his M&A window and begins to call all of Wall St. In order: Ken Lewis, BofA; Bob Rubin, former Treasury Secretary, Citi director; Lehman’s Dick Fuld; Tim Geithner; Merrill’s John Thain; Goldman’s Lloyd Blankfein; Morgan’s John Mack and then after another Geithner call Paulson calls JPM’s Jamie Dimon.

Most likely he told Dimon no one on the Street or at the White House had the appetite to help Bear Stearns and that JPM had to go it alone with no backstop.

But the hits keep on coming that day.

After Dimon, Paulson speaks with Trichet of the EU and someone else who is redacted. He then spends an hour with Geithner before calling Dimon again. When he hangs up with Dimon, he takes a call from President Bush.

After Paulson hangs up with President Bush he then calls Geithner to work on a game plan before the both of them call Bear’s Alan Schwartz to break the news that Dimon and JPM were pulling the rug out from under him and that the administration was not going to bail out the firm.

Then we had the fire sale over the weekend to JPM and the rest is history.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com

Hank and Ben Went Up The Hill (part 1)

In the beginning of March of last year Treasury Secretary Hank Paulson and Ben Bernanke saw the wheels were coming off the economy.

The two scrambled to right the cratering Wall Street banks before Bear Stearns ever entered the headlines. Protestations from former Bear head Alan Schwartz that his firm was on solid ground until the rug was pulled out from under him seem to be backed up by Paulson’s meeting and phone schedule from that time.

On Tuesday, March 4th 2008 Paulson has breakfast with the President. Prior to that morning Paulson was not sitting at the President’s breakfast table much. As an aside, the are more redactions or blacked out blocks of times on Paulson schedule during this time period than any other time.

Later in the day following a call to NY Fed chief Tim Geithner and Bernanke there is an hour blacked out which is followed by a call to Geithner.

On the 5th, Paulson spoke with Sens. Chris Dodd and Richard Shelby the two ranking members of the Senate Finance panel and Rep. Barney Frank of the House Finance panel and Nancy Pelosi. Then lunch at the White House.

On March 6th a day before JPMorgan Chase offered a 28-day loan to Bear to stem the loss of confidence, Paulson is traveling to California takes a call from the Italian central banker Mario Draghi. Why is Paulson speaking to central bankers? That’s Bernanke’s job.

A key adviser to Paulson during this time was Bob Steel, former Goldman Sachs vice chairman under Paulson when he ran the shop.

Steel was appointed Under Secretary for Domestic Finance at  Treasury on October 10, 2006 and served until July 9, 2008.

Steel was the principal adviser to the secretary on matters of domestic finance and led the department’s activities regarding the U.S. financial system, fiscal policy and operations, governmental assets and liabilities, and related economic matters.

On the 7th Paulson called Steel at 4:30am (i assume that is local time in SF) and then Tim Geithner before calling Jamie Dimon JPM chief to sure up the Bear backstop?

Not sure a Treasury Secretary should be working on an MA desk at the same time.After Dimon he calls Lehman’s Dick Fuld but I don’t know why he would unless he was giving Lehman a heads up on its biggest competition in the bond market.

Big chunks of the day are redacted so its difficult to determine what else Hank was up to.

Over the weekend Paulson was at the Gridiron Dinner with someone who was redacted on Friday night and at the White House dinner Saturday night with someone who was also redacted.

Next post on Wednesday about the week Bear went down and the House held a rare closed session.
For more on Wall and Washington and the economy see: http://mgray12.wordpress.com

Scarier Nov. 2

Oct. 31 – Halloween – is a scary day but not because of the costumes or black cats. The 31st of October is the end of the fiscal year for the US government.

Once the fiscal year ends the books need to be produced and that’s what would make Nov. 2 even scarier, because that is the first day the stock and bond markets and dollar traders can react to the numbers.

As I write this the national debt stands at $12T  and a $1.29T budget deficit. I see the dollar hitting the low 73s on the dollar index in the week Nov.2 on this report.

Unfortunately with Fed chief Ben Bernanke, Treasury’s Tim Geithner and the plunge protection team in the markets there is no guarantee this mark will be hit.  But gold surging $20 could be attainable.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com

Derivative Death Star

Why is the dollar cratering? And why is the Obama administration so silent on this point?

Both of these can be answered by a report from the Office of the Comptroller of the Currency (OCC). According to the latest figures Wall Street banks are so hugely levered to interest rate swaps that if the dollar rises it will trigger the derivative death star.

