Another link dump

Yes, even though I generally hate link dumps, I'm once again staring at a pile of interesting-but-not-interesting-enough-for-a-full-post items, so you know what that means... as usual, I'll post the links, with a quick blurb summarizing my thoughts. Click through for the full articles if you're interested.

Is the SEC Covering Up Wall Street Crimes?
Matt Taibbi; Rolling Stone

I'm always posting Taibbi articles here, and the hits keep coming. This time, our favorite malcontent is taking on the Securities & Exchange Commission (a group I've mentioned briefly here, but probably not enough), levying some pretty serious charges at the SEC's leadership.

I've tended to be fairly understanding of the SEC's shortcoming in the past, since I recognize that given their (lack of) funding, they are essentially set up to fail in their fight against an industry that is politically well-connected and has extraordinarily deep pockets. But if Taibbi's accusations here are accurate, I may have to reconsider my position. To wit:

For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.

Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency's records – "including case files relating to preliminary investigations" – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term "Orwellian," devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation.

In at least one case, a senior SEC official allegedly prevented the pursuit of a case against a bank--thus ordering the files to be destroyed--only to turn around and accept a job with that very same bank. You know what, maybe this article deserves its own post, after all......

Wells Fargo's $3 Debit Card Charge: A Sign of More Bank Fees to Come?
Ron Dicker; Daily Finance

In response to legislation (put in motion by the Dodd-Frank Act) that has placed a cap on fees that banks charge to retail outlets for debit card purchases, it seems that the banks are trying to recoup this lost income by passing the charges directly onto its customers. Wells Fargo is leading the way by proposing a $3 monthly charge for customers to use their debit cards, and other banks like Chase are primed and ready to fall in line behind them. There's a laundry list of other proposals by the banks to recoup this lost income, none of them good for individual bank customers.

When the swipe-card fee cap was passed, it was hailed and presented as a boon to small businesses, many of whom felt overly burdened by onerous fees. But by passing the fees along to individual consumers, the banks have ensured that there won't be any overall macroeconomic impact from this fee cap--we've just changed who's making the payment, making a transfer from individuals' pockets into business (and bank) coffers.

Of course, with the consumer directly bearing the impact of the fees, retailers won't have to raise their prices any more to compensate for increased bank fees--therefore, inflation statistics as collected by the government will remain lower than they otherwise would (the rising Consumer Price Index doesn't take into account bank fees, only "retail price paid"), possibly fueling a misguided belief that inflation is under control... it's not. The consumer is once again worse off, regardless of what "official" inflation statistics might say--but I'm sure you already knew that.

Bank of America's back-door TARP
Abigail Field; CNNMoney

Yes, we've got a bit of a financial theme going on here in this link dump, but so be it. While you were all busy worrying about debt ceilings and official government spending statistics, your government was busy unofficially spending more taxpayer dollars to prop up a financial institution.

As you're no doubt aware, Fannie Mae and Freddie Mac (as well as AIG, to a different degree) have been in government-sponsored conservatorship since the financial crisis in 2008. Therefore, anything done by those organizations is essentially being done by the U.S. taxpayer, and must be watched very closely--if they lose money, we lose money. So keep your eye out for stuff like this:

Taxpayers may not realize it, but they just bailed out Bank of America again, this time to the tune of more than a half billion dollars.

The Charlotte, NC-based bank was one of the biggest recipients of bailout funds during the financial crisis. But Bank of America continues to face deep problems related to its troubled mortgage portfolio and investors have battered the stock, which has plunged over 40% so far this year. That's escalated concerns that the bank may need to raise more capital. Yves Smith at Naked Capitalism has even started a BofA death watch.

But apparently the federal government is determined to resurrect BofA: the Wall Street Journal reports the feds have just used Fannie Mae, which is controlled by the U.S. government, to infuse BofA with $500 million and ease one of the bank's biggest headaches...

According to the WSJ, Fannie Mae spent $500 million to buy the servicing rights to a big chunk of the "seven million loans still causing the most problems." Although the $500 million is a paper loss to BofA, in that the rights were "originally worth more," it looks like BofA is still getting a good deal because the portfolio's "value is expected to deteriorate further."

In fact, the deal is worth much more than $500 million to BofA, because getting rid of those servicing rights lifts a huge cost burden off BofA's shoulders. And if securitized loans are involved, which they most likely are, the sale also limits the BofA's potential liability to investors for its current servicing violations. Finally, the $500 million is surely more than the servicing rights are worth in an arms-length transaction. How do we know? Beyond the comment that the loans are expected to "deteriorate further," the goal of the intervention can only be to fix Bank of America's capital structure, which is easier for the government to do if it overpays for the rights.

In short, purchasing these servicing rights was another Troubled Asset Relief Program.

So there you have it. It's not "official" government spending--at least not until those losses are realized by Fannie Mae--but it's government spending nonetheless. And when you're throwing around $500 million like this without anyone noticing, it certainly makes that supposed $2 trillion in "savings" look a little less significant, doesn't it?

