Wells Fargo Quarterly Results Boost the Dow 247 points to 8038!

The Obama Spring rally found a second wind today thanks to a Wells Fargo earnings report that benefited the big financial stocks. With the spring rally is now in its fifth straight week, even the Financial Times front-paged President Obama talking about "glimmers of hope." Yet I wondered: how could Wells Fargo, in this terrible economy, announce a record high quarterly profit of $3 billion? By borrowing at zero per cent and doling out refi's at five? That's a ton of refi's. I didn't get it. Then I stumbled on this post by a guy I don't know - well, he's a goldbug - who knows more about finance than I do and puts questions I'd like to see put to Fargo's Howard Atkins (minus the vitriol):

DaveInDenver said:
This is beyond belief. Wells Fargo's 1st quarter profit forecast goes way beyond any fairy tale ever written in history. Here's what they say: Chief Financial Officer Howard Atkins says the results "reflected strength in our traditional banking businesses, strong capital markets activities, and exceptionally strong mortgage banking results." Mr. Atkins, you are an outright liar and fraud.

Hmmm..."strength in traditional banking?" Who is borrowing that money and making their interest and principal payments on time? Has there been a bunch of businesses started no one is aware of yet? Are existing businesses expanding? You've got to be kidding me.

"strong capital markets activities." Where is this revenue coming from? Any big equity IPO's during Q1 that we missed? Corporate debt issuance was occurring, but at a very low rate and Wells Fargo is not a real player in that business. Mortgage securitizaton? I'm not aware of any. Please explain to me, Mr. Atkins, the source of your "strong capital markets acitivities."

"exceptionally strong mortgage banking results." This one is the most puzzling and troubling to me. We know, with hard data and facts, that home sales and mortgage issuance is plummeting every day. Where are the revenues coming from in this area? Mr. Marks goes on to cite that WFC's acquisition of Wachovia boosted their results. How on Earth can this be? Wachovia's balance sheet is mostly the kinds of subprime mortgage assets that are melting down to zero.

The only possible source of extraordinary revenues I can think of for WFC during Q1 would have been WFC's use of the massive amount of Treasury and Fed money extended to banks at little or no cost and being put to work in Treasury bonds and WFC earning the positive interest carry.

In fact, we know from hard data released every week that the very business activities that Wells says are creating massive profits are, in fact, melting down quickly in every corner of the U.S. and global economy.

For WFC to come out and make those claims is beyond fairy tale - it's outright fraud. And lest we forget, the beloved Warren Buffet owns over 10% of WFC, and thus de facto is standing behind this massive fraud. George Orwell is laughing uncontrollably in his grave now.

Thanks, Dave. Is anyone asking these questions? Is Fargo answering them? Here's one answer:

Wells Fargo’s revenue was boosted by its mortgage banking operations, as the company received about $190 billion in mortgage applications, a 64 percent jump from the fourth quarter. Roughly $83 billion of that volume came in March, when announced governmental programming sent interest rates tumbling. The majority of that was refinance applications with roughly 25 percent coming from home purchases.

And here's another:

Wells Fargo attributed the strong results to healthy lending margins driven by lower interest rates, fewer additional costs related to its purchase of Wachovia and a boom in mortgage activity.

Do these accounts satisfy anyone?

BTW, George Orwell's essay on Politics and the English Language is as timely today as when he wrote it in 1946. Dave may be thinking of Orwell's warning against the "invasion of one's mind by ready-made phrases (lay the foundations, achieve a radical transformation)" that "anaesthetize a portion of one's brain."

DaveInDenver was responding to Henry Blodget's article about why Dylan Ratigan left CNBC. Ratigan, the able host of CNBC's hot "Fast Money" show, says he left because

When you're dealing with systemic policy failures that have rendered a catastrophe the likes of which we've really never seen, the role of journalism is to ask questions of money and power from the broadest possible platform.

Ratigan has anti-fans who doubt his credentials as a journalist - see the other responses to Blodget's article - but for months he has been targeting bailouts that seemingly pick the pockets of taxpayers to benefit big bankers. This alone doesn't make him golden in my book, but I look forward to seeing what he does next.

Larry Summers: Maximizing Wealth with "One of the "Greatest Minds of the Past 500 Years"

Of the past 500 years? Really? Maximizing wealth? Whose? We'll get to all that. But first, will someone kindly send me something about Larry Summers that shows him in a better light than this godawful tedious CNBC clip of him fielding soft grounders about the economy before the Economic Club (of New York, I think) on 4/9. It SO reminds me of my undergrad days at Harvard in the 1960's and the smoke and mirrors political discussions that routinely marginalized outsider views as "generating more heat than light". (Anyone else remember this phrase?) This cozy CNBC clip suggests that the old boys' network is still in fine working order today, its nexus having merely migrated northwards to Cambridge from New Haven, from whence an unbroken string of Yale graduates (Bush/Clinton/Bush) had occupied the White House for an unprecedented 20 years. (My take on the historic "Yale succession" of U.S. Presidents is here, here, here and here.)

