And we’re still at risk of it happening all over againby Adam Taggart Saturday, March 30, 2013, 12:42 PM
Then, when the Fed’s fire hoses started spraying an elephant soup of liquidity injections in every direction and its balance sheet grew by $1.3 trillion in just thirteen weeks compared to $850 billion during its first ninety-four years, I became convinced that the Fed was flying by the seat of its pants, making it up as it went along. It was evident that its aim was to stop the hissy fit on Wall Street and that the thread of a Great Depression 2.0 was just a cover story for a panicked spree of money printing that exceeded any other episode in recorded human history.
David Stockman, The Great Deformation
David Stockman, former director of the OMB under President Reagan, former US Representative, and veteran financier is an insider’s insider. Few people understand the ways in which both Washington DC and Wall Street work and intersect better than he does.
In his upcoming book, The Great Deformation: The Corruption of Capitalism in America, Stockman lays out how we have devolved from a free market economy into a managed one that operates for the benefit of a privileged few. And when trouble arises, these few are bailed out at the expense of the public good.
By manipulating the price of money through sustained and historically low interest rates, Greenspan and Bernanke created an era of asset mis-pricing that inevitably would need to correct. And when market forces attempted to do so in 2008, Paulson et al hoodwinked the world into believing the repercussions would be so calamitous for all that the institutions responsible for the bad actions that instigated the problem needed to be rescued — in full — at all costs.
Of course, history shows that our markets and economy would have been better off had the system been allowed to correct. Most of the “too big to fail” institutions would have survived or been broken into smaller, more resilient, entities. For those that would have failed, smaller, more responsible banks would have stepped up to replace them – as happens as part of the natural course of a free market system:
Essentially there was a cleansing run on the wholesale funding market in the canyons of Wall Street going on. It would have worked its will, just like JP Morgan allowed it to happen in 1907 when we did not have the Fed getting in the way. Because they stopped it in its tracks after the AIG bailout and then all the alphabet soup of different lines that the Fed threw out, and then the enactment of TARP, the last two investment banks standing were rescued, Goldman and Morgan [Stanley], and they should not have been. As a result of being rescued and having the cleansing liquidation of rotten balance sheets stopped, within a few weeks and certainly months they were back to the same old games, such that Goldman Sachs got $10 billion dollars for the fiscal year that started three months later after that check went out, which was October 2008. For the fiscal 2009 year, Goldman Sachs generated what I call a $29 billion surplus – $13 billion of net income after tax, and on top of that $16 billion of salaries and bonuses, 95% of it which was bonuses.
Therefore, the idea that they were on death’s door does not stack up. Even if they had been, it would not make any difference to the health of the financial system. These firms are supposed to come and go, and if people make really bad bets, if they have a trillion dollar balance sheet with six, seven, eight hundred billion dollars worth of hot-money short-term funding, then they ought to take their just reward, because it would create lessons, it would create discipline. So all the new firms that would have been formed out of the remnants of Goldman Sachs where everybody lost their stock values – which for most of these partners is tens of millions, hundreds of millions – when they formed a new firm, I doubt whether they would have gone back to the old game. What happened was the Fed stopped everything in its tracks, kept Goldman Sachs intact, the reckless Goldman Sachs and the reckless Morgan Stanley, everyone quickly recovered their stock value and the game continues. This is one of the evils that comes from this kind of deep intervention in the capital and money markets.
Stockman’s anger at the unnecessary and unfair capital transfer from taxpayer to TBTF bank is matched only by his concern that, even with those bailouts, the banking system is still unacceptably vulnerable to a repeat of the same crime:
The banks quickly worked out their solvency issues because the Fed basically took it out of the hides of Main Street savers and depositors throughout America. When the Fed panicked, it basically destroyed the free-market interest rate – you cannot have capitalism, you cannot have healthy financial markets without an interest rate, which is the price of money, the price of capital that can freely measure and reflect risk and true economic prospects.
Well, once you basically unplug the pricing mechanism of a capital market and make it entirely an administered rate by the Fed, you are going to cause all kinds of deformations as I call them, or mal-investments as some of the Austrians used to call them, that basically pollutes and corrupts the system. Look at the deposit rate right now, it is 50 basis points, maybe 40, for six months. As a result of that, probably $400-500 billion a year is being transferred as a fiscal maneuver by the Fed from savers to the banks. They are collecting the spread, they’ve then booked the profits, they’ve rebuilt their book net worth, and they paid back the TARP basically out of what was thieved from the savers of America.