According to the report these same banks are still hugely levered a year after the crisis.

• JPM $1.6T in assets $80T in derivative exposure, $51T in interest rate swaps.
• Goldman Sachs $0.1T in assets $40T in derivative exposure, $34T in interest rate swaps.
• BofA $1.4T in assets $39T in derivative exposure, $27T in interest rate swaps.
• Citi $1.1T in assets $32T in derivative exposure, $17T in interest rate swaps.

How can this still exist after all the talk of ramping down risk/

It’s simple, the banks have the backing of Uncle Sam to bet against the greenback to rebuild their balance sheets.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com

Hank(y) Panky

I was able to access Former Treasury Secretary Hank Paulson’s phone records while holding office. My colleague John Crudele gave me access to the data and has written extensively on Paulson’s actions during the Lehman collapse.

It seems the secretary is very chatty with “market participants” during the Lehman Bros. turmoil and ultimate collapse.   “Market participants” as defined by Paulson involved Lloyd Blankfein of Goldman, John Mack of Morgan and Jamie Dimon of JPMorgan.

If you recall last September, Washington was calling the shots during the market meltdown so it would stand to reason that Paulson was quarterbacking the financial team, yet he appears to be tipping off the defense (Wall Street) before the snap.

Google “John Crudele” to read his columns with all the details.

I scrutinized the events around the demise of Bear Stearns the previous March. To recap on March 7th 2008, Bear was suffering a liquidity drain. The Street was calling in all chits and not issuing new ones. Trading partners were pulling out of deals and the Bear trading desk was imploding.

Paulson is on the left coast in Palo Alto, CA. Paulson’s first call on that morning at 4:40am (I assume local time) is to Bob Steel former Goldman Vice Chairman with Paulson and soon to be heading up Wachovia. Steel like Paulson and Bob Rubin before them doing their time in DC to feed information back to  the mothership. He then calls Tim Geithner at the NY Fed, then JPMorgan’s Jamie Dimon and Lehman’s Dick Fuld.

I can’t be sure if the decision for Dimon’s JPMorgan to backstop Bear’s trades was made as yet, but he spoke with Steel two more times that day to see how the Bear backstop was going.

It seems curious to me for the Treasury Secretary to be contacting competitors to Bear Stearns when the firm is floundering, unless Hank was running an M&A desk out of Treasury.

More on the Bear Take down in the next post.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com

Talking Up & Down The Dollar

With all the talk of dollar’s demise as the globe’s reserve currency you would think it would devalue its worth against other currencies.

You would also think that if the dollar is falling due to its trashing by the IMF chief and the World Bank, treasuries and other US notes would sky-rocket on the yield curve.

Yet all the talk I cited above of a cratering dollar is true, but none of the consequences have come to pass. It’s all very curious to me.

The greenback as measured on the Dollar index against a basket of other currencies is at a week high. And gold is off some six dollars since the shorts took out the $1,000 an ounce mark on last Thurs. monthly expiration.

I know this may come as a shock to some, but there are forces within the markets that are skewing the responses to such news from week to week.

At one point during the week the dollar is falling and gold and stocks rise, then they don’t without any news to dislocate the trend from continuing.

Record offering on Uncle Sam’s debt has only driven the yield lower on the ten-year even though participation is dwindling.

Just to be safe, we have Bill Gross from Pimco saying he is a buyer of long notes to hedge deflation to reinforce the mirage.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com

Dead Zone

By MICHAEL GRAY

Despite what Ben Bernanke may say about the recession coming to a close, recent events say differently to me.

When three murders/suicides occur in one week to well-connected money men, things may be more rotten in Denmark than the statement by King Ben.

Finn M.W. Caspersen, 67, former chief executive of the financial services firm Beneficial Corp. and James S. McDonald, 56, the CEO of money-management firm Rockefeller & Co., both committed suicide this past week in lower New England.

Add to this the death of California hedge-fund manager Danny Pang and I am starting to see a trend.

Now I’m not comparing Pang to the first two gentleman mentioned. Pang had a shady history — not only in investment circles  for running a Ponzi scheme — but with law enforcement over the mysterious death of his wife, where he evoked 5th amendment privileges.

Caspersen and McDonald were lions in the financial industry with plenty of board seats between them. For these two men to take their lives seems to belie something more sinister than poor mental health.

No apparent link appears in my first look into the two men except that they both share seperate board seats with Alan S MacDonald, Vice Chairman of Citibank.  But these men ran in the same powerbroker pack, with tenicles on Wall St, Washington and Albany and Trenton.

