I felt it coming last week – a wave of positive stories about US banks doing better, with the icing on the cake arriving today with news of Citigroup’s record quarter. The markets have soared and gold has plunged.
I’m not the only one who sees this as a classic sucker’s rally. The Times’ smartest columnist looks at the breaking news and sees irrational exuberance aplenty.
Wells Fargo, for example, announced its best quarterly earnings ever. But a bank’s reported earnings aren’t a hard number, like sales; for example, they depend a lot on the amount the bank sets aside to cover expected future losses on its loans. And some analysts expressed considerable doubt about Wells Fargo’s assumptions, as well as other accounting issues.
Meanwhile, Goldman Sachs announced a huge jump in profits from fourth-quarter 2008 to first-quarter 2009. But as analysts quickly noticed, Goldman changed its definition of “quarter” (in response to a change in its legal status), so that — I kid you not — the month of December, which happened to be a bad one for the bank, disappeared from this comparison.
I don’t want to go overboard here. Maybe the banks really have swung from deep losses to hefty profits in record time. But skepticism comes naturally in this age of Madoff.
Read the Krugman piece to see why the most that can be said at the moment is that things have been deteriorating a little less dramatically than in previous months. The economy is worse, not better, and all those factory closings and bankruptcies and high unemployment rolls are still looming. This holds for China too, where the propaganda wave insisting that China is back and has emerged from the crisis unscathed, if not stronger than ever, is deafening. The shock waves of GM disintegrating, along with a number of malls and real estate companies, have yet to hit. And again, we see parallel situation in China.
It seems that thinking happy thoughts can actually convince people we’re okay. I wish we were so I wouldn’t have to worry about my family and my mortgage. But I have to think we’re still at the beginning, not the end. We’ve still got two wars to fight on top of all our other miseries, and in case no one’s noticing, another looming hotspot is now a tinderbox that will almost inevitably suck us in.
Thinking happy thoughts is made possible by obfuscation of information. Behind the propaganda wave is a treasure trove of information the powers that be do not want you or me to know. It would spoil all the fun.
U.S. taxpayers need to know the risks behind the Federal Reserve’s $2 trillion in lending to financial institutions because the public is now an “involuntary investor” in the nation’s banks, according to a court filing by Bloomberg LP.
The Fed refuses to name the borrowers, the amounts of loans or assets banks put up as collateral under 11 programs, arguing that doing so might set off a run by depositors and unsettle shareholders. Bloomberg, the New York-based company majority- owned by Mayor Michael Bloomberg, sued Nov. 7 under the Freedom of Information Act on behalf of its Bloomberg News unit. It made the new filing yesterday.
“The Board’s arguments are based on wispy speculation, lack evidentiary support and are contradicted by economic theory,” said Thomas Golden and Jared Cohen, lawyers with New York-based Willkie Farr & Gallagher LLP, in a motion asking the judge to require disclosure.
“These government actions, which have been shrouded in secrecy, are at the heart of Bloomberg’s FOIA requests,” the attorneys said.
Why the shroud of secrecy, the omerta among the boys behind the curtain? It’s pretty obvious to me: they know if we know what they know there will be a stampede out of the dollar like we’ve never seen before. If you choose only to look at the warm and fuzzy reports the banks are putting out to make things look happy you’re only fooling yourself.
I think this will go on for a couple more months, maybe even through the summer. But as the reports come in from the big companies revealing a devastating recession that is only getting worse, the floodgates will have to open and hell will have to break loose. China may escape some of that because they can control information better and keep propping things up with more cash. But it’s got to get uglier for both of us. Domestic consumption is not going to save China. The bottom line is, too many Chinese consumers are simply too poor.
So as we enter a phase of increased optimism and hope, I am gloomier than ever. In case you’re feeling a deluge of optimism, please start reading this guy on a regular basis. He’s saying what I’m saying, only better.
Richard Burger is the author of Behind the Red Door: Sex in China, an exploration of China's sexual revolution and its clash with traditional Chinese values.