The following article comes from Absolute Return Partners’ Niels Jensen. Absolute Return Partners LLP is a London based private partnership which provides independent asset management and investment advisory services globally to institutional as well as private investors, charities, foundations and trusts. Visit www.arpllp.com to learn more about them.

Oppenheimer has a research note out today that calls Tim Geithner an “evil genius.” The genius moniker comes from the steady creep up the capital structure, giving Geithner access to huge pools of money as the Treasury dials for dollars. The evil part has everything to do with the pain this strategy is going to mete out to preferred shareholders and, eventually, bondholders

Bill Fleckenstein is a well-known money manager and write over at MSN Money. He has been fairly bearish on the medium-term outlook for U.S. equities and technology stocks in particular for some time. His viewpoint stems from what he sees as a reckless monetary policy. Witness his book, “Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve.”

Banks do not have enough tangible common equity to make the grade on Tim Geithner’s stress tests. That means the government will have to step in and bail them out. I will call this creeping nationalization.

Paul Miller of FBR Capital Markets does a good job of explaining the issues at hand here in this video via Bloomberg. The long and short is that banks do not have enough common equity. They are not going to get funds from the capital markets to top that equity up. That means the government will have to step in and dilute common shareholders with taxpayers’ funds — a reality we have seen with Citigroup but that is coming to a bank near you.

Marshall Auerback here.

Unlike Ed, I like to call a spade a spade regarding the Obama Administration’s economic gurus. The more they screw up, the greater the number and depth of the crises, the greater the responsibility/ power Obama gives them. I wonder what he’d do if they ever succeeded? You can’t assume independent probabilities when you have the same actors making policy (and not learning from their past mistakes).

More broadly, you can’t assume independent probabilities even with different policy makers if they share the same theoretical priors and methodological blinders. It is very worrying is that neither Geithner, nor Summers display any obvious remorse or sense that they made contributed to the current mess, thereby making it impossible to believe that they actually understand how to get us out of it. It reminds one of George W. Bush’s reluctance ever to acknowledge an error (and look where that got us).

Geithner and Summers are far more likely to doom Obama’s Presidency. There is no hope for Obama if he continues to embrace neo-Rubinism as his governing creed.

Happy snow day!

Predictions that the savings rate would increase as the Depression in America took hold are coming true. The Bureau of Economic Analysis reported that the savings rate in the U.S. hit 5%.

We should expect a very negative open to the markets today. The Dow Futures are pointing to an open under 7000, with key support levels to be tested.
As usual, the reason is the financial sector with AIG and HSBC making headlines. AIG reported a record quarterly loss while HSBC is cutting headcount and [...]

A massive $61.7 billion loss for AIG – that is the quarterly loss for the insurance giant, a record for the world. That comes to a loss of $465 $465,000 every minute of every day in that quarter. The full-year loss comes in over $100 billion.

Nevertheless, the U.S. Government sees AIG as a systemically-important company due to its involvement in the Credit Default Swaps market. Therefore, it has decided to up the ante and continue providing this company with tens of billions more in liquidity.

As I have indicated in a previous post, bailouts are the worst of all potential policy responses. These are large sums that I believe the American people will not support. Either Americans are an incredibly docile lot or we are about to see a sea change in taxpayers’ attitude.

Read below for the details of the losses and bailout.