Bernanke’s Identity Theft a Shame on Many Levels

Good Evening: Like a self-sealing tire, U.S. stocks were punctured this morning but managed to reflate this afternoon. Some grim news about the health of non-TARP banks was behind the decline, while speculation in financial firms that DID receive bailouts helped launch the comeback. If you think it is bizarre to see taxpayers actively chase the stub equity pieces of firms they already passively own, you are not alone. Like the identity theft of our Federal Reserve Chairman, the fever to acquire companies whose proudest achievement of 2009 is effecting a 1 for 20 stock split, this too shall pass. What might be a shame, though, is that the band of thieves who stole the identity of our top central banker didn’t perpetrate their crime years ago.

Today’s economic data were mixed and thus had little impact on today’s proceedings. The government’s second guess about Q2 GDP didn’t budge from the previous -1.0% estimation, but the price deflator did when it dropped to the zero mark. Q3 looks to be a positive number, but Q2 kept alive the quarterly streak of negative nominal GDP figures. Jobless claims were a bit higher than expected, and they remain stubbornly high for what so many say is an economic recovery. Stocks opened lower in part due to more rumors that China is seeking to rein in bank lending, but they dropped more than 1% once the FDIC story started to circulate (see below). The number of problem banks — which could be counted using one person’s fingers only three years ago (a great coincident indicator of extraordinarily easy credit and leading indicator of trouble) — is growing so fast the FDIC insurance fund is at risk of being depleted. Stand by for yet another bailout.

Stocks didn’t linger at today’s lows for long, however, as speculation soon ran rampant in names like AIG and Citigroup (see below). Neither entity would exist today if not for the generous assistance provided by taxpayers, so why companies like these (FNM, FRE, and a few others also qualify) haven’t been diluted down to penny-sized proportions is beyond me. And yet, because taxpayers have received relatively small stakes for providing emergency capital and then backing the debt issuance of these firms, folks like John Paulson will continue to take stakes in companies like Citigroup. They are a call option on the survival of these firms, as well as a bet that Uncle Sam won’t further dilute current investors at some point down the road. The AIG situation is even more egregious, but all it took was some chatter about Hank Greenberg’s possible involvement with his old firm to really squeeze the shorts who rightly think the equity should have little or no value. AIG was up a head-scratching 27% today and has tripled in just the past three weeks!

In addition to some momentum chasing in financial stocks, a turnaround in materials and commodities names also helped the tape firm up in the afternoon. After a slow and steady climb back to unchanged, the major averages turned positive late in the session and stayed there. By day’s end, index returns were bracketed between a loss of 0.25% for the Dow Transports and a gain of 0.4% for the Dow Industrials. Treasurys traded on both sides of the flat line before closing with small losses. Today’s 7 year note auction went well enough, but those results didn’t stop yields from rising 1 to 3 bps at the close. Like stocks and commodities, the dollar reversed today. Starting mixed against its rivals, the greenback headed south the rest of the day and skidded 0.75% in the process. The buck’s weak knees emboldened the non vacationers left in the commodity pits, and the CRB index was able to finish with fractional gains after being down more than 1% this morning.

I abhor identity theft, and my first thought when the news hit the wires that Ben Bernanke’s identity had been stolen after his wife’s purse had been snatched last year was probably similar to the one most people had: It could happen to anyone. On top of insult to potential financial injury, this whole episode struck the Bernankes late last summer, just as the credit crisis needed his full attention. I’m sorry it happened, but I do have a couple of questions for the perpetrators. How, oh members in the “Cannon to the Wiz”, did you finally get caught? Did you assume the Bernanke persona and try to run the printing presses to your advantage? If so, how did anyone notice a change in the brisk gait of money printing? Furthermore, why didn’t one of your clever bunch try to use Mr. Bernanke’s credentials to head on over to the Eccles building to Chair an FOMC session or two? One must think big during these troubled times, but “Big Head” and his ring of thugs apparently decided against it.

To the criminal who actually stole Ms. Bernanke’s purse and is still at large, I offer this piece of advice. Before turning yourself in, do yourself and your country a favor by handing Mr. Bernanke’s identity information to someone like Paul Volcker. You’ll get a shorter sentence and your country will benefit. Speculation would be tamed, and long term inflation expectations would probably fall far enough to shrink the budget deficit by obviating the need for more bond purchases. If someone else must possess the Chairman’s identity, who other than Mr. Volcker would be more responsible in assuming it? We’ll need Volcker’s tough-mindedness to stare down Congress if we are to ever exit all these stimulus programs. It’s a shame that the Mr. Bernanke had his identity stolen last fall, but the tragedy is that someone didn’t steal Mr. Greenspan’s in the 1990’s.

— Jack McHugh

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AIG Gains on Speculation Greenberg May Help Insurer
Bernanke Victimized by Identity Fraud Ring

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