Check back for more details as they become available.

More to come.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com

Dollar Daze, Again

By MICHAEL GRAY

Fed Chief Ben Bernanke and Treasury boss Tim Geithner tried their best this week to buoy the greenback, but to no avail.

As the dollar lost 2 percent on the Dollar Index  this week, despite Geithner’s CNBC roadshow, which did nothing to stop the slide. The index on Friday touched 76.457, the lowest level since Sept. 25, 2008, which was after the BofA/ Merrill Lynch shotgun marriage was announced.

The only event to stem the slide was the erroneous CNN report that US Coast Guardsmen had fired on a vessel in the Potomac, when in fact the Coast Guard was conducting a drill.

The dollar cratering last week comes on news from China that the communist party leaders have told the state-owned companies that they no long have to abide by derivative contracts taken out as a hedge on commodities.

This action, while largely ignored by media, has huge repercussions in the pits of Chicago and New York. The Chinese government is telling its comrades that the contracts are null-and-void if fraud is behind the deal.

ALMOST ARMAGEDDON

Monday marks the year anniversary of my story which broke the news of how Lehman’s bankruptcy cause a seizure in the credit markets and almost brought the markets to its knees.  The Wall Street Journal and New York Times were days away from getting a handle on the story.

Boy, am I winded from taking that victory lap. I need a drink.

Gold’s Push & Pull

By MICHAEL GRAY

Global economies are about to move to next phase of the meltdown.

The Trading Bubble that has run the markets up since March is smacking up against the fear trade. Equities moving up on a weakening dollar is not a long-term investment. With the dollar index heading toward 75 stocks will need to move lower on inflation fears.

Gold and Treasury yields have been creeping up in the last two weeks, which shows that despite announcements to the contrary, equities are about to fall through the 900s on the S&P in the next two weeks.

Today market analysis is very difficult especially when you have Uncle Sam as the 800-lbs. gorilla in the pits. Government intervention –– whether directly or through market participants –– within multiple markets simultaneously, has disrupted traditional barometers, which would tell investors which way is down.

Propaganda within published gold price stories stating that the rise is based on doomsday evangelists buying the metal to be prepared for Armageddon could not be further from the truth. Hedge funds and private equity funds are large players in the gold market.

But if the stories stated that “smart money” was in the market, the feds fear a run on gold and the knowledge that the Chicago pits could not fulfill the orders for delivery.

You must be nimble with your investments in the near future with gold and silver as an excellent hedge. And if you are a gold investor than you must be in the silver market as well. Think of it this way if gold is $1,200 and ounce, silver will move from $15 an ounce to $25. Gold and silver move in lock step.

But watch out for unexplained pullbacks. These moves have very little to do with market fundamentals.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com

BofA’s Protection Money

By MICHAEL GRAY

Very interesting how Bank of America has come out to say how it MAY pay back a portion of the funds given to it to complete the Merrill Lynch deal at the end of last year.

Chief Ken Lewis had no word on when or if the bank could payback its initial $45 billion in TARP funds. The $20 billion in Merrill money pushed BofA into a higher level of scrutiny from Uncle Sam, which meant bonuses were under the control of Pay Czar Feinberg.

In addition to the $65 billion the feds stepped to backstop $120 billion in bad paper from the Merrill deal, which BofA was only on the hook for the first $ 10 billion.

So Benny the Hook is putting the screws to Lewis to start paying the vig on this protection. Bernanke is looking for as much as $500 million in payments.

This is not money that would go back to the public; this is cash going to the private bankers, who make up the Federal Reserve. The taxpayers are still on the hook for the $65 billion and whatever losses come from the bad BofA/Merrill paper.

So, before the end of the year – near bonus season – BofA will find a way out from under the government’s thumb, perhaps and pay Benny the Hook his protection money.

Mark to ’Morrow

A brief reminder to all those news outlets running specials on the year anniversary of Lehman Bros’ demise, when do you think we will hear for the Securities and Exchange Commission on moving back to the mark-to-market accounting of toxic paper?

All of that paper is still rotting on bank balance sheets inside a concrete bunker call mark-to-model. My guess is that most of the paper has a half-life of 30 years and if you ignore it long enough it will dissipate into the void of accounting’s black hole.

I don’t think the feds will push for a change anytime soon.

For more on Wall and Washington and the economy see: http://mgray12.wordpress.com