Now they go down and pound the table and whine and pout like JP Morgan and the rest of them, you have to let us do stock buy backs, you have to let us pay out dividends so we can ramp our stock and collect our stock option winnings. It is outrageous that the authorities, after the so-called “near death experience” of 2008 and this massive fiscal safety net and monetary safety net was put out there, is allowing them to pay dividends and to go into the market and buy back their stock. They should be under house arrest in a sense that every dime they are making from this artificial yield group being delivered by the Fed out of the hides of savers should be put on their balance sheet to build up retained earnings, to build up a cushion. I do not care whether it is fifteen or twenty or twenty-five percent common equity and retained earnings-to-assets or not, that is what we should be doing if we are going to protect the system from another raid by these people the next time we get a meltdown, which can happen at any time.
You can see why I talk about corruption, why crony capitalism is so bad. I mean, the Basel capital standards, they are a joke. We are just allowing the banks to go back into the same old game they were playing before. Everybody said the banks in late 2007 were the greatest thing since sliced bread. The market cap of the ten largest banks in America, including from Bear Stearns all the way to Citibank and JP Morgan and Goldman and so forth, was $1.25 trillion. That was up thirty times from where the predecessors of those institutions had been. Only in 1987, when Greenspan took over and began the era of bubble finance – slowly at first then rapidly, eventually, to have the market cap grow thirty times – and then on the eve of the great meltdown see the $1.25 trillion to market cap disappear, vanish, vaporize in panic in September 2008. Only a few months later, $1 trillion of that market cap disappeared in to the abyss and panic, and Bear Stearns is going down, and all the rest.
This tells you the system is dramatically unstable. In a healthy financial system and a free capital market, if I can put it that way, you are not going to have stuff going from nowhere to @1.2 trillion and then back to a trillion practically at the drop of a hat. That is instability; that is a case of a medicated market that is essentially very dangerous and is one of the many adverse consequences and deformations that result from the central-bank dominated, corrupt monetary system that has slowly built up ever since Nixon closed the gold window, but really as I say in my book, going back to 1933 in April when Roosevelt took all the private gold. So we are in a big dead-end trap, and they are digging deeper every time you get a new maneuver.
Pacific Drilling S.A. announced today that its ultra-deepwater drillship the Pacific Sharav has been awarded a five-year contract by Chevron U.S.A. Inc. for operations in the United States Gulf of Mexico.
Estimated maximum contract revenue, including mobilization and client requested modifications, is expected to be approximately $1,076 million, bringing Pacific Drilling’s total contract backlog as of June 22, 2012, to approximately $3.2 billion.
“We are proud to announce the expansion of our relationship with Chevron to include a third drillship. This contract exemplifies our strategic commitment to building strong customer relationships and allows us to leverage the operations support infrastructure which we have already developed in the region.”
Pacific Drilling CEO Chris Beckett stated, “We are proud to announce the expansion of our relationship with Chevron to include a third drillship. This contract exemplifies our strategic commitment to building strong customer relationships and allows us to leverage the operations support infrastructure which we have already developed in the region.”
Pacific Sharav is scheduled for delivery by Samsung Heavy Industries in Korea in the fourth quarter of 2013, upon completion of construction and client requested modifications. The drillship will be capable of operating in water depths of up to 12,000 feet and drilling wells up to 40,000 feet deep.
- Pacific Drilling – Operations (video) (mb50.wordpress.com)
- Pacific Santa Ana Drillship Arrives in U.S. Gulf of Mexico to Work for Chevron (mb50.wordpress.com)
- USA: AGR Signs Two Agreements with Chevron (mb50.wordpress.com)
- Strong Demand for UDW Drillships Spurs Seadrill to Order One More from SHI (South Korea) (mb50.wordpress.com)
U.S. oil & gas exploration and production company, ConocoPhillips, announced a 2012 capital program of $15.5 billion. The 2012 capital program for E&P is $14.0 billion and includes $2.2 billion for worldwide exploration, $0.4 billion of capitalized interest and $0.7 billion for the company’s contributions to the FCCL business venture and loans to other affiliates.
Approximately 60 percent of the E&P capital program will be spent in North America. This represents an increase in the U.S. Lower 48 and Canada compared with prior years, reflecting improved market conditions, with additional emphasis on liquids-rich resource plays and high-return investments.
Capital spending in Alaska is expected to be slightly down compared to 2011 levels, and will be directed toward development of the existing Prudhoe Bay and Kuparuk fields, as well as fields on the Western North Slope.
In Europe, Asia Pacific and Africa, total spending is expected to be approximately 40 percent of the E&P capital program.
In the North Sea, spending is planned for existing and new opportunities in the Greater Ekofisk Area, the Greater Britannia fields and development of the Jasmine and Clair Ridge projects.
“The 2012 capital program reflects our strategic emphasis on delivering value by investing in the most profitable opportunities,” said Jim Mulva, chairman and chief executive officer.
