Why the Banks Are So Eager to Pay Back TARP Money

Yesterday, Treasury Secretary Geithner sparked a market rally by saying  that the banks are in fine shape, and the “stress test” will prove that.  And Citigroup CEO Vikram Pandit says that the company plan to repay every dollar of TARP funds with interest.

Yeah, it seems you can’t walk down Wall Street without tripping over a banker who’s rushing to say the TARP loan will be repaid early.  Wasn’t it just a couple months ago that these companies were on death’s door?  What gives?

I’ll tell you what gives. There are very few strings attached to the TARP money, but one string that really rankles the bankers is that there might actually be lids on compensation for companies that are feeding from the public trough.

That’s hitting these guys where they live — it’s all about making the big bucks for them.  So they will do ANYTHING to make sure they get back to the happy place where they can pull in humongous paychecks without government oversight.

Meanwhile, there are about 20 criminal fraud  investigations underway related to the TARP.

Finally, here’s some news that’s being ignored on the TV …

Foreign bond holders, like the government of China, have reportedly told the Obama Administration that further losses to debt holders of US banks will result in a boycott of US Treasury auctions.

IN OTHER NEWS

IMF Says Global Losses From Credit Crisis May Hit $4.1

Worldwide losses tied to rotten loans and securitized assets may reach $4.1 trillion by the end of 2010 as the recession and credit crisis exact a higher toll on financial institutions, the International Monetary Fund said.

Banks will shoulder about 61 percent of the writedowns, with insurers, pension funds and other nonbanks assuming the rest … The fund projected losses of $2.7 trillion at U.S. financial institutions, an increase from its estimates of $2.2 trillion in
January and $1.4 trillion in October.

The $4.1 trillion estimate is the first by the IMF to include loans and securities originating in Europe and Japan. …

The report said U.S. bank losses at the end last year totaled $510 billion. Additional writedowns of $550 billion are expected through 2010. The projections exclude government-sponsored enterprises.

XX Sean’s note:  You can download the entire 237-page PDF here.

Mexico’s Pemex Forecasts Daily Oil Output Decline Next Year

Oil output at Mexico’s state-owned firm Pemex is expected to fall to about 2.6 million barrels per day in 2010 from an expected 2.7 million bpd in 2009 due to technical disruptions at its main oil field, Chief Operating Officer Raul Livas said in an interview on Thursday.

12 Major Brands That Will Disappear

As the recession deepens and stretches out quarter after quarter, more companies will close or will shut divisions. More brands will disappear because their parents firms fold or can no longer afford to support them. Other brands will be obliterated by mergers.

 When Did Your County’s Jobs Disappear?

This link leads to an amazing interactive map from Slate showing U.S. job losses over the last two years by region.

Stiglitz Says Ties to Wall Street Doom Bank Rescue

The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.

“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.”

Nouriel Roubini:  You’re Not Gloomy Enough on the Economy

… stock markets have started to rally in the US and around the world. Markets seem to believe that there is light at the end of the tunnel for the economy and for the battered profits of corporations and financial firms.

This consensus optimism is, I believe, not supported by the facts. Indeed, I expect that while the rate of US contraction will slow from -6 per cent in the last two quarters, US growth will still be negative (around -1.5 to -2 per cent) in the second half of the year (compared to the bullish consensus of +2 per cent).

Moreover, growth next year will be so weak (0.5 to 1 per cent, as opposed to the consensus of 2 per cent or more) and unemployment so high (above 10 per cent) that it will still feel like a recession.

Economists usually joke that the stock market has predicted 12 out of the last nine recessions, as markets often fall sharply without an ensuing recession.  But, in the last two years, the stock market has predicted six out of the last zero economic recoveries — that is, six bear market rallies that eventually fizzled and led to new lows.

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