Well, I'm getting carried away. But seriously: are video clips like this one the best that CNBC - and Summers himself - can give the American people at this critical juncture in our history?

Well I gotta rant a bit more. Just listen to the long-winded introduction (suckup?) that consumes the first two minutes of this nine-minute clip, including the moderator's paean to Summer's astounding skills as a tennis player - "his greatest talent," says the host, confessing his own need for professional training in order to beat Summers - "barely" - on a doubles court. Please. This idle talk only assures Summers that he is among friends and will not be asked any hard questions (say, about bank solvency or bank spending of government bailout money). And the warm audience response to his not-so-witty dismissal of any claim to certainty in the making of economic forecasts confirms that none are expected. I decided to scout the web a bit on this man, focusing on his ties to Wall Street. It didn't take to find a couple interesting items:

• At Econospeak (via Naked Capitalism) I found this glowing account of Summers' "stadium rock concert" and "performance art" presentation last year to Goldman Sachs. Smoke and Mirrors? For sure, it was patently a magic show. Genius? One of the greatest minds of the past 500 years? That was the take of one Monique, a Goldman employee who says “It was his entertainment that opened me up and made me receptive, but the economic vision was irreplaceable. I thought I was maximizing wealth before I heard Larry, but I didn’t know the half of it.” Maximizing wealth, huh? Whose? (4/4)


• Well, consider this. The New York Times reports that "Lawrence H. Summers, the top economic adviser to President Obama, earned more than $5 million last year from the hedge fund D. E. Shaw and collected $2.7 million in speaking fees from Wall Street companies that received government bailout money, the White House disclosed Friday in releasing financial information about top officials." OK, so Summers, as Treasury Secretary, isn't pulling in the big bucks from Wall Street. But whose wealth he is maximizing? And who is benefitting from his great wisdom? So far, it's still going to Wall Street while the Americian people, on CNBS, get jargon. (4/3)

OK already, enough ranting. Here's a challenge, stemming from the 2nd sentence of the 2nd paragraph of the New York Times' brief bio of Larry Summers, which celebrates his "deep understanding of global economic issues, at a time when the American mortgage crisis has leaped borders to become a worldwide contagion." Whoah, hold it. Can anyone show that Summers had any prior understanding of this crisis before it hit full force in 2008? What was one the greatest minds of the past 500 years saying about it in 2006 and 2007?

CNBC's Rick Santelli Fires off on the Solvency/Liquidity Issue

A good moment yesterday morning for the Great Santelli on CNBC's Squawkbox. Here it is. At 1:40 of the segment, which opens with Carl Quintanilla interviewing Umrai Gill, Santelli waves a paper and says he wants to take note of a recent white paper written by Harvard and Princeton economists Joshua Coval, Jakub Jurek and Erik Stafford. The conclusion he reads, however, is not from the Coval/Jurek/Stafford paper. It's from an article about the paper by John Carney of Business Insider. Carney writes (and Rick reads, revising the last sentence):

In short, the government cannot save the banks by improving liquidity or changing mark to market rules because the problem isn't illiquidity or accounting. The problem is that highly leveraged financial firms own assets that are worth far less than they thought they would be, and the firms are insolvent as a result. This is why the latest bailout plans secretly give huge subsidies to banks--because the only way to keep the insolvent zombies afloat is to transfer billions of dollars to banks, bank stockholders, and bank creditors.

This caught my attention. Umrai Gill's rejoinder to Santelli did too.

CNBC Highlights London Public Protests

It sure isn't civic media - it's not giving the public anything like a direct and informed voice in defining and solving the world's financial woes - but CNBC videos are giving the public a powerful voice of sorts as the G20 summit prepares to open in London. We'll be seeing these videos all day long. We haven't seen videos like this since the 1999 WTO Protests in Seattle. These protests has a positive outcome: they helped empower underdeveloped nations worldwide to find alternatives to the counterproductive programs of the International Monetary Fund. On the other hand, these videos can backfire. Recall network TV coverage of the 1968 Democratic National Convention riots in Chicago and the resulting voter backlash against the "hippy" student protesters. This backlash plucked the presidency from the grasp of Hubert Humphrey and handed it to Richard Nixon. Recall also the riots in 110 American cities following the assassination of Rev. King.