The company will continue its focus on accessing, testing and appraising material opportunities in both conventional and non-conventional oil and gas plays. ConocoPhillips plans further appraisal of the Poseidon discovery in the Browse Basin, offshore Australia, and the Tiber and Shenandoah discoveries in the Gulf of Mexico. The company also plans to test material prospects in the Gulf of Mexico and Kazakhstan. Delineation of the company’s position in the Eagle Ford shale play will continue, as will pilot programs in shale plays in the Canadian Horn River Basin, Australia and Poland.
- ConocoPhillips Sells $2B in Pipeline Assets (mb50.wordpress.com)
- Before Splitting, Conoco Reveals $25B In Spending And Buybacks (forbes.com)
- Conoco’s Brent Control (mb50.wordpress.com)
- ConocoPhillips to buy back $10 bln more in shares (marketwatch.com)
- ConocoPhillips selling pipelines for $2 billion (marketwatch.com)
The deal marks China’s latest move to win influence over Western-owned energy assets to feed its fast-growing economy. It is also Sinopec’s major purchase in Brazil in just a year after it made a $7 billion purchase from Repsol for a 40 percent stake in its Brazil division.
“For Sinopec, there are not many opportunities to grow in the traditional domestic upstream oil and gas sector — overseas acquisition is an area to find growth,” said UOB Kay Hian analyst Yan Shi.
“It will benefit Sinopec on upstream reserves, and reduce risks in its money-losing downstream operation.”
Sinopec, Asia’s biggest oil refiner, expected the deal will expand its overseas oil and gas business operations and boost its oil and output growth.
Galp’s primary assets in Brazil include four deep-water blocks of BM-S-11, BM-S-24, BM-S-8 and BM-S-21 in the Santos Basin, it said.
Sinopec expected it would receive 21,300 barrels of oil equivalent per day (boedp) in 2015 and production would reach a peak of 112,500 boedp in 2024.
Under the agreement, Sinopec’s wholly owned unit, Sinopec International Exploration and Production Corp (SIPC), will take new shares to be issued by Galp and assume shareholder loans, Sinopec Group said in a statement.
“Taking into consideration this investment and projected future capital expenditure, the total cash payout amounts to approximately $5.18 billion at closing,” Sinopec said.
The transaction must be approved by the Chinese government.
China’s outbound M&A deals this year totaled $37.6 billion, down from $54.1 billion last year, according to Thomson Reuters data.
The deal would help Galp, a newcomer to large-scale oil projects, to finance its stake in the development of massive oil fields in the deepwater region known as the subsalt region in Brazil–site of the largest oil discovery in the Americas in more than 30 years.
“This capital increase significantly strengthens Galp Energia’s capital structure, fully securing its funding needs for the future expansion and development of its upstream activities,” Galp said in a statement.
Sinopec’s overseas acquisition strategy is partly guided by the desire to build up scale in certain countries, including Brazil, said a company official who declined to be named.
Galp is a minority partner with Brazil’s state-run oil company Petrobras in key offshore discoveries, including the vast Lula field, formerly known as Tupi, as well as the Cernambi and Iara finds.
Sinopec Group is the parent of Hong Kong-listed and Shanghai-listed China Petroleum & Chemical Corp. The group does overseas upstream oil and gas investment and operations via its wholly owned unit SIPC.
By Judy Hua, Wan Xu and Ken Wills (Reuters)
- China’s Sinopec buys $5.2-billion stake in Brazil’s Galp (business.financialpost.com)
“It will cost a little more than expected for environmental reasons… We had originally said $30 billion,” Total Chief Executive Christophe de Margerie told Reuters on the sidelines of a G20 meeting of business leaders in southern France.
The project, developed by Total and Japan’s Inpex , *aims to build offshore facilities to produce natural gas and condensate, and an undersea pipeline stretching 885 km to a liquefaction plant in Australia’s northern city of Darwin.
It is expected to produce 8.4 million tonnes of liquefied natural gas, liquefied petroleum gas and condensate each year.
The project was initially estimated to cost $20 billion but de Margerie said that the company had in recent months been citing the figure of $30 billion in road shows.
Total currently owns 24 percent of the project, a stake the French company would be keen to increase, de Margerie said.
“We would like to have more than that,” he said, giving no details on whether Inpex, which holds the remaining 76 percent of Ichthys, would agree to let Total raise its stake.
The strict environmental conditions imposed by the Australian government to develop the project explain the upward revision in the project’s cost, de Margerie said.
De Margerie said he expected a final investment decision (FID) to be made by year-end, with a view to start production in four years.
He did not comment on the outcome of reported meetings by bankers in Tokyo and Sydney that were aimed at putting together the financing needed for the development.
“In Ichthys like for every big project we have been in, the FID will be made before the financing is in place,” de Margerie said.
LNG project developers typically seek and sign long-term deals to sell their gas before they begin construction. Inpex said earlier this year it had secured buyers to cover the whole annual output of 8.4 million tonnes from the Ichthys project.
Reporting By Marie Maitre (Reuters)