Southampton engineers fly the world's first 'printed' aircraft
News Release; University of Southampton (UK)

You may remember my Clip of the Week featuring a 3D printer that "printed" a usable wrench seemingly out of thin air. That same type of technology seems to be popping up everywhere now, including at the University of Southampton, where engineers have created (and flown) a small airplane using 3D printing technology.

From their News Release announcing the achievement:

The SULSA (Southampton University Laser Sintered Aircraft) plane is an unmanned air vehicle (UAV) whose entire structure has been printed, including wings, integral control surfaces and access hatches. It was printed on an EOS EOSINT P730 nylon laser sintering machine, which fabricates plastic or metal objects, building up the item layer by layer. 

No fasteners were used and all equipment was attached using ‘snap fit’ techniques so that the entire aircraft can be put together without tools in minutes... 

The electric-powered aircraft, with a 2-metres wingspan, has a top speed of nearly 100 miles per hour, but when in cruise mode is almost silent. The aircraft is also equipped with a miniature autopilot developed by Dr Matt Bennett, one of the members of the team. 

Laser sintering allows the designer to create shapes and structures that would normally involve costly traditional manufacturing techniques. This technology allows a highly-tailored aircraft to be developed from concept to first flight in days. Using conventional materials and manufacturing techniques, such as composites, this would normally take months. Furthermore, because no tooling is required for manufacture, radical changes to the shape and scale of the aircraft can be made with no extra cost.

Very cool. It'll be interesting to see how scalable this technology is, and how economical it may (or may not) be to put into wide usage. Either way, the concept fascinates me, and it's an example of the innovation I'm always saying we need more of.

Definitely more uplifting than bitching about banks all the time...

Why aren't banks lending? A different answer...

As we continue to try to sort through the ruin of the global financial crisis, I've been consistently amazed at the widely contradictory treatment that banks throughout our nation have received. We love the banks, we hate the banks, we need the banks, the banks are leeches, TARP, FinReg, here's some money, why aren't you lending, ad nauseum.

America (and Washington) is clearly conflicted as to the role of banks in rebuilding our economy. They know that banks played an integral role in creating the panic of 2007-2009, and they thus seem to feel a moral need to punish them. At the same time, they know that economic growth like we experienced over the last 20 years is impossible without these same banks providing loans to individuals and small businesses.

After having received billions in taxpayer funds through the TARP program, and with trillions of dollars of cash showing on their balance sheets, banks continue to face heavy scrutiny over their lending practices. Debate rages as to why banks aren't lending. A more fundamental reason? They are.

Ben Bernanke, Chairman of the Federal Reserve—essentially did the ol’ switcheroo on the Toxic Assets [mortgage-backed securities]: In order to save the banks whose balance sheets depended so heavily on these now-dead turds, the Fed purchased the Toxic Assets at their nominal price. Then the banks—the so-called Too Big To Fail banks—took that cash and purchased U.S. Treasury bonds

...

Meanwhile, the U.S. Treasury, in its attempts to finance bailouts, stimulus, health care, Social Security, and endless pointless wars, went into further debt—to the tune of $1.4 trillion dollars, roughly 10% of U.S. gross domestic product, for both 2009 and 2010.

Let's back through this. The government expanded its debt to bail out the banks and provide further economic stimulus--so much debt, in fact, that 25 cents of every tax dollar collected finances THE INTEREST on that debt. That comes despite the fact that interest rates across the yield curve are at historic lows. Why are rates so low? Because the banks are lending to the federal government, by buying treasury bills.

Realistically, the "cash" that many insist is on bank balance sheets isn't really cash. Look closely at a bank's balance sheet, and you'll see that the line item for "Cash" actually reads "Cash and Equivalents". Treasury bills, and other "short-term" investments, can be classified as "cash" for accounting purposes. With banks buying up every treasury bill in sight and driving rates lower, they are able to show cash on their balance sheet even while they are realistically making loans. Everybody wins.

The uncomfortable truth is, if large banks were to stop piling their "cash" into treasury bills, and to lend that money to individuals and small businesses instead, treasury yields would skyrocket, the portion of tax dollars that go toward paying the interest would increase from its current level of 25% to 50% or 60%, and the federal government would become literally insolvent (not "bankrupt"--insolvency is the condition, bankruptcy is the solution to the condition, but I digress). Insolvency of the federal government is clearly bad, bad news for everyone. So it's in everyone's best interest for the banks to lend to the government, and nobody else. Our government, and we the taxpayers by extension, cannot afford to see an increase in its interest rate.

The federal government cannot, of course, admit this truth--to do so would be political suicide. They know that they need the large banks in order to remain solvent, and they recognize that this is the real reason the banks were bailed out in the first place. As long as our government continues to add on to our national debt, banks will not and cannot lend elsewhere, and the widely contradictory treatment that those banks receive will continue.

[Zero Hedge]