Are street protests the best or only way for Americans to let off steam or outrage? Why aren't American media doing a better job of helping the American people think as a nation? That's what a true civic media can do.

"Bailing the Ailing" - Nasdaq's Bailout Index

Found this revealing chart (and article) not in any American financial medium but in the London Economist. I wonder why. Is it too scary for CNBC, where a search for "Nasdaq bailout index" yields nothing? It sure isn't pretty, and won't help narrow the gap between supporters and opponents of the U.S. government's stimulus/bailout programs.

Sadly, America at the moment is so caught up in this debate that it can't hear the world's urgent calls for American leadership to resolve the global crisis. Any doubts on this? Read Martin Wolf. In a March 5, the New York Times editorializes that

The economic news is so frighteningly bad here, it has all but squeezed out reports of the turmoil wrecking the developing world. The news there, if possible, is even more frightening.

Not auspicious. The other day a CNBC guest said it would be calamitous for the US to lose both its triple A credit rating and the U.S. dollar's status as the global reserve currency. I thought he had his head in the sand. And again, I wondered. Would it be impossible for the US to retain its AAA credit rating while working with other nations to develop a new global reserve currency? The idea would be for the U.S. a) to pay a fair penalty for U.S. government miscalculations and Wall Street misdeeds in causing the crisis and b) to help itself and the world weather the storm of hyperinflation that seems likely to result from the trillions of dollars spent on government bailouts and stimuli.

Just a thought. But if a contestant on my (imagined) financial crisis reality TV show were to advance such a position, I would likely vote for him, at least until someone pulled the wool off my eyes. Nouriel Rubini might do so - he said several months ago that the dollar is likely to remain the world's global reserve currency "for the forseeable future." (Am looking for the link).

Steve Randy Waldman on the Link between the Financial Crisis and Open Democracy

Over the weekend I came up an idea as to how civic media can help resolve the worsening global financial crisis. A format idea. I mulled it over and now it's a bud about to bloom. And today along comes Steve Randy Waldman with a post that fertilizes it:

I've just listened to NPR's recent interview of Timothy Geithner. Adam Davidson did a great job of trying to get answers from Mr. Geithner. I felt sorry, at a personal level, for our Treasury Secretary, a very smart man imprisoned in a series of talking points, desperately afraid of the consequences of holding an honest conversation.

As an aside, we've come to take it for granted that policymakers ought to be circumspect for fear of provoking traumatic moves in the markets. But isn't that dumb? Markets are supposed to be about aggregating and revealing information. In what sense is it "more responsible" to hide information or ideas so that markets do not move on them? And if markets do misbehave so wildly that public officials can no longer afford to be candid because of market consequences, does that suggest an incompatibility between the kind of financial markets we have and open democracy? [my italics]

Waldman has the respect of other finance bloggers. And my format idea addresses the incompatibility he speaks of. Here it is. It's a windfall for CNBC, if they have the wits to run with it. Just remember where you saw it first. Alternatively, it can be done on the Internet. Anyone want to make it happen?

Imagine an American Idol-type reality TV contest of from eight to as many as sixteen rival solutions, presented by small groups of from one to four individuals competing for the prize of Best Solution to the Global Financial Crisis. Imagine this contest aired over a period of weeks or months primetime evenings on CNBC. Half the contestants might come from CNBC's existing on-air team and half from elsewhere and indeed anywhere: they could be finance writers and bloggers, Bloomberg reporters, financial institutions, universities here and abroad, and Vii's (Very intelligent individuals) with few credentials but great ideas.

Now imagine an on-air selection process, open to anyone, that winnows down hundreds of aspiring contestants to a field of eight or sixteen finalists, as happens in the first phase of American Idol. Finally, imagine the finalists advancing their solutions by interviewing anyone and everyone connected with the financial crisis, including even, conceivably, Timothy Geithner. Who could judge the contest? Who would govern it? How would contestants be selected? How would the government be involved at local, state and national levels? How would winners be rewarded? I have answers for questions these and other questions.

Read the rest of Steve Waldman's post - he would be one terrific contestant for this show.

Storm Hits Agin!

Jan. 23, 2009. 6am. Dow futures are below 8,000 at the moment and even as the CNBC gang all but begs for an Obama honeymoon rally, I myself see the Dow heading south to test its November lows of 7,400.

This week America (and the world) celebrated the inauguration of a promising new president. But the economic news was not good, for the world was sliding into the second (economic) phase of the global economic contraction whose first (credit) phase hit with gale force last summer. This time, the dangers at home included rising unemployment, consumer spending declines and a still-weakening housing market (not to mention Citigroup, Merrill Lynch and Bank of America). And abroad, they included the Chinese contraction and confirmed recessions in many countries.

