Friday, April 10, 2009

Why Wells Fargo Pre announced( or how I decided to stop worrying and love Wells Fargo's immitation of Lehman Brothers)

In light of all that is happening with the ongoing slow motion economic train wreck that our world is experiencing today, it is time to retro-fit this blog to move away from what amounts to metaphysical musings to some, self righteous pulpit bully talk to others and gibberish to the rest and get down to the nitty gritty that many people are waking up to:

The complete shamipulation that Wall Street is and always has been and why it is now more dangerous than ever since we, the tax paying public, are bailing out these swine striped suites while they continue to plot their plundering of our pockets out of their corner suites.

Here is my reasoning as to why Wells Fargo "pre-announced" record earnings:

Wells Fargo was one of the biggest Rohm & Haas shareholders before R&H was bought out for a 50% premium allowing WFC to book a 1.5 Billion profit on their books for Q1 when the all cash buyout of R&H closed.

(credit goes to WFC Yahoo financial message board poster "impartialanalyst" for being early to alert people to this sham rather than having to wait until a hedge fund manager loaded up short to the gills and announced this little unmentioned fact. He also profited from it by being long solely for this reason which paid off handsomely for him and others who paid attention, something that is sorely lacking in today's attention span deficit disorder that is our world.

Pre-announcing a record "profit" allows them the luxury not to show where the profit came from for a couple of weeks: Enough time for their trading arm to have bought enough of their own stock and calls and written puts for them to make a quick buck along with the rest of their fellow Wall Street cronies and dump them on an uninformed public greedy for a recovery.(Similar to front running trading of Fed meeting minutes for 3 weeks by Fed member banks before releasing them for public consumption)

This is the same thing that Lehman Brothers did in March of 2008 in pre-announcing their earnings except very few remember the past and even fewer report the similarities.

Last year, gloom and doom was expected for Lehman right after Bear Stearns collapsed so what Lehman did was pre announce earnings that crushed all analyst estimates and caused their stock to go up from $31 to $46 in one day after it had fallen as low as $22 the day before.

That day is firmly entrenched in my mind( March 18th 2008) since it was the day I was punished for correctly betting against Lehman's insolvency but being too early while waiting for Lehman's lies to be uncovered.

Only later would we find out( due to whistle blowing short seller Bill Ackerman's
investigation into Lehman's seemingly glowing profit numbers) that it was all a sham and had nothing to do with their underlying financial condition since they wrote off too little, claimed the non performance of their written off debt as profit and added to it by claiming profit due to the "revaluation" of a stake they owned in an Indian Power company.

The only difference here is that Wells Fargo got lucky and was able to actually record this on their books so it's not an exact comparison in regards to this windfall.

They are guilty of under reporting their level 3 loss provisions just like Lehman Brothers was last year before the exposure of their lies triggered their collapse.

Which leads us back to this blurb from Mr Mortgage from last year:

According to Mr Mortgage(who predicted the collapse of many of the no longer in business entities such as Lehman and Wamu via his reporting of their massive levels of toxic mortgage debt) Wells Fargo has as much as 80 Billion in worthless 2nd lien mortgages on underwater assets.

Reporting a 3 billion profit made up of 50% in non recurring trading windfall on a bought out stock is not a sustainable core business since there are not too many businesses that are being sold at a premium today that can cause Wells Fargo to continue to hit the Jackpot.

Which gets us back to the shameful lack of reporting of this issue by any members of the media or any of the analysts or even hedge fund short sellers.

The Silence is deafening and I guess it will continue to be that way unless I wake up tomorrow as a member of the media.

It was only earlier this week that Analyst Michael Mayo stated that the banks have only written down their loan losses by only 2%.

I am not prepared to go that far and I shudder at the thought since I am about to make the following proclamation:

I believe that the total bailout money needed for these banks to get back to even Steven and close up shop at zero debt is between 11 and 12 Trillion dollars.

Here is my thesis in a nutshell: It's safe to say that these institutions got levered to an average of 30-1 in now toxic assets. A conservative estimate of 30% write downs on these toxic assets leave the banks worthless to the tune of around 10-1 and since the aggregate market cap of these financial institutions is around 1.5 Trillion, they actually need ten times that number to be worth zero.

Symmetry would seem to suggest that Wells Fargo will be the next bank to go under this year since they are the first bank to revert to Lehman style tactics(full disclosure: as of this writing I have no actual stake long, short nor options in Wells Fargo although continued blind leading the blind irrational exuberant myopia may lead me to change my mind and put my money where my mouth is)

The Question that I will ask of my fellow tax paying citizens: Are we prepared to destroy not only our long term future but our immediate future just so that we can bail out these gamblers to the tune of 10 times the money being mentioned today so they can start lending normally again?

Fractional reserve lending allows us to take 1 Trillion and lend up to 10 Trillion in a newly created bank that we can put up for sale so that this solution won't be deemed too socialist.

Isn't an inevitable 10 Trillion dollar bailout more socialist than a new people backed bank of the people by the people?

All the politicians and economists keep telling us that we need this bailout since our economy's life blood is based on lending.

Okay, I bite. I do not like this House of cards based Ponzi scheme of an economy but we are currently stuck in it until natural disaster makes us change our ways since enlightenment does not carry as much capital nor go as far as simple greed.

I do not believe that the public will allow this sham of a bailout to continue going on indefinitely without visible civil disobedience due to massive unemployment( already at over 15% if you pay attention to the Government's U6 unemployment category).

A new national bank funded with 1 Trillion would restart lending again but must come at the expense of ending the daily horror show entitled "Night of the Living Dead Banks and their Bloodsucker proxies".

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