Two news items for our times: The Bank of England's historic rate cut to 1.5%, lowest since its founding in 1694. And the Moody's cut of its rating of The York Times to junk status.

LESS SHOCKING

It's worth noting that Phase II, while painful, will if nothing else be less shocking than Phase I. Thanks to the miracle of modern communications technologies, our heads are at long last out of the sand. The years of ostrich denial are done. "That we are in the midst of crisis is now well understood." That was President Obama in his inauguration speech.

Well put. And important to be said. Yet not saying much! Where do we go from here? What are we learning that will help us down the road? As time permits, I'll post links to interesting responses and solutions to the crisis. Some (Wolf, Whitney, Roubini [register], Friedman) will be variations of the $800 billion Obama stimulus plan that's now taking shape in Congress. Others (Morris, Whitney) will be strategies for cleaning up the nation's broken banking system (New York Times "Room for Debate" ). And others (Farmer, The Economist) will focus on the global crisis. Still others will argue that the best course of action is no action. There are lots of good ideas out there, often in conflict, as ideas should be.

CONSCIOUSNESS. CONSENSUS. CITIZENSHIP.

Clearly the world is far from reaching anything like consensus on a way out of the crisis. And solutions pile up so fast that even keeping up with them is a full time job for several people. What's more, the solutions being implemented are coming from the small circle of experts and central planners who for the most part failed to see the crisis coming. Ordinary citizens are voiceless when it comes to generating solutions or weighing the pros and cons of solutions advanced by experts and political leaders. Yet President Obama keeps saying that America will not able to renew itself until Americans are fully engaged in the process of renewal. Here's where civic media comes in, and we are far from having an effective one at this point.

Meanwhile, the crisis seems to worsen faster than anyone can keep up with it. It has the feel of a black hole. Or of a maelstrom, the massive deep-sea whirlpool caused by tidal shifts described by Edgar Allen Poe in his Decent to the Maelstrom, a short story about a Nordic sailor who survives one by staying cool and observing, looking for way to escape. When his brother perishes by lashing himself to the mast of the sinking ship, he escapes and survives by grasping a rising empty barrel. The story was an inspiration to Marshall McCluhan - the Canadian media prophet who first spoke of a global village - and to his biographer, W. Terrence Gordon, who chose the perfect title for his book: Escape into Understanding.

Out of the Crisis, by the way, was the magnum opus of W. Edwards Deming, the American systems engineer whose philosophy of continuous improvement based on listening to and learning from employees is widely credited with bringing Japanese industry from the ruins of World War II to global preeminence in the 1990's.

Looking for an escape. Listening to employees. Listening to citizens. Listening to ourselves and others. Deming, like McLuhan, makes great good sense to me. And I'm no engineer. Once a TV interviewer asked him what one thing he would do to improve American education. "Abolish grades!" was his immediate, blunt response. His questioner about fell off her chair. "Why?" she asked, stunned. "Because grades destroy the two qualities most necessary for productive work: co-operation and creativity." He laid down the hammer. As an educator, I couldn't agree more. These qualities, along with competence, are what the world needs now.

OUT OF THE CRISIS: FROM AN ECONOMY OF QUANTITY TO AN ECONOMY OF QUANTITY AND QUALITY?

Some economists are now speaking of reinventing the economy. Will the day come the economy is no longer seen as a matter of rising or falling GDP, of material wealth-generating productivity affecting many citizens but excluding many others? Has this ingrown, ideologically-tainted notion not utterly and recently failed us? New data-gathering technologies and the dawning Obama era make it possible for economists to generate much more comprehensive ways of measuring the current and future health of the vast networks of human survival and enrichment activities that constitute the economy.

It will soon be possible to measure the health of the economy using both traditional metrics of material quantity and new metrics of non-material quality of life. Take the concept of consumer confidence , which measures how all citizens feel about spending money. As such, it is a qualitative measurement of a quantitative aspect of the economy and, as such, as a forerunner of more comprehensive ways of assessing economic health. Behavioral economists are on this track, and for my money it leads to an economics informed by measurements of citizen satisfaction with every aspect of work and life that really matters.

OK, so all this sounds like a pipedream - like John Lennon singing "Imagine". Yet I wonder if the world hasn't reached a point where it simply can't get by - "muddle on through" as folks used to say - with anything less. The storm that's hit us is NOT an act of God or an event of nature: it's entirely man-made. Is it a life-and-death maelstrom of the kind that Poe wrote about? If so, we - the human race - will survive it only by learning from it. Not just some of us, but all of us.